Stock incentive plans

Between 2000 and 2008, Enel implemented stock incentive plans (stock option plans and restricted share units plans) each year in order to give the Enel Group – in line with international business practice and the leading Italian listed companies – a means for fostering management motivation and loyalty, strengthening a sense of corporate team spirit in our key personnel, and ensuring their enduring and constant effort to create value, thus creating a convergence of interests between shareholders and management.

The remainder of this section describes the features of the stock incentive plans adopted by Enel and still in place in 2009.

2004 stock option plan

Beneficiaries

The Regulations provided for the executives selected by the Board of Directors to be granted personal, non-transferable inter vivos options, to subscribe a corresponding number of newly issued ordinary Enel shares. The executives were divided into different brackets and the number of options granted to those in each bracket was determined on a proportional basis. The Plan beneficiaries included the Chief Executive Officer of Enel in his capacity as General Manager.

Exercise conditions

The right to subscribe the shares was subordinate to the condition that the executives concerned remain employed within the Group, with a few exceptions (such as, for example, termination of employment because of retirement or permanent invalidity, exit from the Group of the company at which the executive is employed, and succession) specifically governed by the Regulations.

Exercise of the options was also subordinate to achievement of two objectives, of which (i) one of an operational nature, represented by outperforming Group EBITDA for the year in which the options were granted as estimated in the budget approved by the Board of Directors and (ii) another of a market nature, under which the percentage change in the price of Enel shares recorded on Borsa Italiana’s electronic stock exchange during the year in which the options were granted had to be greater than the performance of a specific benchmark index, determined by the Regulations as the average of the MIBtel index (weighting: 50%) and the FTSE Eurotop 300 Electricity index (weighting: 50%) on a total shareholders’ return basis, i.e. taking account (both for Enel shares and the benchmark index) of the effect of reinvesting gross dividends in the shares. If even one objective was not achieved, all the options automatically lapsed, there being no provision for a mechanism allowing them to be recovered.

Exercise procedures

In the event the conditions of exercise were met, the options would be exercisable as follows: 15% as from the first year following the grant year, an additional 15% as from the second year following the grant year, 30% as from the third year following the grant year, and the remaining 40% as from the fourth year following the grant year, with the requirement that the deadline for exercising all the options is the fifth year following that in which they were granted. This time limit therefore expired on December 31, 2009.

The options could be exercised each year at any time, with the exception of two blocking periods lasting about one month before the approval of the draft annual financial statements of Enel SpA and the half-year report by the Board of Directors.

Strike price

The strike price of the shares was originally set by the Board of Directors at €6.242, equal to the arithmetic average of the reference prices of Enel shares on Borsa Italiana SpA’s electronic stock exchange during the period between the date on which the options were granted and the same day of the preceding calendar month. Subscription of the shares was to be charged entirely to the beneficiaries, as the plan does not provide for any facilitated terms to be granted in this respect.

The strike price was modified by the Board of Directors on July 9, 2009 – which set it at €5.502 – in order to take account of the capital increase completed by Enel that month and the impact that it had on the market price of Enel shares.

Shares serving the plan

The 2004 stock option plan is served by shares issued as part of the capital increase authorized by the Extraordinary Shareholders’ Meeting of May 2004. The divisible, paid capital increase was approved by the Board of Directors in March 2005 in the maximum amount of €38,527,550, to be subscribed by December 31, 2009.

Developments in the 2004 stock option plan

Following achievement of both the objectives discussed earlier, all the options granted vested in accordance with the timetable mentioned above. The following table reports developments in the 2004 plan:

Notes:
(1)  The strike price was changed to €5.502 as from July 9, 2009 in order to take account of the impact of the capital increase completed by Enel that month on the market price of Enel shares.
(2)  Options lapsed for early termination of service of beneficiaries.
(3)  Options lapsed for early termination of service or after beneficiaries failed to exercise them.

2007 stock option plan

The 2007 plan is founded on the same rationale as the 2004 plan, adopting most of the provisions of its implementing Regulations and departing from them only in the manner described below.

Beneficiaries

Like the 2004 plan, the division of the beneficiaries of the plan into brackets is maintained and the options are granted using proportional criteria. The beneficiaries do not include executives in the Infrastructure and Networks Division (who have received other incentives linked to specific objectives regarding the Division’s business area). The exclusion was motivated by the obligation for Enel – connected with the full liberalization of the electricity sector as from July 1, 2007 – to implement administrative and accounting unbundling so as to separate the activities included in the Infrastructure and Networks Division from those of the Group’s other business areas.

Exercise conditions

Unlike the provisions of the 2004 plan, the 2007 plan sets multi-year performance objectives. While the Group EBITDA target is unchanged, that concerning the performance of Enel’s shares against a benchmark index has been modified slightly. Specifically, the composition of the index is now the average performance of the MIBtel index (weight: 50%) – replaced with the FTSE Italia All Share index after an analogous substitution by Borsa Italiana in 2009 – and the Bloomberg World Electric Index (weight: 50%). The latter replaced the FTSE Eurotop 300 electricity index above all because it is more representative of the performance of industry operators at the international level.

More specifically, the 2007 plan establishes that an initial 25% of the options granted may be exercised on the condition that both of the objectives are achieved in the two years covering the year the options were granted and the subsequent year, while the remaining 75% may be exercised subject to achievement of both objectives during the three years covering the year the options were granted and the subsequent two years. If one or both of the objectives are not achieved in the two-year period indicated above, the initial 25% of the options can be recovered with the achievement of both objectives over the longer three-year period indicated above.

Exercise procedures

Once the conditions of exercise have been satisfied, 25% of the options granted may be exercised as from the second year subsequent to the grant year, an additional 35% as from the third year subsequent to the grant year, and the remaining 40% as from the fourth year subsequent to the grant year, with the deadline for exercising all the options being the sixth year subsequent to the grant year.

Strike price

The strike price was originally set at €7.859, equal to the reference price for Enel shares observed on the electronic stock exchange of Borsa Italiana on January 2, 2007, in order to ensure that the structure of the plan is fully consistent with the reference time period and the period in which the exercise conditions for the options are observed.

The strike price was modified by the Board of Directors on July 9, 2009 – which set it at €6.928 – in order to take account of the capital increase completed by Enel that month and the impact that it had on the market price of Enel shares.

Shares serving the plan

In May 2007, the Extraordinary Shareholders’ Meeting authorized the Board of Directors to carry out a capital increase in the maximum amount of €27,920,000, with characteristics analogous to the increases authorized in May 2004.

Developments in the 2007 stock option plan

As neither the two-year nor the three-year performance targets for Enel shares with respect to the benchmark index were not achieved, all of the options granted under the plan lapsed automatically.

The following table reports developments in the 2007 plan:

Total options granted	Number of beneficiaries	Strike price	Verification of plan conditions	Options exercised at Dec. 31, 2009	Options lapsed at Dec. 31, 2008	Options lapsed in 2009
27,920,000	379 Group executives	€7.859(1)	Rights not vested	None	760,166 (2)	27,159,834 (3)

Notes:
(1) The strike price was changed to €6.928 as from July 9, 2009 in order to take account of the impact of the capital increase completed by Enel that month on the market price of Enel shares.
(2)  Options lapsed for early termination of service of beneficiaries.
(3)  Options lapsed for failure to achieve one of the exercise conditions.

2008 stock option plan

The approach adopted in the 2008 plan differs substantively from those approved in previous years, with the exception of (i) the status of the options as personal, non-transferable inter vivos rights to subscribe a corresponding number of newly issued ordinary Enel shares and (ii) the possibility of exercising the options (once, after three years have passed from the grant date, the exercise conditions have been satisfied) at any time in each year of the plan except during two blocking periods of about one month each. The special features of the 2008 plan are discussed below.

Beneficiaries

The beneficiaries of the plan – who again include the CEO of Enel is his capacity as General Manager – will only comprise the small number of managers who represent the first reporting line of top management. The head of the Infrastructure and Networks Division does not participate for the reasons explained in the description of the 2007 plan.

The beneficiaries have been divided into two brackets (the first includes only the CEO of Enel in his capacity as General Manager) and the basic number of options granted to each has been determined on the basis of their gross annual compensation and the strategic importance of their positions, as well as the price of Enel shares at the start of the period covered by the plan (January 2, 2008).

Exercise conditions

The plan established to operational objectives, both calculated on a consolidated, three-year basis: (i) earnings per share (EPS, equal to Group net income divided by the number of Enel shares in circulation) for the 2008–2010 period, determined on the basis of the amounts specified in the budgets for those years and (ii) the return on average capital employed (ROACE, equal to the ratio between operating income and average net capital employed) for the 2008–2010 period, determined on the basis of the amounts specified in the budgets for those years. Depending on the degree to which the two objectives are achieved, the number of options that can actually be exercised by each beneficiary is determined on the basis of a performance scale established by the Enel Board and may vary up or down with respect to the basic option grant by a percentage amount of between 0% and 120%.

Exercise procedures

Once achievement of the operational objectives has been verified, the options can be exercised as from the third year after the grant year and up to the sixth year as from the grant year.

Strike price

The strike price was originally set at €8.075, equal to the reference price for Enel shares observed on the electronic stock exchange of Borsa Italiana on January 2, 2008 (as in the 2007 plan).

The strike price was modified by the Board of Directors on July 9, 2009 – which set it at €7.118 – in order to take account of the capital increase completed by Enel that month and the impact that it had on the market price of Enel shares.

Shares serving the plan

InJune 2008, the Extraordinary Shareholders’ Meeting authorized the Board of Directors to carry out a capital increase in the maximum amount of €9,623,735, with characteristics analogous to the increases authorized previously.

Developments in the 2008 stock option plan

Bearing in mind that the vesting period for the 2008 plan has not yet ended, with the verification of achievement of the targets described above, the following table reports developments in the plan:

Total options granted	Number of beneficiaries	Strike price	Verification of plan conditions	Options lapsed at Dec. 31, 2008	Options lapsed in 2009
8,019,779 (1)	16 Group executives	€8.075(2)	- (3)	None	None

Notes:
(1)  If the degree of achievement of the two operational objectives indicated above should reach the highest level of the performance scale, a maximum of 9,623,735 options would be exercisable.
(2)  The strike price was changed to €7.118 as from July 9, 2009 in order to take account of the impact of the capital increase completed by Enel that month on the market price of Enel shares.
(3)  The review to be carried out by the Board of Directors to verify the satisfaction of the exercise conditions for the 2008 plan is scheduled to take place as part of the approval of the draft financial statements of Enel SpA for 2010.

Payment of a bonus connected with the portion of the dividends attributable to asset disposals, to be made in conjunction with the exercise of stock options

In March 2004, the Board of Directors voted to grant a special bonus, beginning in 2004, to the beneficiaries of the various stock option plans who exercise the options granted to them, establishing that the amount is to be determined each time by the Board itself when it adopts resolutions concerning the allocation of earnings and is based on the portion of the “disposal dividends” (as defined below) distributed after the granting of the options.

The rationale underlying this initiative is that the portion of dividends attributable to extraordinary transactions regarding the disposal of property and/or financial assets (“disposal dividends”) should be considered a form of return to shareholders of part of the value of the Company, and as such capable of affecting the performance of the shares.

The beneficiaries of the bonus are thus the beneficiaries of the stock option plans who – either because they choose to do so or because of the restrictions imposed by the exercise conditions or the vesting periods – exercise their options after the ex dividend date of the “disposal dividends” and therefore could be penalized. The bonus is not paid, however, for the portion of other kinds of dividends, such as those generated by ordinary business activities or reimbursements associated with regulatory measures.

Essentially, when beneficiaries of the stock option plans have exercised the options granted to them, as from 2004 they have been entitled to receive a sum equal to the “disposal dividends” distributed by Enel after the options have been granted but before they have been exercised. The bonus will be paid by the company of the Group that employs the beneficiary and is subject to ordinary taxation as income from employment.

Under these rules, to date the Board of Directors has approved: (i) a bonus amounting to €0.08 per option exercised, with regard to the dividend (for 2003) of €0.36 per share payable as from June 24, 2004; (ii) a bonus amounting to €0.33 per option exercised, with regard to the interim dividend (for 2004) of the same amount per share payable as from November 25, 2004; (iii) a bonus amounting to €0.02 per option exercised, with regard to the balance of the dividend (for 2004) of €0.36 per share payable as from June 23, 2005; and (iv) a bonus amounting to €0.19 per option exercised, with regard to the interim dividend (for 2005) of the same amount per share payable as from November 24, 2005.

It should be noted that the overall dilution of share capital as of December 31, 2009 attributable to the exercise of the stock options granted under the various plans amounts to 1.31% and that further developments in the plans could, in theory, increase the dilution up to a maximum of 1.41% (taking account of share capital after the capital increase carried out by the company in 2009).

The following table summarizes developments over the course of 2007, 2008 and 2009 in the Enel stock option plans, detailing the main assumptions used in calculating their fair value.

Developments in stock option plans

Number of options	2003 plan	2004 plan	2006 plan	2007 plan	2008 plan		Total
Options granted at December 31, 2007	47,624,005	38,527,550	31,790,000	27,920,000	-		145,861,555
Options exercised at December 31, 2007	42,937,716	25,177,615	-	-	-		68,115,331
Options lapsed at December 31, 2007	3,348,716	2,065,200	905,000	147,000	-		6,465,916
Options outstanding at December 31, 2007	1,337,573	11,284,735	30,885,000	27,773,000	-		71,280,308
Options granted in 2008	-	-	-	-	8,019,779	(*)	8,019,779
Options exercised in 2008	791,550	1,260,200	-	-	-		2,051,750
Options lapsed in 2008	546,023	47,600	30,885,000	613,166	-		32,091,789
Options outstanding at December 31, 2008	-	9,976,935	-	27,159,834	8,019,779	(*)	45,156,548
Options lapsed in 2009	-	9,976,935	-	27,159,834	-		37,136,769
Options outstanding at December 31, 2009	-	-	-	-	8,019,779	(*)	8,019,779
Fair value at grant date (euro)	0.37	0.18	0.23	0.29	0.17
Volatility	28%	17%	14%	13%	21%
Option expiry	Dec. 2008	Dec. 2009	Dec. 2012	Dec. 2013	Dec. 2014

Notes:
(*)  If the degree of achievement of the operational objectives indicated for the 2008 plan should reach the highest level of the performance scale, a maximum of 9,623,735 options would be exercisable.

Stock options granted to the General Manager and managers with strategic responsibilities

The following table reports the stock options of the General Manager (and Chief Executive Officer) of Enel SpA and Company managers with strategic responsibilities. The information regarding the latter is provided in aggregate form, pursuant to the provisions of Article 78 and annex 3C of CONSOB Resolution no. 11971/1999 (the “Issuers Regulation”).

Each option in the table corresponds to the subscription of one share.

		Options held at the start of 2009			Options granted in 2009			Options exercised in 2009			Options lapsed in 2009	Options held at the end of 2009
Name	Position	Number of options	Average exercise price (euros)	Average expiry	Number of options	Average exercise price (euros)	Average expiry	Number of options	Average exercise price (euros)	Average market price at exercise	Number of options	Number of options	Average exercise price (euros)	Average expiry
Fulvio Conti (*)	General Manager Enel SpA	3,422,772	7.659	2013	-	-	-	-	-	-	2,100,000	1,322,772 (***)	7.118	2014
-	Managers with strategic responsibilities (**)	12,965,562	7.859	2014	-	-	-	-	-	-	6,268,555	6,697,007 (****)	7.118	2014

 (*)   Of the options reported in the table, those granted up through all of 2005 were granted to Fulvio Conti as head of the Administration, Finance and Control Department of Enel SpA, the position he held until June 20, 2005.     
(**)   In 2009, managers with strategic responsibilities included heads of Enel SpA Departments and Division heads, for a total of 17 management positions.   
(***)   If the degree of achievement of the operational objectives for the 2008 stock option plan should reach the highest level of the performance scale, a maximum of 1,587,326 options would vest.  (****)   If the degree of achievement of the operational objectives for the 2008 stock option plan should reach the highest level of the performance scale, a maximum of 8,036,409 options would vest.

Restricted share units plan 2008

In June 2008 Enel’s Ordinary Shareholders’ Meeting approved an additional incentive mechanism, a restricted share units plan. The plan – which is also linked to the performance of Enel shares – differs from the stock option plans in that it does not involve the issue of new shares and therefore has no diluting effect on share capital. It grants the beneficiaries rights to receive the payment of a sum equal to the product of the number of units exercised and the average value of Enel shares in the month preceding the exercise of the units.

Beneficiaries

The plan covers the management of the Enel Group (including the managers already participating in the 2008 stock option plan, which includes the Enel CEO in his capacity as General Manager), with the exception of the managers of the Infrastructure and Networks Division for the reasons discussed with the 2007 stock option plan.

The beneficiaries have been divided into brackets and the basic number of units granted to each has been determined on the basis of the average gross annual compensation of the bracket, as well as the price of Enel shares at the start of the period covered by the plan (January 2, 2008).

Exercise conditions

Exercise of the units – and the consequent receipt of the payment – is subordinate to the condition that the executives concerned remain employed within the Group, with a few exceptions (such as, for example, termination of employment because of retirement or permanent invalidity, exit of the company at which the beneficiary is employed from the Group or inheritance) specifically governed by the Regulations.

As regards other exercise conditions, the plan first establishes a suspensory operational objective (a “hurdle target”): (i) for the first 50% of the basic number of units granted, Group EBITDA for 2008–2009, calculated on the basis of the amounts specified in the budgets for those years; and (ii) for the remaining 50% of the basic number of units granted, Group EBITDA for 2008–2010, calculated on the basis of the amounts specified in the budgets for those years.

If the hurdle target is achieved, the actual number of units that can be exercised by each beneficiary is determined on the basis of a performance objective represented by:

(i)    for the first 50% of the basic number of units granted, a comparison on a total shareholders’ return basis – for the period from January 1, 2008 to December 31, 2009 – between the performance of ordinary Enel shares on the electronic stock exchange of Borsa Italiana SpA and that of a specific benchmark index calculated as the average of the performance of the MIBtel index (weight: 50%) – replaced with the FTSE Italia All Share index after an analogous substitution by Borsa Italiana in 2009 – and the Bloomberg World Electric Index (weight: 50%); and

(ii)   for the remaining 50% of the basic number of units granted, a comparison on a total shareholders’ return basis – for the period from January 1, 2008 to December 31, 2010 – between the performance of ordinary Enel shares on the electronic stock exchange of Borsa Italiana SpA and the benchmark index calculated as the average of the performance of the MIBtel index (weight: 50%) – replaced in 2009 with the FTSE Italia All Share index as indicated above – and the Bloomberg World Electric Index (weight: 50%).

The number that can be exercised may vary up or down with respect to the basic unit grant by a percentage amount of between 0% and 120% as determined on the basis of a specific performance scale.

If the hurdle target is not achieved in the first two-year period, the first tranche of 50% of the units granted may be recovered if the same hurdle target is achieved over the longer three-year period indicated above. It is also possible to extend the validity of the performance level registered in the 2008-2010 period to the 2008-2009 period, where performance was higher in the longer period, with the consequent recovery of units that did not actually vest in the first two-year period because of the lower performance level.

Exercise procedures

Once achievement of the hurdle target and the performance objectives has been verified, of the total number of units granted, 50% may be exercised as from the second year subsequent to the grant year and the remaining 50% as from the third year subsequent to the grant year, with the deadline for exercising all the units being the sixth year subsequent to the grant year.

In any event, each year the units can only be exercised during four time windows of ten business days each (to be announced by Enel over the course of the plan) in the months of January, April, July and October.

Developments in the 2008 restricted share units plan

The review conducted by the Board of Directors to verify satisfaction of the exercise conditions for the first 50% of the units granted found that in 2008-2009 (i) the hurdle target for Group EBITDA had been achieved, and (ii) Enel shares had slightly outperformed the benchmark index, meaning that according to the performance scale 100% of the units originally granted had vested.

The following table reports developments in the 2008 restricted share units plan:

Total units granted	Number of beneficiaries	Verification of plan conditions	Units lapsed at Dec. 31, 2008	Units lapsed in 2009
1,766,675 (1)	387 Group executives	First 50% of units vested (2)	None	11,350 (3)

Notes:
(1)  If the degree of achievement of the performance objectives indicated above should reach the highest level of the performance scale, a maximum of 2,120,010 units would vest.
(2) The review carried out by the Board of Directors to verify the achievement of the hurdle target and the performance target for the remaining 50% of units granted is scheduled to take place on the occasion of the approval of the consolidated financial statements of the Enel Group for 2010.
(3) Options lapsed for early termination of service of beneficiaries.

Number of RSU	2008 plan
RSU outstanding at December 31, 2008	1,766,675
RSU lapsed in 2009	11,350
RSU outstanding at December 31, 2009	1,755,325
of which vested at December 31, 2009	-
Fair value at the grant date (euro)	3.16
Fair value at December 31, 2009 (euro)	3.28
Expiry of the restricted share units	December 2014