8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 24, 2007

EATON CORPORATION

(Exact name of registrant as specified in its charter)

Ohio	1-1396	34-0196300
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

Eaton Center Cleveland, Ohio	44114
(Address of principal executive offices)	(Zip Code)

(216) 523-5000

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 5.02 Departure of Directors or Principal Officers; Elections of Directors; Appointment of Principal Officers.

     On January 24, 2007, the Board of Directors of Eaton Corporation (the “Company”) expanded the size of the Board to eleven members and elected Charles E. Golden to the Board to fill the vacancy thus created. Mr. Golden, age 60, retired on April 30, 2006 from the position of Executive Vice President and Chief Financial Officer with Eli Lilly and Company, a position he held for ten years. Mr. Golden was appointed by the Company’s Board of Directors to the Audit, Finance and Executive Committees.

     Mr. Golden currently serves on the boards of Hillenbrand Industries, Inc. and Unilever.

     Pursuant to the Company’s 2002 Stock Plan, and in connection with his election as a director of the Company, on January 24, 2007, Mr. Golden received a one-time grant of options to purchase 10,000 common shares of the Company. In accordance with the Plan, these options vest six months after the date of grant. Mr. Golden also will receive compensation pursuant to the Company’s standard arrangements for directors as described in its proxy statement for the 2006 Annual Meeting of Shareholders, and will be eligible to participate in the Company’s 2005 Non-Employee Director Fee Deferral Plan.

     The Company and Mr. Golden have entered into an indemnification agreement in the same form as the Company has used with each other director and officer of the Company. The form indemnification agreement provides that, to the fullest extent permitted by law, the Company will indemnify each director or officer against expenses (including attorneys’ fees, judgments, fines and amounts paid in settlement) actually and reasonably incurred by the director or officer in connection with any claim against the director or officer as a result of the director’s service as a member of the Board of Directors or the officer’s service as an officer of the Company. The summaries of the material terms of the form indemnification agreement and the stock option grant set forth above are qualified in their entirety by reference to the full text of the applicable agreements. (See Exhibits 10.1 and 10.2, respectively, to this Report, which are incorporated herein by reference.) A copy of the press release issued by the Company on January 24, 2007 is included as Exhibit 99.1 to this Report and is incorporated herein by reference.

     There are no related party transactions involving Mr. Golden that would require disclosure pursuant to S-K Item 404(a). There are no arrangements or understandings between Mr. Golden and any other persons pursuant to which Mr. Golden was selected as a director of the Company.

Item 9.01. Financial Statements and Exhibits.

Number	Exhibit
10.1	Form of Indemnification Agreement between the Company and each of the non-employee directors of the Company.
10.2	Form of Stock Option Agreement for grants to non-employee directors pursuant to the 2002 Stock Plan.
99.1	Press Release dated January 24, 2007.

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	EATON CORPORATION
Date: January 25, 2007	/s/ M.M. McGuire
	M. M. McGuire
	Vice President and General Counsel

EX-10.1

Exhibit 10.1

INDEMNIFICATION AGREEMENT

     This Agreement made this ______day of ____________, 20___by and between Eaton Corporation, an Ohio corporation (the “Company”), and _____________________, a Director of the Company (“Indemnitee”);

     WHEREAS, the Company and Indemnitee are each aware of the exposure to litigation of officers, Directors and representatives of the Company as such persons exercise their duties to the Company;

     WHEREAS, the Company and Indemnitee are also aware of conditions in the insurance industry that have affected and may affect in the future the Company’s ability to obtain appropriate directors’ and officers’ liability insurance on an economically acceptable basis;

     WHEREAS, the Company desires to continue to benefit from the services of highly qualified, experienced and otherwise competent persons such as Indemnitee; and

     WHEREAS, Indemnitee desires to serve or to continue to serve the Company as a Director of the Company, or, if requested to do so by the Company, as a director, officer, trustee, employee, representative or agent of another corporation, joint venture, trust or other enterprise, for so long as the Company continues to provide on an acceptable basis adequate and reliable indemnification against certain liabilities and expenses which may be incurred by Indemnitee;

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereto agree as follows:

1. INDEMNIFICATION.

     (a) The Company shall indemnify Indemnitee to the fullest extent permitted by law with respect to Indemnitee’s activities as a Director of the Company and/or as a person who is serving or has served at the request of the Company as a director, officer, trustee, employee, representative or agent of another corporation, joint venture, trust or other enterprise, domestic or foreign, against expenses (including, without limitation, attorneys’ fees), judgments, fines, and amounts paid in settlement, actually and reasonably incurred by Indemnitee (“Expenses”) in connection with any claim against Indemnitee, whether or not such claim is brought by any party who may be an “insured person” under the Company’s directors’ and officers’ liability insurance, which

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is the subject of any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, investigative or otherwise and whether formal or informal (a “Proceeding”), to which Indemnitee was, is, or is threatened to be made a party by reason of anything done or not done by Indemnitee in any such capacity.

     (b) The rights of Indemnitee hereunder shall be in addition to any rights Indemnitee may now or hereafter have to indemnification by the Company or otherwise. More specifically, the parties hereto intend that Indemnitee shall be entitled to receive, as determined by Indemnitee, payment to the maximum extent permitted by one or any combination of the following:

     (i) the payments provided by the Company’s Amended Regulations in effect on the date hereof, a copy of the relevant portions of which are attached hereto as Exhibit I;

     (ii) the payments provided by the Articles of Incorporation, Code of Regulations, or By-laws or their equivalent of the Company in effect at the time Expenses are incurred by Indemnitee;

     (iii) the payments allowable under Ohio law in effect at the date hereof;

     (iv) the payments allowable under the law of the jurisdiction under which the Company is incorporated at the time Expenses are incurred by Indemnitee;

     (v) the payments available under liability insurance obtained by the Company; and

     (vi) such other payments as are or may be otherwise available to Indemnitee.

     Combination of two or more of the payments provided by (I) through (vi) shall be available to the extent that the Applicable Document, as hereafter defined, does not require that the payments provided therein be exclusive of other payments. The document or law providing for any of the payments listed in items (i) through (vi) above is referred to in this Agreement as the “Applicable Document.” The Company hereby undertakes to use its best efforts to assist Indemnitee, in all proper and legal ways, to obtain the payments selected by Indemnitee under items (i) through (vi) above.

     (c) For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans for employees of the Company or of any of its subsidiaries without regard to ownership of such plans; references to “fines” shall include any excise taxes assessed on Indemnitee with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, trustee, employee, representative or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to an employee

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benefit plan, its participants or beneficiaries; references to the masculine shall include the feminine; references to the singular shall include the plural and vice versa; and if Indemnitee acted in good faith and in a manner that Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner consistent with the standards required for indemnification by the Company under the Applicable Documents.

2. INSURANCE.

     The Company shall maintain directors’ and officers’ liability insurance which is at least as favorable to Indemnitee as the policy in effect on the date hereof and for so long as Indemnitee’s services are covered hereunder, provided and to the extent that such insurance is available on a reasonable commercial basis. However, Indemnitee shall continue to be entitled to the indemnification rights provided hereunder regardless of whether liability or other insurance coverage is at any time obtained or retained by the Company. Any payments in fact made to Indemnitee under an insurance policy obtained or retained by the Company shall reduce the obligation of the Company to make payments hereunder by the amount of the payments made under any such insurance policy. In the event that insurance becomes unavailable in the amount or scope of coverage of the policy in effect on the date hereof on a reasonable commercial basis and the Company foregoes maintenance of all or a portion of such insurance coverage, the Company shall stand as a self-insurer with respect to the coverage, or portion thereof, not retained, and shall indemnify Indemnitee against any loss arising out of the reduction or cancellation of such insurance coverage.

3. PAYMENT OF EXPENSES.

     At Indemnitee’s request, the Company shall pay the Expenses as and when incurred by Indemnitee, after receipt of written notice pursuant to Paragraph 6 hereof and an undertaking in the form of Exhibit II attached hereto by or on behalf of Indemnitee (I) to repay such amounts so paid on Indemnitee’s behalf if it shall ultimately be determined under the Applicable Document that Indemnitee is required to repay such Expenses and (ii) to reasonably cooperate with the Company concerning the Proceeding. That portion of Expenses which represents attorneys’ fees and other costs incurred in defending any Proceeding shall be paid by the Company within thirty (30) days of its receipt of such notice, together with reasonable documentation evidencing the amount and nature of such Expenses.

4. ESCROW RESERVE.

     The Company shall dedicate up to an aggregate of ten million dollars ($10,000,000) as collateral security for the initial funding of its obligations hereunder and under similar agreements with other directors, officers and representatives by

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depositing assets or bank letters of credit in escrow or reserving lines of credit that may be drawn down by an escrow agent in the dedicated amount (the “Escrow Reserve”); provided, however, that the terms of any such Escrow Reserve may provide that the cash, securities or letters or lines of credit available therefor shall be utilized for the indemnification or advancement of expenses provided for herein only in the event that there shall have occurred within the preceding five years a Change in Control of the Company, as defined below. The Company shall promptly provide Indemnitee with a true and complete copy of the agreement relating to the establishment and operation of the Escrow Reserve, together with such additional documentation or information with respect to the escrow as Indemnitee may from time to time reasonably request. The Company shall promptly deliver an executed copy of this Agreement to the Escrow Reserve agent to evidence to the agent that Indemnitee is a beneficiary of the Escrow Reserve and shall deliver to Indemnitee the escrow agent’s signed receipt evidencing that delivery. For purposes of this Agreement, a “Change in Control” of the Company shall have occurred if at any time any of the following events shall occur:

     (i) a tender offer shall be made and consummated for the ownership of securities of the Company representing 25% or more of the combined voting power of Company’s then outstanding voting securities, (ii) the Company shall be merged or consolidated with another corporation and as a result of such merger or consolidation less than 75% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of the Company, 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) the Company shall sell substantially all of its assets to another corporation which is not a wholly-owned subsidiary of the Company, (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 securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding securities; or (v) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Company’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 Agreement, ownership of voting securities shall take into account and include ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) of the Exchange Act (as then in effect).

5. ADDITIONAL RIGHTS.

     The indemnification provided in this Agreement shall not be exclusive of any other indemnification or right to which Indemnitee may be entitled and shall continue

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after Indemnitee has ceased to occupy a position as an officer, director or representative as described in Paragraph 1 above with respect to Proceedings relating to or arising out of Indemnitee’s acts or omissions during Indemnitee’s service in such position.

6. NOTICE TO COMPANY.

     Indemnitee shall provide to the Company prompt written notice of any Proceeding brought, threatened, asserted or commenced against Indemnitee with respect to which Indemnitee may assert a right to indemnification hereunder; provided that failure to provide such notice shall not in any way limit Indemnitee’s rights under this Agreement.

7. COOPERATION IN DEFENSE AND SETTLEMENT.

     Indemnitee shall not make any admission or effect any settlement with respect to a Proceeding without the Company’s written consent unless Indemnitee shall have determined to undertake his or her own defense in such matter and has waived the benefits of this Agreement in writing delivered to the Company. The Company shall not settle any Proceeding to which Indemnitee is a party in any manner which would impose any Expense on Indemnitee without his or her written consent. Neither Indemnitee nor the Company will unreasonably withhold consent to any proposed settlement. Indemnitee and the Company shall cooperate to the extent reasonably possible with each other and with the Company’s insurers, in attempts to defend or settle such Proceeding.

8. ASSUMPTION OF DEFENSE.

     Except as otherwise provided below, to the extent that it may wish, the Company jointly with any other indemnifying party similarly notified will be entitled to assume Indemnitee’s defense in any Proceeding, with counsel mutually satisfactory to Indemnitee and the Company. After notice from the Company to Indemnitee of the Company’s election so to assume such defense, the Company will not be liable to Indemnitee under this Agreement for Expenses subsequently incurred by Indemnitee in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at Indemnitee’s expense unless:

     (a) the employment of counsel by Indemnitee has been authorized by the Company;

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     (b) counsel employed by the Company initially is unacceptable or later becomes unacceptable to Indemnitee and such unacceptability is reasonable under then existing circumstances;

     (c) Indemnitee shall have reasonably concluded that there may be a conflict of interest between Indemnitee and the Company in the conduct of the defense of such Proceeding; or

     (d) the Company shall not have employed counsel promptly to assume the defense of such Proceeding.

In each of the cases set forth in items (a) through (d) above, the fees and expenses of counsel shall be at the expense of the Company and subject to payment pursuant to this Agreement. The Company shall not be entitled to assume the defense of Indemnitee in any Proceeding brought by or on behalf of the Company or as to which Indemnitee shall have reached either of the conclusions provided for in clauses (b) or (c) above.

9. ENFORCEMENT.

     In the event that any dispute or controversy shall arise under this Agreement between Indemnitee and the Company with respect to whether Indemnitee is entitled to indemnification in connection with any Proceeding or with respect to the amount of Expenses incurred, then with respect to each such dispute or controversy Indemnitee may seek to enforce this Agreement through legal action or, at Indemnitee’s sole option and request, through arbitration. If arbitration is requested, such dispute or controversy shall be submitted by the parties to binding arbitration in the City of Cleveland, State of Ohio, before a single arbitrator agreeable to both parties. If the parties cannot agree on a designated arbitrator within fifteen (15) days after arbitration is requested in writing by either of them, the arbitration shall proceed in the City of Cleveland, State of Ohio, before an arbitrator appointed by the American Arbitration Association. In either case, the arbitration proceeding shall commence promptly under the rules then in effect of that Association and the arbitrator agreed to by the parties or appointed by that Association shall be an attorney other than an attorney who has, or is associated with a firm having associated with it an attorney which has, been retained by or performed services for the Company or Indemnitee at any item during the five (5) years preceding the commencement of arbitration. The award shall be rendered in such form that judgment may be entered thereon in any court having jurisdiction thereof. The prevailing party shall be entitled to prompt reimbursement of any costs and expenses (including, without limitation, reasonable attorney’s fees) incurred in connection with such legal action or arbitration provided that Indemnitee shall not be obligated to reimburse the Company unless the arbitrator or court which resolves the dispute determines that Indemnitee acted in bad faith in bringing such action or arbitration.

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10. EXCLUSIONS.

     Notwithstanding the scope of indemnification which may be available to Indemnitee from time to time under any Applicable Document, no indemnification, reimbursement or payment shall be required of the Company hereunder with respect to:

     (a) any claim or any part thereof as to which Indemnitee shall have been adjudged by a court of competent jurisdiction from which no appeal is or can be taken, by clear and convincing evidence, to have acted or failed to act with deliberate intent to cause injury to the Company or with reckless disregard for the best interests of the Company;

     (b) any claim or any part thereof arising under Section 16(b) of the Exchange Act pursuant to which Indemnitee shall be obligated to pay any penalty, fine, settlement or judgment;

     (c) any obligation of Indemnitee based upon or attributable to Indemnitee gaining in fact any personal gain, profit or advantage to which Indemnitee was not entitled; or

     (d) any Proceeding initiated by Indemnitee without the consent or authorization of the Board of Directors of the Company, provided that this exclusion shall not apply with respect to any claims brought by Indemnitee (i) to enforce Indemnitee’s rights under this Agreement or (ii) in any Proceeding initiated by another person or entity whether or not such claims were brought by Indemnitee against a person or entity who was otherwise a party to such Proceeding.

     Nothing in this Paragraph 10 shall eliminate or diminish the Company’s obligations to advance that portion of Indemnitee’s Expenses which represent attorneys’ fees and other costs incurred in defending any Proceeding pursuant to Paragraph 3 of this Agreement.

11. EXTRAORDINARY TRANSACTIONS.

     The Company covenants and agrees that, in the event of any merger, consolidation or reorganization in which the Company is not the surviving entity, any sale of all or substantially all of the assets of the Company or any liquidation of the Company (each such event is hereinafter referred to as an “extraordinary transaction”), the Company shall:

     (a) Have the obligations of the Company under this Agreement expressly assumed by the survivor, purchaser or successor, as the case may be, in such extraordinary transaction; or

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     (b) Otherwise adequately provide for the satisfaction of the Company’s obligations under this Agreement, in a manner acceptable to Indemnitee.

12. NO PERSONAL LIABILITY.

     Indemnitee agrees that neither the Directors nor any officer, employee, representative or agent of the Company shall be personally liable for the satisfaction of the Company’s obligations under this Agreement, and Indemnitee shall look solely to the assets of the Company and the Escrow Reserve referred to in Paragraph 4 hereof for satisfaction of any claims hereunder.

13. PERIOD OF LIMITATIONS.

     No legal action shall be brought and no cause of action shall be asserted by or on behalf of the Company or any affiliate of the Company against Indemnitee, Indemnitee’s spouse, heirs, executors or personal or legal representatives after the expiration of two (2) years from the date of accrual of such cause of action, and any claim or cause of action of the Company or its affiliate shall be extinguished and deemed released unless asserted by the timely filing of legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern.

14. SEVERABILITY.

     If any provision, phrase, or other portion of this Agreement should be determined by any court of competent jurisdiction to be invalid, illegal or unenforceable, in whole or in part, and such determination should become final, such provision, phrase or other portion shall be deemed to be severed or limited, but only to the extent required to render the remaining provisions and portions of this Agreement enforceable, and this Agreement as thus amended shall be enforced to give effect to the intention of the parties insofar as that is possible.

15. SUBROGATION.

     In the event of any payment under this Agreement, the Company shall be subrogated to the extent thereof to all rights to indemnification or reimbursement against any insurer or other entity or person vested in Indemnitee, who shall execute all instruments and take all other action as shall be reasonably necessary for the Company to enforce such rights.

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16. GOVERNING LAW.

     The parties hereto agree that this Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Ohio.

17. NOTICES.

     All notices, requests, demands and other communications hereunder shall be in writing and shall be considered to have been duly given if delivered by hand and receipted for by the party to whom the notice, request, demand or other communication shall have been directed, or mailed by certified mail, return receipt requested, with postage prepaid:

(a) If to the Company, to:	EATON CORPORATION
	Eaton Center
	Cleveland, Ohio 44114-2584
	Attention:	Vice President and
		General Counsel
(b) If to Indemnitee, to:

or to such other or further address as shall be designated from time to time by Indemnitee or the Company to the other.

18. TERMINATION.

     This Agreement may be terminated by either party upon not less than sixty (60) days’ prior written notice delivered to the other party, but such termination shall not in any way diminish the obligations of the Company hereunder (including the obligation to maintain the Escrow Reserve referred to in Paragraph 4 hereof) with respect to Indemnitee’s activities prior to the effective date of the termination.

19. AMENDMENTS.

     This Agreement and the rights and duties of Indemnitee and the Company hereunder may not be amended, modified or terminated except by written instrument signed and delivered by the parties hereto.

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20. BINDING EFFECT.

     This Agreement is and shall be binding upon and shall inure to the benefit of the parties thereto and their respective heirs, executors, administrators, successors and assigns.

     IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

INDEMNITEE	EATON CORPORATION
	By
Title: Director
	Title
	And by
	Title

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EX-10.2

Exhibit 10.2

EATON CORPORATION

2007 STOCK OPTION GRANT
NON-QUALIFIED STOCK OPTION AGREEMENT
(Non-Employee Director)

Name ____________________________________ (“Optionholder”)           Date of Grant ___________________________

Number of Shares _______________________         Option Price __________________________________________________

EATON CORPORATION, an Ohio corporation (the “Company”), hereby grants to the Optionholder, in consideration of service by him or her as a member of the Board of Directors of the Company (the “Board”), 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 2002 Stock Plan (the “2002 Plan”), and upon the terms and conditions herein set forth.

I. TERMS OF EXERCISE OF OPTION

     A. By the Optionholder While Serving as a Member of the Board.

This option shall become exercisable after a period of six months following the date of grant, provided the Optionholder remains in continuous service as a member of the Board for that period. The Optionholder, while serving as a member of the Board, may exercise this option at any time after this option becomes exercisable, but not later than the end of the fixed term of the option. The Governance Committee of the Board (the “Committee”) reserves the right to decide to what extent leaves of absence for government service, illness, temporary disability, or other reasons shall not be deemed to be an interruption of continuous service. Notwithstanding the foregoing provisions of this Section I A, this option may be exercised after service on the Board ends as provided in Section I B below.

     B. By the Optionholder When No Longer Serving as a Member of the Board.

The Optionholder may not exercise this option after he or she ceases to serve as a member of the Board, except that if the Optionholder ceases to serve as a member of the Board after reaching the retirement age designated by the then-current Board retirement policy or after at least ten years’ service on the Board, then he or she may exercise this option at any time after a period of six months following the date of grant, but not later than the end of the fixed term of the option.

I. TERMS OF EXERCISE OF OPTION (continued)

     C. In case of the Death of the Optionholder.

If the Optionholder is entitled to exercise this option at the date of his or her death, then this option may be exercised during the period of 12 months after the death of the Optionholder (but no later than the end of the fixed term of the option) by the Optionholder’s estate or by a person or persons who have acquired the right to exercise this option by bequest or inheritance. This option may be so exercised only as to the number of Common Shares for which it could have been exercised at the time the Optionholder died.

     D. Termination.

This option shall in no event be exercisable after the expiration of the fixed term of the option, notwithstanding anything to the contrary in Sections I A, B or C above. The option hereby granted shall be considered terminated, 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 2002 Plan, for the Common Shares originally subject to this option, or in the event the Optionholder shall fail, within 60 days after the date of the granting of this option, to deliver to the Company an acceptance of such option executed by him or her.

     E. Acceleration — Change in Control.

Notwithstanding anything in Section I A or B to the contrary, this option shall become immediately exercisable for all of the Common Shares subject to the option upon a change in control of the Company (as defined below).

For purposes of this Agreement, a “change in control of the Company” shall be deemed to have occurred if (i) a tender offer shall be made and consummated for the ownership of securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding voting securities, (ii) the Company shall be merged or consolidated with another corporation and as a result of such merger or consolidation less than 75 % of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of the Company, 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) the Company shall sell substantially all of its assets to another corporation which is not a wholly-owned subsidiary of the Company, (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 securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding securities; or (v) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Company’s shareholders, of

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E. Acceleration — Change in Control. (continued)

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 Agreement, ownership of voting securities shall take into account and include ownership as determined by applying the provisions of Rule 13d-3(d)(1) of the Exchange Act (as then in effect).

II. METHODS OF EXERCISING OPTION — RIGHTS AS SHAREHOLDERS

     A. This option shall be deemed exercised when the person(s) 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, in a single writing for each exercise delivered to the Company at its principal office and shall at that time tender to the Company payment in full for the Common Shares as to which the option is exercised in cash or by a check which shall be paid upon presentment to the bank upon which drawn or, with the approval of the Committee, by delivery to the Company of Common Shares owned by the Optionholder, or by tender of a combination of cash (or a check as herein described) 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.

     B. 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 2002 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

Except as otherwise provided by the Committee, this option shall not be transferable otherwise than by will or the law of descent and distribution.

IV. COMPLIANCE WITH LAWS, REGULATIONS AND RULES

The Company will use its best efforts to comply with all federal and state laws and regulations, and all rules of 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 obliged to issue or deliver any certificate for shares subject to this option, if such exercise, issuance

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IV. COMPLIANCE WITH LAWS, REGULATIONS AND RULES (continued)

or delivery would violate 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 any person(s) or estate purporting to acquire the right to exercise this option by bequest or inheritance shall attempt to exercise this option, the Committee may require reasonable evidence as to the ownership of this option and may request such consents and releases of taxing authorities, as the Committee may deem advisable.

V. ADJUSTMENT UPON CHANGE OF SHARES

In the event that the outstanding Common Shares shall be changed in number or class by reason of a reorganization, merger, consolidation, reclassification, recapitalization, combination or exchange of shares, stock split, spin off, stock dividend, rights offering or other event affecting Common Shares, the number and class of Common Shares subject to this option and the price per share payable upon exercise of this option shall be equitably adjusted as determined 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. No exercise of any conversion rights by the holders of any of the Company’s preferred shares or serial preferred shares or convertible indebtedness hereafter issued shall call for any adjustment under this Section V.

VI. COMPETITION BY OPTIONHOLDER

In the event that the Optionholder within one 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.

VII. ENFORCEABILITY

This Agreement shall be binding upon and inure to the benefit of (1) the Company, and its successors and assigns, and (2) the Optionholder and his or her personal representatives, executors, administrators, legatees and distributees.

4

VIII. STOCK OPTION PLAN CONTROLS

The terms and conditions of the 2002 Plan, as amended from time to time in accordance with the provisions of Section 11 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 2002 Plan shall be of no force or effect and shall not be binding upon the Company or the Optionholder.

IX. 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 shall so qualify. Any provision of this Agreement that cannot be so construed interpreted and administered shall be of no force or effect.

X. 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

		And by
ACCEPTANCE OF OPTION BY
OPTIONHOLDER
Accepted by
	Signature

Date

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EX-99.1

Exhibit 99.1

Eaton Corporation
Corporate Communications
Eaton Center
Cleveland, OH 44114
Tel: (216) 523-5304
Fax: (216) 523-4553
Email: kellymjasko@eaton.com

Date	January 24, 2007
For Release	Immediately
Contact	Kelly Jasko (216) 523-5304

Charles E. Golden Elected To Eaton’s Board Of Directors

CLEVELAND ... Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced that Charles E. Golden has been elected to the company’s Board of Directors, effective immediately. This increases the size of the Board from 10 to 11. He is expected to stand for re-election at the April 2007 shareholders meeting, when his current term of office expires.

Golden retired from Eli Lilly and Company in 2006, where he served as executive vice president and chief financial officer and as a member of the company’s Board of Directors. Prior to joining Eli Lilly, Golden served as a corporate vice president of General Motors Corporation, and chairman and managing director of Vauxhall Ltd., General Motors Corporation’s vehicle operations in the United Kingdom.

“Charles brings a valuable perspective to our business through his extensive background in finance, international business and operations,” said Alexander M. Cutler, Eaton chairman and chief executive officer. “His strong financial background, coupled with his international experience will serve Eaton as we further develop and execute our strategies for consistent profitable growth.”

In addition to his prior leadership at Eli Lilly and Company, Golden is a member of the boards of directors of Hillenbrand Industries and Unilever NV/PLC and is a member of Financial Executives International.

A native of Fort Wayne, Ind., Golden received a Bachelor of Arts degree in economics from Lafayette College in 1968 and a Master of Business Administration degree from Lehigh University in 1970, both in Pennsylvania. In 2006, he was recognized as the Best CFO in the pharmaceutical industry by Institutional Investor magazine.

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Eaton/Page 2

Eaton Corporation is a diversified industrial manufacturer with 2006 sales of $12.4 billion. Eaton is a global leader in electrical systems and components for power quality, distribution and control; fluid power systems and services for industrial, mobile and aircraft equipment; intelligent truck drivetrain systems for safety and fuel economy; and automotive engine air management systems, powertrain solutions and specialty controls for performance, fuel economy and safety. Eaton has 60,000 employees and sells products to customers in more than 125 countries. For more information, visit www.eaton.com

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