Information document on the 2018-2021 Phantom Stock Plan of Terna S.p.A. Terna S.p.A. and the Terna Group Energy is our responsibility
Information document on the Phantom Stock Plan 2018-2021 of Terna S.p.A. Prepared in accordance with Art. 114-bis of Italian Legislative Decree no. 58 of 24 February 1998 (the TUF ) and Art. 84-bis of the Regulation adopted by CONSOB with Resolution n.11971 of 14 May 1999 as subsequently supplemented and amended ( Issuers Regulation ) This is a translation of the original Italian text. For any difference in the meaning between the original Italian text and its translation, the Italian text prevails. INFORMATION DOCUMENT ON THE 2018-2021 PHANTOM STOCK PLAN TERNA S.P.A. 1
Introduction Terna has been using variable remuneration instruments for management, linked to the multiyear performance of the Company for some time now; this aims to connect a share of the remuneration with the creation of value that is sustainable over time. With the appointment of the new Board of Directors and the Chief Executive Officer, during the Shareholders Meeting held on 27 April 2017, Terna noted the need to proceed with the design and implementation of a new long-term incentive plan. On this occasion, Terna chose to opt for an instrument that would, on the one hand ensure the greatest possible alignment with market practices, with the guidelines of the Governance Code and with the objectives of the new 2017-2021 industrial plan, and, at the same time, that would guarantee a complete cover of the time frame of the mandate of the new CEO and GM (2017-2019). In 2017, after the establishment of the new Board of Directors and the start of Committee works, due to the very narrow time frame available, which would not have allowed the normal approval process to be properly fulfilled, of an equity-based plan (based entirely on financial instruments), the Board of Directors first consulted with the Remuneration Committee and then decided, after the 2017 Shareholders Meeting, to prepare a rolling system, with the launch of a first three-year (2017-2019) cycle of monetary incentives, characterised by the possibility for the Board of Directors to choose whether or not to convert the Bonus into shares. The choice of this type of plan made it possible to apply an approval procedure that could launch the plan by September 2017, meeting the need to fully cover the term of the mandate of the new Chief Executive Officer, at the same time leaving the Board the option of choosing whether or not to disburse it through financial instruments. To complete the rolling LTI plan, the Board of Directors therefore appointed the Remuneration Committee to prepare a further two three-year cycles (2018-2020 and 2019-2021) based on phantom stocks, which are therefore submitted for the approval of the 2018 Shareholders Meeting through this Information Document. The Information Document has been prepared in accordance with Art. 84-bis of the Issuers Regulation and in line, also in terms of the numbering of the related paragraphs, with the indications given in Scheme 7 of Annex 3A of the Issuers Regulation, with the aim of providing the Shareholders Meeting with the information necessary to resolve approval of a financial instrument-based incentive plan called the 2018-2021 Phantom Stock Plan. After proposal by the Remuneration Committee, this Document was approved by the Board of Directors in the meeting held on 21 March 2018. The 2018 Ordinary Shareholders Meeting called to resolve on the 2018-2021 Phantom Stock Plan was convened as a single call on 04 May 2018 by the Board of Directors meeting held on 21 March 2018. We would specify that the Plan should be considered particularly important in accordance with Art. 114-bis, subsection 3 of the TUF and with Art. 84-bis, subsection 2, letters a) and b) of CONSOB s Issuer Regulation. This Information Document is made available to the public at the registered office of TERNA S.p.A. (Rome, viale Egidio Galbani, 70), on the TERNA S.p.A. website (www.terna.it) and on the authorised storage mechanism website 1Info (www.1info.it); it is also deposited with the market management company Borsa Italiana S.p.A. (www.borsaitaliana.it). INFORMATION DOCUMENT ON THE 2018-2021 PHANTOM STOCK PLAN TERNA S.P.A. 3
Definitions Grant : Shareholders Meeting : Shares : Beneficiaries : Stock Market : Remuneration Committee : Board or BoD : Assignment Cycles or Cycles : Rights Assignment Date : Phantom Stock Assignment Date : Right : Dow Jones Sustainability Index (or DJSI or Index): Cumulative Group EBITDA : Terna Group : Letter of Grant : Letter of Bonus Attribution : Performance Objectives : means the grant of the Rights to each Beneficiary to receive a given number of Phantom Stocks at the end of the Performance Plan and upon achievement of specific Performance Objectives. means the Ordinary Meeting of the Company s Shareholders. means the ordinary shares in the Company. the managerial resources of the Terna Group who benefit from the Plan. Telematic Stock Market organised and managed by Borsa Italiana S.p.A. (the Italian Stock Exchange). means the Remuneration Committee set up within the Board of Directors of Terna Spa with the composition in office at any particular time. means the Company s Board of Directors with the composition in office at any particular time. means the Assignment Cycles of the Plan, each lasting three years. means the date on which the Rights are assigned to each Beneficiary. means the date that determines the number of phantom stocks to be assigned to each Beneficiary and the consequent amount of the Bonus. means the right assigned to the Beneficiaries to receive Phantom Stocks in accordance with the provisions of the Regulation and Letter of Grant. the sustainability index published annually by the Company RobecoSAM, consisting of listed companies that are considered the best for sustainability performance and corporate social responsibility (CSR); in this document, specific reference is made to the World index. Earning Before Interest, Taxes, Depreciation and Amortisation (EBITDA) is an operative performance indicator; it is calculated as net profit before tax, net financial income (expense) and amortisation, depreciation and impairment. means: (i) the Company; and (ii) the Company s Subsidiaries. means the letter whereby the Company informs each Beneficiary of his participation in the Plan, also indicating the number of Rights assigned, the Performance Objectives and Target defined in respect of each Cycle. means the letter that will be delivered to each Beneficiary following the attribution of the Phantom Stocks and the related Bonus at the end of the Performance Period, for each of the 2 Plan Cycles. means the objectives identified by the Board of Directors in respect of the specific Performance Period of each Cycle, on the proposal of the Remuneration Committee, which, when achieved, mature the Phantom Stock Attribution Rights and the related Bonus. 4 TERNA S.P.A. INFORMATION DOCUMENT ABOUT THE 2018-2021 PHANTOM STOCK PLAN
Phantom Stock : Performance Period : Plan : Bonus : Relationship : Regulation : Company : Subsidiaries Company : Total Shareholder Return : means a unit representing the value of one Share, which will be converted into a cash Bonus according to the price determined conventionally as the average share price in the thirty working stock market days prior to the date of attribution, in accordance with the terms and conditions of the Regulation. means the three-year period, corresponding to each Plan Cycle, with reference to which the Performance Objectives are identified. means the 2018-2021 Phantom Stock Plan comprising this document and the documentation implementing it. means the gross amount in cash disbursed to each Beneficiary in connection with the number of Phantom Stocks attributed to the Beneficiary and in accordance with the provisions of the Plan Regulation. means the administrative or employment relationship in place between the Beneficiary and the Terna Group Company. means the document, approved by the Board of Directors on proposal of the Remuneration Committee, which regulates the terms and conditions for attributing the Plan. means TERNA - Rete Elettrica Nazionale Società per Azioni (abbreviated TERNA S.p.A. ), with registered office in viale Egidio Galbani, no. 70, Rome Company Register, Tax ID code and VAT no. 05779661007, R.E.A. in Rome no. 922416. means one of the Terna Group companies owning the Relationship with the Beneficiary. indicator measuring the total return of a share as the sum of its components: (i) capital gain: ratio between the change in the share price (difference between price recorded at the end and at the beginning of the reference period) and the price recorded at the beginning of the same period; (ii) dividends reinvested: the ratio between dividends per share distributed in the reference period and the price of the stock at the beginning of the same period. INFORMATION DOCUMENT ON THE 2018-2021 PHANTOM STOCK PLAN TERNA S.P.A. 5
Section 1 Beneficiaries 1.1. Indication of the names of the beneficiaries that are members of the Board of Directors or the Management Board of the financial instruments issuer, of companies controlling the issuer and direct or indirect subsidiaries of the issuer The Plan Beneficiaries include the General Manager of the Company, currently identified as Luigi Ferraris, who is also a member of the Company s Board of Directors and the Chief Executive Officer. 1.2. Categories of employees or collaborators of the financial instruments issuer and of the companies controlling the issuer or subsidiaries of such issuer The potential Plan Beneficiaries include managers of the Terna Group, whether Senior Managers with strategic responsibilities, other Senior Managers or Middle Managers, who carry out duties relevant to the achievement of the Group s strategic results; these addressees will be identified during Plan implementation, on the same or different dates but in any case by 31 December 2018 for the first Cycle and by 31 December 2019 for the second Cycle. The Board of Directors, or Chief Executive Officer on his delegation, has discretion in appointing the Beneficiaries. The Beneficiaries may vary for each Plan cycle and participation does not give rise to any obligation to identify the same Beneficiary during a subsequent cycle. Please note that participation in the Plan is determined exclusively according to the managerial role held in the Terna Group s organisational structures and, therefore, is in no way related to any offices as may be held by the Beneficiaries within the Company s administrative bodies or those of the Subsidiaries. For this reason, the names of these persons are not provided. 1.3. The names of the persons benefiting from the plan, who belong to the following groups: a) General Managers of the financial instruments issuer; The Plan applies to the General Manager of the company, currently identified as Luigi Ferraris. b) other Senior Managers with strategic responsibilities of the financial instruments issuer that is not of a smaller size, pursuant to Article 3, paragraph 1, lett. f) of Regulation no. 17221 of 12 March 2010, if during the financial year they have received total remuneration (obtained by adding together the monetary remuneration and the remuneration based on financial instruments) exceeding the highest total remuneration among those assigned to the members of the Board of Directors or of the Management Board, and to the general managers of the financial instruments issuer; The names of the additional Beneficiaries to be included in the groups indicated under point 1.3, letters a), b) and c) of Annex 3A, Scheme 7 of the Issuer Regulation, will be supplied later, as per Art. 84-bis, paragraph 5, letter a) of the Issuer Regulation. c) individuals controlling the share issuer, whether they are employees or those who work as collaborators in the share issuer; Not applicable. 6 TERNA S.P.A. INFORMATION DOCUMENT ABOUT THE 2018-2021 PHANTOM STOCK PLAN
1.4. Description and numerical indication, divided up according to category: The Plan is intended for the General Manager, Senior managers with strategic responsibilities, Senior managers and a select group of Middle managers of the Terna Group, who carry out functions relevant to the achievement of the Group s strategic results, up to a maximum of 80 Beneficiaries. The information envisaged by paragraphs 1.2, 1.3 and 1.4 above, will be supplied, where applicable, during implementation of the Plan, in accordance with Art. 84-bis, paragraph 5, letter a) of the Issuer Regulation. It should be noted that the incentive scheme under the Plan is the same for all Beneficiaries, differing only in the Assignment value, which increases in relation to the role held, the responsibilities assigned and the strategic nature of the resource. INFORMATION DOCUMENT ON THE 2018-2021 PHANTOM STOCK PLAN TERNA S.P.A. 7
Section 2 Reasons behind the adoption of the Plan 2.1. Objectives to be achieved by means of the attribution of the plans The Plan aims to guarantee the correlation between the creation of value for shareholder and the interests of managers carrying out functions relevant to the achievement of the Group s strategic results. More specifically, the Plan seeks to pursue the following objectives: to focus the attention of management and key resources on the medium/long-term strategic success factors, ensuring a complete alignment of management s interests with those of the Shareholders; to support the retention strategy to keep management and key resources by staying (and improving) competitive on the domestic and international remuneration market; to activate a long-term incentive system that can create a close tie between remunerations, corporate results and the creation of value for Shareholders; to optimise Terna s commitment to social-environmental responsibility. The Plan develops over a medium/long-term time frame and is structured into two Cycles (2018 and 2019), each lasting three years. This range was considered the most suitable to pursue the pre-established incentive objectives and, in particular, to focus Beneficiaries attention on the medium/long-term strategic success factors of the Terna Group. 2.2. Key variables, including those in the form of performance indicators considered for the purposes of attributing plans based on financial instruments The Plan envisages a given number of Rights to receive Phantom Stocks for each Assignment Cycle, connected with the share value at the end of the Performance Period, as long as the Performance Objectives with which the plan is linked, have been achieved. The Bonus for both plan Cycles therefore depends on: number of Phantom Stocks accrued (according to the Terna Group performance); share value, according to the Stock Market performance. Each Beneficiary will be Assigned a certain number of Phantom Stocks, as notified in the Letter of Grant. For each Cycle, at the end of the Performance Period, a given number of Phantom Stocks assigned shall be attributed to the Beneficiaries on the basis of the results achieved in the previous three years and in connection with the following key performance indicators: 1. Operative performance with a weighting of 50% - cumulative EBITDA at the end of each three years, compared with the target three-year cumulative EBITDA; below is the related score curve: DELTA VS STRATEGIC PLAN TARGET SCORE -1% 80% Target 100% +2% 150% For negative deltas greater than 1% the score is zero. For intermediate figures linear interpolation is carried out. 8 TERNA S.P.A. INFORMATION DOCUMENT ABOUT THE 2018-2021 PHANTOM STOCK PLAN
2. Market performance, with weighting of 30% - Total Shareholder Return (TSR), measured in terms of Terna s positioning with respect to a reference peer group 1, over a time frame of three years; the related score curve is given below: TERNA POSITIONING SCORE 7 th to 6 th or 5 th place 0 4 th place 80% (minimum level) 3 rd place 100% (Target level) 1 st place or 2 nd place 150% (Maximum level) If, although positioned in 1 st or 2 nd place, the TSR of Terna is negative in the period of reference, overperformance will not be recognised: the associated score will therefore be 100% (so-called negative TSR threshold ). 3. Performance in connection with a Sustainability indicator, with a weighting of 20% - Dow Jones Sustainability Index (DJSI), calculated with reference to Terna s annual positioning for each Performance Period; below is the related score curve: in the event of failure to be included in the Index for all three years, 0; in the event of inclusion in the Index in all three years, 80% (minimum level); in the event of inclusion in all three years and a position amongst the top 7 companies at least one year out of the 3, 100% (target level); in the event of inclusion in all three years and 2 position amongst the top 7 companies at least 2 years out of the 3, 130%; in the event of inclusion in all three years and a position amongst the top 7 companies at least 2 years out of the 3 and in the 1 st decile in one year out of the three, 150% (maximum level). Assessment of achievement of the Plan objectives will be performed by the Board of Directors in order to determine the number of Phantom Stocks to be attributed on the basis of the indications given by the Remuneration Committee, during approval of the draft financial statements respectively as at 31 December 2020 for the second cycle and as at 31 December 2021 for the third cycle. The Phantom Stocks attributed will therefore be converted into a cash Bonus. This cash Bonus will be determined with reference to the average closure price of the ordinary Share of Terna in the last 30 working days of the Stock Market as from the reference date. 2.3. Elements used for determining the amount of remuneration based on financial instruments, i.e. the criteria for determining the amount The target value of the Assignment is represented by a percentage of the fixed remuneration of the Beneficiary according to the responsibilities assigned to the role. The entity of the incentives assigned by way of target to each Beneficiary is differentiated according to the level of responsibility/critical nature of the role and the strategic nature of the resource, from a minimum of 6.7% up to a maximum of 41.2% of the gross annual remuneration, for each year of the respective Plan Cycle. (1) The peer group consists of Terna and the following companies: Snam, Red Electrica, Enagas, National Grid, Severn Trent and United Utilities. Equities that are subject to extraordinary operations that entail their delisting or a significant reduction in the floating capital, will be replaced (up to a maximum of two) by the following stocks, listed in order: Elia, REN. INFORMATION DOCUMENT ON THE 2018-2021 PHANTOM STOCK PLAN TERNA S.P.A. 9
2. Reasons behind the adoption of the Plan - continued After having sought the opinion of the Remuneration Committee, upon closure of each Performance Period, the Board of Directors will verify the degree to which the Performance Objectives have been achieved, accordingly determining the number of Phantom Stocks and the Bonus to be attributed. The overall performance, for each Plan Cycle, is measured as the weighted average of the scores achieved for each of the three objectives, in accordance with their respective performance curves. Below an overall performance threshold level, equal to 80% of the target (the Gate ), no Bonus will be paid out to the Beneficiary. The maximum total score is 150% of the target assignment level. The number of Phantom Stocks to be attributed to Beneficiaries for each of the two Plan Cycles, will be determined on the basis of the results of the Terna Group Consolidated Financial Statements, as approved by the Company s Shareholders Meeting and, as regards the results relative to Total Shareholder Return, as resulting from the processing carried out by the Administration, Finance and Control and Investor Relations structures of the Company or any external company as may have been appointed to certify the results achieved. 2.4. The reasons underlying any decision to award payment plans based on financial instruments not issued by the issuer such as financial instruments issued by subsidiaries or parent companies, or third party companies vis-à-vis the group to which they belong; if such instruments are not traded on regulated markets, provide information on the criteria used for calculating the value attributed to them Not applicable. 2.5. Assessments regarding significant tax accounting implications that have affected the definition of the plan There have been no significant tax or accounting assessments that affected the preparation of the Plan. More specifically, in respect of the disbursement of the Bonus, the taxation regime applicable and in force in the state of tax residency of each Beneficiary, will be considered. 2.6. Any support for the plan provided by the Special Fund for the promotion of employee participation in enterprises, referred to in Art. 4, paragraph 112, of Law no. 350 of 24 December 2003 The Plan does not receive support from the Special Fund for the promotion of employee participation in enterprises, referred to in Art. 4, paragraph 112, of Law no. 350 of 24 December 2003. 10 TERNA S.P.A. INFORMATION DOCUMENT ABOUT THE 2018-2021 PHANTOM STOCK PLAN
Section 3 Process of approval and timescale for the assigning of instruments 3.1. Scope of powers and functions delegated by the Shareholders Meeting to the Board of Directors in order to implement the plan On 21 March 2018, on the proposal of the Remuneration Committee, the Board resolved to submit Plan approval to the Shareholders Meeting convened for 04 May 2018. At the Shareholders Meeting called to resolve on the Terna S.p.A. Phantom Stock Plan, it will be asked that the Board be attributed (on the proposal of the Remuneration Committee and with power of sub-delegation), all the widest powers necessary or appropriate to implement the Plan, to be exercised in accordance with the principles established by the same Shareholders Meeting and illustrated in this Information Memorandum, and in particular, by way of example and without limitation - where provided for after consulting the Remuneration Committee - (i) to approve and/or amend and/or supplement the Regulation of the Plan; (ii) to identify the Beneficiaries by name; (iii) to fix the amount of the Incentive to be attributed to each Beneficiary; (iv) to perform any act, obligation, formality, communication that may be necessary or appropriate for managing and/or implementing the Plan, including its amendment in compliance with the provisions of this information document. 3.2. Subjects appointed to administer the plan The bodies responsible for managing the Plan are the Board of Directors and the Remuneration Committee, whilst for beneficiaries other than the Executive Directors and Senior Managers with Strategic Responsibilities, the body responsible for managing the Plan is a subject specifically delegated to this end by the Board of Directors, after seeking the opinion of the Remuneration Committee. 3.3. Any existing procedures for the revision of the plans, also in relation to any changes to the basic objectives If the Shares are transformed or converted into a different number of Company Shares, as a result of capital operations, including, but not only, the division and grouping of Shares, the Board may resolve, at its own discretion and as it sees fit, all necessary changes to the number of Phantom Stocks to be connected with the Rights. The Board shall also have the faculty to adjust the Performance Objectives in such a way as to guarantee, in the interests of the Beneficiaries, a situation that is substantively fair with respect to that previously in place, if extraordinary and/or unforeseeable situations or circumstances should arise that may significantly affect the Group s scope and/or results or, more generally, the parameters behind the Performance Objectives; this is solely in order to preserve the purpose of the Plan in terms of assuring the constant alignment of corporate objectives with the objectives underlying the Beneficiary incentive systems. In the event of de-listing or a change in control, the Board may attribute the Phantom Stocks to the Beneficiaries and the corresponding Bonus, ahead of the terms envisaged by the Regulation. The Board may make all changes it deems appropriate to the Plan, so as to bring the Plan into line with provisions of the law and regulations, as well as to correct any inconsistencies, defects or omissions of the Regulation and/or Plan. INFORMATION DOCUMENT ON THE 2018-2021 PHANTOM STOCK PLAN TERNA S.P.A. 11
3. Process of approval and timescale for the assigning of instruments - continued 3.4. Description of the methods through which the availability and assignment of the financial instruments on which the plans are based, are determined (e.g. free assignment of shares, capital increases with the exclusion of option rights, purchase and sale of treasury shares). As this is a Phantom Stock plan, the Plan does not envisage the assignment or purchase of Shares by the Company. In order to implement the Plan, on the other hand, the attribution to the Beneficiaries of the Rights that determine, in accordance with the terms and conditions envisaged by the Regulation, the onset of the Beneficiary s right to have the Bonus paid. 3.5. The role played by each Director in determining the characteristics of the said plans; existence of any situations of conflict of interest regarding the Directors concerned In identifying the essential elements of the Plan, the Remuneration Committee was involved in the various phases of the processing, comprising non-executive, independent directors in accordance with the combined provisions of Articles 147-ter, paragraph 4 and 148, paragraph 3 of the TUF and in accordance with Article 3 of the Governance Code. The Chief Executive Officer and the General Manager abstained from participating in the resolutions of the Board of Directors relative to his remuneration. 3.6. For the purposes of the requirement of Art. 84-bis, paragraph 1, the date of the decision taken by the body responsible for proposing the approval of the plans to the Shareholders Meeting and of any proposal made by the Remuneration Committee In the meeting held on 20 March 2018, the Remuneration Committee expressed a unanimously favourable opinion on the proposed approval of the Plan by the Company s Board of Directors. In the meeting held on 21 March 2018, the Board of Directors approved the Plan, with the favourable opinion of the Committee, and proposed submitting it for the approval of the Shareholders Meeting, convened at a single call for 04 May 2018. 3.7. For the purposes of the requirement of Art. 84-bis, paragraph 5, lett. a) the date of the decision taken by the competent body on the allocation of instruments and of any proposal to the aforesaid body made by the Remuneration Committee The Rights envisaged by the Plan will be assigned to the Beneficiaries by the Board of Directors and, for Managers other than Executive Directors and Senior Managers with Strategic Responsibilities, by the subject duly delegated to this end by the Board of Directors, after seeking the opinion of the Remuneration Committee and after approval of the Plan by the Company s Ordinary Shareholders Meeting convened at a single call for 04 May 2018. The date of the decision taken by the Board of Directors with regards to the Assignment of the Phantom Stocks and the date of the potential proposal to the Board of Directors by the Remuneration Committee are not available at the time of preparing this Information Document; they will therefore be disclosed later, in accordance with Art. 84-bis, paragraph 5, letter a) of the CONSOB Issuer Regulation. 12 TERNA S.P.A. INFORMATION DOCUMENT ABOUT THE 2018-2021 PHANTOM STOCK PLAN
3.8. Market price, recorded on the aforementioned dates, of the financial instruments on which the plan is based, if traded on regulated markets The price of the shares at the time the rights are Assigned by the Board of Directors, will be disclosed in accordance with Art. 84-bis, paragraph 5 of the CONSOB Issuer Regulation. Below is the official Stock Market closure price of the Terna Share, as recorded on the dates specified in paragraph 3.6: official price at the Stock Market closure of the Terna Share on 20 March 2018, of Euro 4.723; official price at the Stock Market closure of the Terna Share on 21 March 2018, of Euro 4.747. 3.9. In the event of plans based on regulated financial instruments, in what terms and how the issuer takes into account, when identifying the timing for assigning the instruments in implementation of the plans, any possible coincidence in timing between: i. the said assignment or any decisions taken regarding this matter by the Remuneration Committee, and ii. the dissemination of any relevant information in accordance with Art. 114, paragraph 1. For example, if the information is: a. not already public and is likely to positively influence the market prices, or b. already published and likely to negatively influence market prices Any dissemination of inside information at the time of assignment of the Rights would be irrelevant with regards to the Beneficiaries who, on the basis of the Plan mechanism, which envisages the assignment of Phantom Stocks, cannot carry out any transactions on shares, as there is no material attribution of such. INFORMATION DOCUMENT ON THE 2018-2021 PHANTOM STOCK PLAN TERNA S.P.A. 13
Section 4 The characteristics of the attributed instruments 4.1. Description of the forms on which the payment plans based on financial instruments are structured The Plan consists of the assignment, to each of the Beneficiaries, of Rights to receive Phantom Stocks, in accordance with the terms and conditions envisaged by the Regulation and the Letter of Grant. The number of Phantom Stocks to be attributed to the Beneficiaries is subject to the achievement of the Performance Objectives, according to the criteria set out in paragraph 2.2 above. The Phantom Stocks are attributed at the end of the Performance Period and then converted into a cash Bonus in accordance with the criteria given in paragraph 2.2 above. 4.2. Indication of the period of effective implementation of the plan also with reference to any different cycles foreseen The Plan envisages two Assignment Cycles. The Assignment of Rights is envisaged in 2018 and 2019 and therefore structured on a rolling plan, i.e. established on an annual basis. 2016 2017 2018 2019 2020 2021 2017-2021 Plan - 1 st Monetary Cycle Release 60% Release 40% 2017-2021 Plan - 2 nd Phantom Stock Cycle 2017-2021 Plan - 3 rd Phantom Stock Cycle Phantom Stock Cycles The Phantom Stocks will be attributed to the Beneficiaries the year after the end of the Performance Period in respect of each Cycle (i.e. 2020 for the 2 nd Cycle, 2021 for the 3 rd Cycle) and converted into cash in accordance with the provisions of paragraph 2.2 above. 4.3. The term of the plan The Plan will conclude with the payment of the Bonus relative to the 3 rd Cycle, or rather after approval of the 2021 financial statements by the Shareholders Meeting. 4.4. The maximum number of financial instruments, also in the form of options, assigned in each tax year in relation to persons identified by name or to the stated categories The number of Phantom Stocks will be defined after approval of the Plan by the Shareholders Meeting. The number of Rights assigned is determined on the basis of the mechanisms described in paragraph 2.3. 4.5. The procedures and terms for implementing the plan, specifying if the actual attribution is subject to certain conditions or the achievement of certain results including performance results; description of such conditions and results The Attribution of the Phantom Stocks and the related conversion into the monetary Bonus, are conditional on: achievement of the specific Performance Objectives, as highlighted in paragraph 2.2.; 14 TERNA S.P.A. INFORMATION DOCUMENT ABOUT THE 2018-2021 PHANTOM STOCK PLAN
the effective continuation of the Contract of employment, without being in any notice period or in any case without having been notified of withdrawal; the directors must not have renounced office nor been revoked (see paragraph 4.8 below for more details). Without prejudice to the right to receive compensation for any additional damages, after disbursement of the Bonus, the Company reserves the right, within the time limit envisaged by current provisions of law and regardless of whether or not the contract is still in place or has ceased, to ask the Beneficiary to return any Bonus that has already been disbursed (called clawback ), if any of the following cases should apply: fraudulent conduct or wilful misconduct by the Beneficiary to the detriment of the Terna Group; serious, deliberate violations of the law, the Code of Ethics and company rules; disbursement of the Bonus on the basis of the data that is later seen to be clearly incorrect or wilfully altered. 4.6. Indication of any availability constraints imposed on the attributed instruments or on the instruments arising from the exercise of options, with particular reference to the terms within which the subsequent transfer to the same company or third parties is allowed or forbidden As this is a Phantom Stock Plan, there is no provision for the attribution of Shares or options and, therefore, this section does not apply. 4.7. Description of any resolute conditions in relation to the attribution of the plans in the event of the beneficiaries carrying out hedging transactions that allow any bans on the sale of the assigned financial instruments to be neutralised, also if referring to options or financial instruments arising from the exercise of such options As this is a Phantom Stock Plan, on which basis no shares or options are assigned, hedging transactions are not possible that allow for the neutralisation of any bans on the sale of the assigned Rights; this section does not, therefore, apply. 4.8. Description of the effects arising from the termination of employment Any Beneficiaries who, at the time the Bonus is paid, for each Cycle, are still in a Relationship, without being in any notice period or in any case without any notice having been given of withdrawal, are entitled to receive the Bonus; directors must not have renounced office or been revoked. In the event of cessation of the Relationship before the Bonus is paid, the Beneficiary automatically forfeits all Rights (or any Phantom Stocks already attributed), which shall become ineffective and it shall have no further right to receive any compensation or indemnity of any kind from the Company and/or the Subsidiaries. It is also specified that in the event of cessation of the Relationship before payment of the Bonus for any reason other than: - disciplinary dismissal; - resignation without just cause; - revocation on grounds of gross misconduct from the office of director; - dismissal not on grounds of gross misconduct of the director; INFORMATION DOCUMENT ON THE 2018-2021 PHANTOM STOCK PLAN TERNA S.P.A. 15
4. The characteristics of the attributed instruments - continued and, therefore, also in the event of termination of the Relationship by mutual consent, the right will be maintained (for the Beneficiary or heirs or successors) to receive, at the end of the performance period, a part share of the Bonus, applying the criterion of pro-rata temporis. 4.9. Information about other possible causes for cancelling the plans Without prejudice to the provisions of the paragraphs above, there are no other causes for cancelling the Plan. 4.10. Reasons concerning the possible redemption by the company of the financial instruments covered by the plans, pursuant to Article 2357 et seq. of the Italian Civil Code; the Beneficiaries of the redemption indicating whether the same is only intended to particular categories of employees; the effects of the termination of employment Not applicable. 4.11. Any loans or other benefits which are intended to be granted for the purchase of shares in accordance with Art. 2358, paragraph 3 of the Italian Civil Code. Not applicable. 4.12. Information on the assessments of the expected economic burden for the Company on the date of the related assignment, as determined based on terms and conditions already defined, for the total amount and in relation to each plan instrument. This value is not presently able to be determined insofar as it will depend on the Share value at the time the Phantom Stocks are attributed, or the Bonus disbursed. The estimated cost of the 2018-2021 Phantom Stock Plan, i.e. the total of the two threeyear cycles, in the event that target performance should be achieved and hypothesising that the price of the Terna Share remains stable during the performance period (with respect to the price of 4.747 recorded on 21 March 2018), is approximately 20 million, for a maximum of 80 employees. 4.13. Information about any dilutive effects on the capital determined by the payment plans 4.14-4.23 Not applicable. The sections on the attribution of shares and stock options are not applicable. ---- Table no. 1, which is envisaged by paragraph 4.24 of Scheme 7 of Annex 3A to the Issuer Regulation, will be supplied later, in accordance with the terms and conditions pursuant to Art. 84-bis, paragraph 5, letter a) of the Issuer Regulation. 16 TERNA S.P.A. INFORMATION DOCUMENT ABOUT THE 2018-2021 PHANTOM STOCK PLAN
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