EXHIBIT
10.79


 


Terms
and Conditions

for Stock Options Issued as part of the

E.ON Group’s Stock Options Program

- Translation of the German Version -


 


 


Preamble


 


Internationally
as well as—increasingly—in Germany, executives whose activities are paramount to
a company’s performance and success are being offered additional incentives. In
the United States, it is common practice for companies to offer their
executives option rights on the company’s stock (“stock options”). Executives,
especially in Anglo-American countries, increasingly expect performance-based
compensation in the form of stock options. For this reason, E.ON Group
executives will also be given the opportunity to share in the benefits of their
successful work by exercising stock options.


 


Under the
rules applying to the E.ON Group’s Stock Option Program, the company will pay
out the exercise gains directly to the executives at the time that they choose
to exercise their options. The E.ON Group’s Stock Option Program is therefore
based on fictitious stock.


 


Options can be exercised in certain
exercise windows within the exercise period from the third year until the
seventh year after their issue. The minimum holding period of two years is a
compromise between the scheme’s intended long-term effect and the interest of
executives in obtaining their remuneration as soon as possible. The maximum
holding period of seven years and the exercise period of five years is a
compromise between, on the one hand, the desire to promote long-term
decision-making by executives, and, on the other hand, the wish to limit the
number of options held by a single executive.


 


As a prerequisite for awarding the
options, each entitled executive will have to maintain a certain personal
investment in E.ON stock during the lifetime of the options. Participating
executives will be obliged to hold the number of E.ON bearer shares as stated
in the Supplementary Terms and Conditions beginning with the allocation of
their options and ending with the complete exercise or maturity of the options.
E.ON shares that are held by the entitled executive due to previously awarded
options will be set off against the shares to be held for the new series of
options.


 


Executives are awarded options in
writing, accompanied by the Supplementary Terms and Conditions describing the
features of the series concerned, specifying the number of options allotted to
the executive and the number of E.ON shares to be held for the allotment of
options. The Terms and Conditions for Stock Options as well as the Supplementary
Terms and Conditions form both integral parts of the options awarded.


 


Translation
of the Terms and Conditions for Stock Options within the Framework


of the
E.ON Group’s Stock Option Program, fourth Tranche (2002 – 2008)


 


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§ 1


Option
Right


 


(1)          Within the framework of
its Stock Option Program, the company (“Company”) mentioned in the
Supplementary Terms and Conditions (“Supplementary Terms”) shall award options
(“Options”) on “fictitious” stock of E.ON AG, Düsseldorf, (“E.ON AG”). Pursuant
to these Terms and Conditions, the beneficiary of an Option (“Option
Beneficiary”) is entitled to request during the exercise windows stipulated in
§ 2 that the Company pays the differential amount (“Differential Amount”) as
determined in accordance with the provisions of subparagraph (2), provided,
however, that the conditions stipulated in subparagraph (3) have been
fulfilled.


 


(2)          The Differential Amount
shall be the difference expressed in euros (“EUR”) between the closing price
(“Exercise Price”) of the bearer share of E.ON AG (“E.ON Share”) in the XETRAÒ
electronic trading system (Exchange Electronic Tra­ding)
as determined and published by Deutsche Börse AG on the Exercise Date (as
defined in § 7 subparagraph (2)) and the relevant strike price (“Strike Price”)
as stated in the Supplementary Terms, provided, however, that the Exercise
Price exceeds the Strike Price. Each Option shall entitle the Option
Beneficiary to receive the difference relating to one E.ON Share, being
equivalent to a subscription ratio (“Subscription Ratio”) of one E.ON Share per
Option.


 


(3)          The payment of the
Differential Amount determined in accordance with subparagraph (2) is
conditional upon


 


(i)                                     the
Exercise Price having exceeded the Strike Price by at least 10 percent on the
relevant Exercise Date, and


 


(ii)                                  the
price performance of the E.ON Share having exceeded the price performance of
the Dow Jones STOXX Utility Suppliers Price Index (“Index”) prior to the
relevant Exercise Date during the lifetime of the Options on at least ten
succeeding Stock Exchange Business Days (as defined below), calculated in
accordance with the following formula:


 


	
  

  	
  >   1

  



 


 


V(t):                                                         closing
price of the E.ON Share in the XETRAÒ electronic trading
system as determined and published by Deutsche Börse AG on the relevant Stock
Exchange Business Day


V(0):                                                      Strike
Price


I(t):                                                             closing
price of the Index as determined and published by STOXX Limited, Zurich, on the
relevant Stock Exchange Business Day


I(0):                                                          price
of the Index as determined in the Supplementary Terms


 


“Stock Exchange Business Day” shall mean a day on
which the closing price of the E.ON Share in the XETRAÒ
electronic trading system as well as the closing price of the Index are determined
and published by Deutsche Börse AG and STOXX Limited, Zurich, respectively.


 


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The Calculation Agent (as defined in § 6) shall notify
the Company of the fulfillment of the condition stipulated in this subparagraph
(ii) without undue delay. The Company will inform the Option Beneficiaries
accordingly.


 


(4)          Options are awarded free
of charge.


 


§ 2


Time to
Maturity/Exercise Periods


 


(1)          The Options’ time to
maturity shall begin on the first Business Day in January of the year of issue
(year 1), and shall end on the last Business Day of the last Exercise Window
(as defined in subparagraph (2)) falling in year 7. For the purposes of these
Terms and Conditions, a “Business Day” shall be every day on which banks in
Frankfurt am Main and Düsseldorf are open for general business.


 


(2)          Subject to the
provisions of § 8, Options can be exercised on each Business Day during the
respective Exercise Windows in years 3 through 7. “Exercise Windows” shall be
the relevant periods from the first Business Day up to and including the
twentieth Business Day after the publication of the Group financial statements
and/or E.ON AG’s interim reports. The relevant Exercise Windows of each year
during which exercises of Options are allowed will be notified by the Company
by January 15 of the relevant year, at the latest.


 


(3)          In the case of
extraordinary circumstances, E.ON AG reserves the right to exclude the exercise
of Options during an Exercise Window in its sole discretion even if all the
conditions for exercise according to § 1 subparagraph (3) have been fulfilled.
The decision will be made by E.ON AG’s Compliance Officer who will inform the
relevant Option Beneficiary about the introduction and discontinuation of the
exercise restriction.


 


§ 3


Disturbances
of the Market/Substitute Price


 


(1)          A disturbance of the
market (“Market Disturbance”) takes place if on the relevant Exercise Date


 


a)              no Exercise Price
for whatever reason is determined, or


 


b)             there has been a
trading suspension or a material restriction in the trading of the E.ON Share
in the XETRAÒ electronic trading system within the last 60
minutes prior to determination of the Exercise Price.


 


(2)          If there is a Market
Disturbance on an Exercise Date according to subparagraph (1), the Differential
Amount will be calculated by using the next closing price in the XETRAÒ
electronic trading system determined and published by Deutsche Börse AG
following the end of the Market Disturbance. Should a Market Disturbance still
continue on the fifth Business Day (including) following the Exercise Date, the
Differential Amount will be calculated on the basis of the closing price in the
XETRAÒ electronic trading system determined and
published by Deutsche Börse AG on such fifth Business Day, or, if the closing
price is not being determined, on the basis of a Substitute Price to be
determined by the Calculation Agent. “Substitute Price” shall mean the price
determined by the Calculation Agent in its equitable discretion based upon
common market conditions and the last closing price in the XETRAÒ
electronic trading system determined and published by Deutsche Börse AG.


 


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The determination of a
Substitution Price shall be (in the absence of manifest error) binding on all
parties concerned.


 


§ 4


Adjustment
Measures Due to Extraordinary Dividend Payments

and Equity Measures Taken by E.ON AG


 


(1)          If E.ON AG (i) pays its
stockholders an extraordinary dividend (as defined below), or (ii) increases its
capital by way of issuance of new shares against contributions while granting
its stockholders direct or indirect subscription rights (“Capital Increase
Against Contributions”), or (iii) increases its capital out of retained
earnings (“Capital Increase out of Retained Earnings”), or (iv) directly or
indirectly grants its stockholders a right to subscribe bonds or other
securities with option or conversion rights on stock (“Issuance of Securities
with Option or Conversion Rights”), the Strike Price and the Subscription
Ratio, as the case may be, shall be adjusted according to the provisions of
subparagraphs (2) through (4) with effect as of their respective Cut-off Dates.


 


“Cut-off Date” shall be the first trading day on the
Frankfurt Stock Exchange on which the shares are quoted “ex dividend,” “ex
subscription right,” or “ex bonus shares.”


 


(2)          In the event of an
Increase of Share Capital Against Contributions, the Strike Price shall be
multiplied and the Subscription Ratio shall be divided by the figure determined
by applying the following formula:


 





 


Where:


B                is the
subscription ratio (number of old shares : number of new shares),


E                 is the issue
price of the new shares,


D               is the disadvantage
for dividends of the new shares (not discounted),


K               is the closing
price in the XETRAÒ electronic trading system determined and
published by Deutsche Börse AG on the trading day immediately preceding the
Cut-off Date.


 


(3)          In the event of a
Capital Increase out of Retained Earnings, the Strike Price shall be multiplied
and the Subscription Ratio shall be divided by the figure determined by
applying the following formula:


 





 


B, D, and K shall
have the same meanings as in subparagraph (2).


 


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(4)          In the event of an
Issuance of Securities with Option or Conversion Rights, the Strike Price shall
be reduced by subtracting the value of the subscription right as determined on
the Frankfurt Stock Exchange on the Cut-off Date.


 


(5)          If there is a change in
the number of shares without a change in capital (e.g. stock splits) and there
is a decrease in capital due to a reverse stock split or redemption of stock,
the provisions of subparagraph (3) above shall apply mutatis mutandis.


 


(6)          In the event of an
Extraordinary Dividend, the Strike Price shall be reduced by the value of such
Extraordinary Dividend. “Extraordinary Dividend” shall mean (i) a dividend that
is explicitly resolved by E.ON AG’s Annual Shareholders’ Meeting as “extraordinary
dividend” or “special dividend,” or (ii) the amount per share expressed in
euros which corresponds to a dividend yield in percent (without taking into
account any corporate tax credit inherent to the dividend) higher than the sum
of (a) 5 percent and (b) the average of the dividend yields of the five
business years preceding the business year for which the Extraordinary Dividend
will be paid. Should the Extraordinary Dividend be contributed in the form of
shares of a company, the value of the Extraordinary Dividend shall be
calculated on the basis of the first quotation of such shares in the XETRAÒ
electronic trading system determined and published by Deutsche Börse AG. A
reduction of the Strike Price shall never result in a negative Strike Price.


 


(7)          The Calculation Agent
shall immediately inform the Company about the amended Strike Price and
Subscription Ratio, as the case may be. The Company shall notify the Option
Beneficiaries accordingly.


 


§ 5


Further
Adjustments for Economic Reasons


 


	
  (1)

  	
  a)              Should E.ON AG
  carry out equity measures other than those mentioned in § 4, or should E.ON
  AG undergo a transformation, these Terms and Conditions shall be adjusted so
  as to ensure that the Option Beneficiary will be placed on equal economic
  terms with the stockholders of E.ON AG.



   

   

  b)             The term
  “Transformation” as used in this § 5 subparagraph (1) above shall comprise
  (i) a merger of E.ON AG by way of absorption where E.ON AG is not the
  absorbing company, or by way of establishing a new company, (ii) any other transaction
  (e.g. split, asset transfer, integration or restructuring, modification, or
  exchange of shares) through which or as a result of which all shares of E.ON
  AG are irrevocably invalidated, transferred, scheduled to be transferred,
  reclassified, or modified in their legal status, and (iii) any other
  transaction that has the same economic effects as the aforementioned
  transactions.

  
	
   

  	
   

  
	
  (2)

  	
  a)              The item
  fundamental to the calculation of the Index and the determination of the
  Initial Index is the concept of the Index as defined and maintained by STOXX
  Limited, Zurich, along with the calculation, determination, and publication
  of the Index by STOXX Limited, Zurich, even if future changes or adjustments
  are made to the calculation of the Index, the composition and the weighting
  of prices and stocks used as a basis to calculate the Index, the manner and
  means by which it is published, or if other changes or adjustments are made
  or measures are taken that affect the calculation of the Index, unless
  otherwise specified in the following provisions.

  



 


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  b)             If (i) the
  fundamental design and/or calculation method or the basis of the Index is
  changed in a substantial way so that the continuity or comparability of the Index
  calculated on the old basis does not exist anymore (e.g., if the Index is
  significantly altered as a result of a change, adjustment or other measures
  although the prices of the various stocks included in the Index and their
  weighting have not changed), or if (ii) the Index is during the Options’
  lifetime no longer regularly determined and published by STOXX Limited,
  Zurich, or some other legal entity and the conditions stipulated in § 1
  subparagraph (3) (ii) are not fulfilled yet, the Terms and Conditions shall
  be adjusted so as to ensure that the indexing concept underlying the Options
  will be preserved, as much as possible, in terms of its economic effects.

  
	
   

  	
   

  
	
  (3)

  	
  Adjustments as
  specified in subparagraphs (1) or (2) above shall have to be jointly agreed
  upon by the Calculation Agent and the Company and shall be communicated to
  the Option Beneficiaries by the Company.

  



 


§ 6


Calculation
Agent


 


(1)          HSBC Trinkaus &
Burkhardt KGaA, Düsseldorf, shall be the “Calculation Agent.” The Company shall
ensure that a Calculation Agent is appointed for the entire lifetime of the
Options. The Company shall be entitled to appoint a new Calculation Agent for
compelling reasons. Should the Calculation Agent cease to perform its function
or should it no longer be able or willing to perform this function, the Company
shall be obliged to appoint the head office of another leading bank in the
stock options business. The Calculation Agent shall not be entitled to
terminate its function without the prior appointment of a successor agent. The
Company shall immediately inform the Option Beneficiaries of the appointment of
a new Calculation Agent.


 


(2)          All calculation data
provided and decisions made by the Calculation Agent for the purposes defined
in these Terms and Conditions shall (in the absence of manifest error) be
binding upon the Company and the Option Beneficiaries. Option Beneficiaries
shall not be entitled to bring forward claims against the Calculation Agent due
to the latter’s performance or non-performance of its rights, duties, or
discretionary powers as defined in these Terms and Conditions.


 


§ 7


Exercise of Options/Payment of Differential Amount


 


(1)          The Option shall be
exercised in such a way that an Option Beneficiary declares to the Company that
he intends to exercise a series of Options, either fully or partially (but at
least 250 Options per exercise), by returning the completed (including the
respective series number of the relevant series of Options, as stated in the
respective Supplementary Terms) exercise form (“Option Declaration”) during an
Exercise Window. Concurrently, the Option Beneficiary shall inform E.ON AG
about his exercise by forwarding a copy of the Option Declaration to E.ON AG.


 


(2)          Option Declarations
received by the Company shall be binding and irrevocable. The day of the
effective exercise of the option rights (“Exercise Date”) shall be the Business
Day during an Exercise Window on which the Company shall have received the
Option Declaration prior to 1.00 p.m. (Düsseldorf time). Should the Company not
have received the Option


 


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Declaration in time on a
Business Day, the Exercise Date shall be the immediately succeeding Business
Day, provided, such Business Day falls within an Exercise Window.


 


(3)          The Company shall
deposit the Differential Amount accrued on the full number of Options exercised
to the Option Beneficiary’s payroll account in connection with the next
possible salary settlement.


 


(4)          Notwithstanding the
aforementioned provisions, Option Beneficiaries shall be deemed to have
exercised their Options without further requirements by the last possible
Exercise Date, providing that the conditions of § 1 subparagraph (3) have been
fulfilled. Otherwise, the rights arising from the Options shall be null and
void.


 


(5)          Any (income) taxes,
levies and employee social security contributions arising from the payment of
the Differential Amount shall be borne by the Option Beneficiary.


 


(6)          Should the Company
purchase Options in accordance with § 8 subparagraph (1) (ii), the provisions
of § 7 subparagraphs (1) through (3) and (5) shall apply mutatis mutandis.


 


§ 8


Extraordinary Exercise of Options


 


(1)          Following an Event of
Change-in-Control regarding E.ON AG (as defined below), Option Beneficiaries
shall be entitled at their own discretion


 


(i)                                     to
exercise their Options during a twelve-month period after the event and without
fulfillment of the conditions stipulated in § 1 subparagraph (3) and § 2
subparagraph (2) being required, or


 


(ii)                                  to
request during a twelve-month period after the event the purchase of the
Options by the Company against payment of a purchase price equivalent to the
calculated value of the Options to be determined by the Calculation Agent, or


 


(iii)                               to
exercise their Options in accordance with these provisions of the Terms and
Conditions.


 


An “Event of Change-in-Control” regarding E.ON AG
takes place, if:


 


a)              E.ON AG is notified
by a third party that it has acquired 25 percent or more of the voting rights
of E.ON AG in accordance with § 21 of the German Securities Trading Act (WpHG),
or


 


b)             a third party on its
own or together with voting rights attributable to him in accordance with § 22
German Securities Trading Act (WpHG) has acquired a share in voting rights
which, at E.ON AG’s Annual Shareholders’ Meeting, would represent or which, at
E.ON AG’s last Annual Shareholders’ Meeting, would have represented the
majority of the voting rights present at such a Meeting, or


 


c)              an affiliation
agreement is concluded with E.ON AG as controlled company in accordance with §§
291 ff. of the German Stock Corporation Act (AktG), or


 


d)             E.ON AG is being
integrated in accordance with §§ 319 ff. of the German Stock Corporation Act
(AktG), or


 


e)              E.ON AG changes its
legal status in accordance with §§ 190 ff. of the German Conversion Law (UmwG),
or


 


f)                E.ON AG is being
merged with another legal entity, provided that the enterprise value of such
legal entity is more than 20 percent of the enterprise value of E.ON AG at the
time


 


7

















 


of adopting the
resolution by E.ON AG. The methods of valuation acknowledged by the
professional association of qualified auditors (Stellungnahme des Hauptfachausschusses
des Instituts der Wirtschaftsprüfer HFA 2/1983 = Grundsätze zur Durchführung
von Unternehmens­bewertungen sowie die neueren Verlautbarungen des
Berufsstandes) shall be used to determine the value of both
entities, to the extent that both enterprise values will be determined
according to said methods in connection with the merger. Otherwise, the market
capitalization of both legal entities at the time the resolution is adopted by
E.ON AG will be deemed as their respective enterprise values. If a market
capitalization can not be determined, the enterprise values agreed upon by both
legal entities will be deemed as their respective enterprise values.


 


E.ON AG will notify the
Option Beneficiaries of an Event of Change-in-Control regarding E.ON AG without
undue delay.


 


(2)          If the Company ceases to
be an affiliated company of E.ON AG, as defined in § 15 of the German Stock
Corporation Act (AktG) (Event of Change-in-Control regarding the Company),
Option Beneficiaries shall be entitled at their own discretion


 


(i)                                     to
exercise their Options during a three-month period after the event and without
fulfillment of the conditions stipulated in § 1 subparagraph (3) and § 2
subparagraph (2) being required, or


 


(ii)                                  to
request during a three months’ period after the event the purchase of the
Options by the Company against payment of a purchase price equivalent to the
calculated value of the Options to be determined by the Calculation Agent, or


 


(iii)                               to
exercise their Options in accordance with these provisions of the Terms and
Conditions.


 


The Company will notify the Option Beneficiaries of an
Event of Change-in-Control regarding the Company without undue delay.


 


(3)          Option Beneficiaries
shall be entitled to exercise their Options at their own discretion (i) during
a three-month period after either of the events specified in subparagraphs (a)
through (c) below occurs and without fulfillment of the conditions stipulated
in § 1 subparagraph (3) and § 2 subparagraph (2) being required, (ii) or in
accordance with the provisions of these Terms and Conditions, if and when:


 


a)              the employment
contract of the relevant Option Beneficiary is terminated by the Company or it
runs out upon expiration of its term, provided, however, that the employment
contract is not extraordinarily terminated by the Company due to material
reason in accordance with § 626 subparagraph (1) German Civil Code (BGB), or


 


b)             the employment
contract between the relevant Option Beneficiary and the Company is terminated
because the former reaches his or her retirement age or becomes an invalid; or


 


c)              the Option Beneficiary
has received the rights resulting from the Options by inheritance.


 


8

















 


§ 9


Transferability/Expiration


 


(1)          Rights resulting from
the Options may not be assigned or pledged. It shall also be prohibited to
dispose of the rights resulting from the Options in any other form, to grant
sub-participation or to establish a trust. Option Beneficiaries are not allowed
to conduct any back-to-back transactions that are economically tantamount to
selling the rights from the Options. Any violations of these provisions will
lead to the expiration of Options granted with no compensation.


 


(2)          If Option Beneficiaries,
for whatever reason, terminate their employment contract with the Company
during years 1 and 2 of the lifetime of the Options, the Options granted to
them shall become null and void without compensation. If Option Beneficiaries
terminate their employment contract after these first two years, they can
exercise their Options as of the immediately following Exercise Date, provided,
however, that the conditions of § 1 subparagraph (3) have been fulfilled. If
they fail to exercise their Options as of the immediately following Exercise
Date, their Options shall become null and void with no compensation. This subparagraph
shall also apply in the event that the employment contract is extraordinarily
terminated by the Company due to material reason in accordance with § 626
subparagraph (1) of the German Civil Code (BGB).


 


(3)          If the employment
contract between the Option Beneficiary and the Company is terminated and the
Option Beneficiary subsequently concludes an employment contract with an
affiliated company of E.ON AG, as defined in § 15 of the German Stock
Corporation Act (AktG), this shall not affect the Option Beneficiary’s rights
resulting from the Options, except as otherwise provided for in the Option
Beneficiary’s employment contract.


 


(4)          Option Rights may be
transferred by way of inheritance.


 


§ 10


Written
Form


 


Amendments and supplements to these Terms and Conditions must be made
in writing. This also applies to amendments to this § 10.


 


§ 11


Applicable
Law/Place of Performance and Jurisdiction


 


(1)          Form and substance of
the Options as well as all rights and duties of the Option Beneficiaries and
the Company shall be governed in every respect by the laws of the Federal
Republic of Germany.


 


(2)          Place of performance for
all obligations arising from these Terms and Conditions for Option
Beneficiaries and the Company shall be Düsseldorf, Germany.


 


(3)          Place of jurisdiction
for all proceedings relating to matters covered by these Terms and Conditions
shall be Düsseldorf, Germany.


 


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§ 12


Partial
Invalidity


 


Should any of the provisions of these Terms and Conditions be or become
in whole or in part invalid or impracticable, this shall not affect the
validity of the other provisions. Any deficiency resulting from the invalidity
or impracticability of a provision of these Terms and Conditions shall be
filled by way of a supplementary interpretation of the terms of contract by
analogy, taking into consideration the interests of the parties involved.


 


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