2002 Annual Report - 131th Year Pirelli & C. - Accomandita per Azioni Registered office in Milan - Via G. Negri 10 Share capital - Euros 339,422,773.56 fully paid-in Milan Companies Registry and Tax Code No. 00860340157

Annual Report 2002-131th Year

PIRELLI & C. Accomandita per Azioni

Leopoldo Pirelli Honorary Chairman

BOARD OF MANAGING PARTNERS

Marco Tronchetti Provera Chairman Alberto Pirelli Deputy Chairman Carlo Buora Luigi Orlando Carlo Alessandro Puri Negri

Sergio Lamacchia Secretary to the Board

BOARD OF STATUTORY AUDITORS

Roberto Bracchetti Chairman Paolo Lazzati Standing member Salvatore Spiniello Standing member Paolo Colombo Alternate Marco Reboa Alternate

GENERAL MANAGER

Carlo Alessandro Puri Negri

INDEPENDENT AUDITORS

PricewaterhouseCoopers S.p.A.

Note: The nature of the powers delegated to the Chairman and Deputy Chairman are described on page 45 under Corporate Governance.

3 NOTICE OF ANNUAL GENERAL SHAREHOLDERS’ MEETING

Notice is hereby given that the Annual General Meeting of the shareolders of Pirelli & C. - Accomandita per Azioni, in ordinary session, will be held in Milan, at the Associazione Industriale Lombarda in Via Pantano 9 at 10:30 A.M. • Friday, May 7, 2003 in first call • Monday, May 8, 2003 in second call to discuss the following

AGENDA

Ordinary Meeting 1) Directors’ Report on operations; report by the Board of Auditors; balance sheet as of 31 December 2002; allocation of profits. 2) Proposal for the purchase and procedures for the disposal of own shares, subject to the prior revocation of the resolution adopted by the Board on 13 May 2002, insofar as it has not been employed. Inherent and consequent resolutions. Appointment of powers.

Extraordinary Meeting 1) Change the limited share partnership company into a joint stock company and alter its business purpose; subsequent amendment of existing articles 1 (company name), 2 (business purpose), 7 (calling the meeting), 8 (setting up the meeting), 9 (chairmanship of the general meetings), 10 (corporate management), 11 (calling the administrative body and majorities), 12 (representing the company), 13 (directors’ remuneration), 14 (termination of directors) and 17 (allocation of profits) of the articles of association. Inclusion of a new article on the powers of the Board of Directors between articles 10 and 11 to be identified as article 11 and the new numbering of subsequent articles. Inherent and consequent resolutions. Appointment of powers. 2) Increase of the share capital which can be split for sale by issuing 1,950,355,809 ordinary shares at the most, flanked by an equal number of free warrants each equipped with independent circulation properties which will be offered as an option for ordinary and savings shareholders for a total of three new ordinary shares and a warrant for each owned share, whatever its nature, for a unit price of 0.52 Euros per share, corresponding to its face value. Subsequent increase of the share capital which can be split for sale by issuing 487,588,952 ordinary shares at the most, even in several batches, exclusively

4 and irrevocably linked to the use of the warrants (linked to a maximum number of 1,950,355,809 ordinary shares obtained by increasing the capital as described above) at a unit price of 0.52 Euros per share, corresponding to its face value. Subsequent amendment of article 5 (share capital) of the articles of association. Approval of the Regulation “Warrant for ordinary Pirelli & C. shares 2003-2006”. Inherent and consequent resolutions. Appointment of powers. 3) Endorsement of the merger plan by incorporation into Pirelli & C. A.p.A. (Pirelli & C. S.p.A. once it has become a joint stock company) of Pirelli & C. Luxembourg S.p.A. (fully owned company) and Pirelli S.p.A. amongst others, which will entail: (i) assigning a maximum number of 1,398,203,116 new ordinary shares and 113,580,020 new savings shares of Pirelli & C. - due as of 1 January of the year in which the merger comes into force in reference to third parties - to ordinary and savings shareholders of Pirelli S.p.A. in a ratio of 4 new Pirelli & C. ordinary shares every 3 Pirelli S.p.A. ordinary shares and 10 new Pirelli & C. savings shares every 7 Pirelli S.p.A. savings shares respectively; (ii) increasing the share capital of Pirelli & C. by issuing a maximum number of 1,398,203,116 ordinary shares and 113,580,020 savings shares of Pirelli & C. to serve the merger and the consequent amendment of article 5 (share capital) of the articles of association. (iii) assigning the Directors, as per article 2443 of the Italian Civil Code, the faculty to increase the share capital once or in several occasions and for a maximum amount of 52,000,000.00 Euros face value, by issuing ordinary shares to be assigned to managers and to the middle-management of Pirelli & C. A.p.A. (after becoming a joint stock company Pirelli & C. S.p.A.) and of the subsidiary companies, including the subsidiaries of the latter, both in Italy and abroad, as per articles 2441 and/or 2349 of the Italian Civil Code, also to successfully uphold the shareholding incentive plan of the incorporation company Pirelli S.p.A.. Subsequent further amendment of article 5 (share capital) of the articles of association; (iv) further amendment of article 17 (allocation of profits) – which has become article 18 under the new numbering - of the articles of association. Inherent and consequent resolutions. Appointment of powers.

Again in the ordinary meeting 3) Appointment of the Directors, as the mandate of the unlimited partners has ended due to the company becoming a joint stock company, after having defined their number; definition of the remuneration due to the Directors. 4) Appointment of the Board of Auditors and its Chairman; determination the honorarium for the Statutory auditors.

5 6 TABLE OF CONTENTS

Notice of Annual General Shareholders’ Meeting Page 4

Agenda » 4

Summary of selected consolidated financial data » 8

Report of the Managing Partners »9 – The Group » 11 – Significant subsequent events » 22 – Outlook for the current year » 22 – Related party disclosures » 22 – Performance of the major group companies » 24 – Equity investments held by the Managing Partners » 38 – Proforma data » 39 – Stock option plans » 44 – Corporate Governance » 45 – The parent company - Pirelli & C. » 67

Shareholders’ resolutions » 71

Consolidated financial statements at December 31, 2002 – Consolidated balance sheets » 76 – Consolidated statements of income » 80 – Notes to consolidated financial statements » 82 – Supplementary information » 115 – Indipendent Auditor’s Report » 135

Extraordinary Session » 137

7 FIVE-YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA (in millions of euros)

2002 2001 2000 1999 1998

Net sales 6,718 7,762 7,697 6,654 5,655 Gross operating profit 523 704 850 699 733 Operating profit 118 297 432 322 397 Net income (loss) (405) 194 3,759 293 282 Net income (loss) attributable to Pirelli & C. (58) 125 1,405 86 74 Earnings (loss) per share (in euros) (0.09) 0.20 2.28 0.14 0.12

Fixed assets 6,596 7,092 3,728 3,312 2,916 Net working capital 991 1,314 667 1,401 1,256 Net invested capital 7,587 8,406 4,395 4,713 4,172 Shareholders’ equity 4,626 5,407 5,844 2,313 2,245 Provisions 911 970 1,186 803 731 Net financial (liquidity)/debt position 2,050 2,029 (2,635) 1,597 1,196 Net equity attributable to Pirelli & C. 1,933 2,119 2,171 809 748 Equity per share (in euros) 2.96 3.39 3.52 1.35 1.20

Free cash flows 476 26 176 96 122 Net cash flows (168) (4,691) 4,118 (388) (1,235) R&D expenditures 219 237 213 200 196 Capital expenditures 337 646 570 476 390

Gross operating profit/Net sales 7.79% 9.07% 11.04% 10.50% 12.96%

Operating profit/Net sales 1.76% 3.83% 5.61% 4.84% 7.02%

Net icome/Net equity (8.75%) 3.59% 64.32% 12.67% 12.56%

Operating profit/Net invested capital 1.56% 3.53% 9.83% 6.83% 9.52%

Net financial position/Net equity 0,44 0,38 (0,45) 0,69 0,53

Pirelli & C. ordinary share (No. in millions) 618.2 591.4 582.8 563.6 563.6 Pirelli & C. savings share (No. in millions) 34.4 34.4 34.4 34.4 34.4 Total Pirelli & C. shares (No. in millions) 652.6 625.8 617.2 598.0 598.0 Treasury shares (No. in millions) 2.6 2.6 2.6 2.6 2.6

8 REPORT OF THE MANAGING PARTNERS

Dear Shareholders, the consolidated financial statements of the Pirelli & C. Group for the year ended December 31, 2002 show a consolidated net loss of Euros 405 million compared to a consolidated net income of Euros 194 million in the prior year. The result includes Euros 275 million of restructuring charges, Euros 13 million of extraordinary income, Euros 138 million of writedowns and Euros 150 million for the effect of valuing the investment in Olimpia S.p.A. using the equity method. Offsetting the above expenses were the gain realized on the offering of Pirelli & C. Real Estate S.p.A. shares on the stock market (Euros 149 million before income taxes) and the gain realized by Pirelli & C. Real Estate S.p.A. on the sale of the last tranche of ex-Unim securities in the portfolio (Euros 51 million). The net loss, after minority interest, is equal to Euros 58 million compared to a net income of Euros 125 million in the prior year. Net sales amount to Euros 6,718 million, with a decrease of 8.2 percent compared to 2001, net of the negative currency exchange effect due to the conversion into Euros (-5.2 percent).

Realization by Pirelli & C. Real Estate: the company’s new headquarters under construction in the Bicocca area, Milan.

9 The change is principally due to lower volumes (-7.1 percent) and the negative price/mix effect (-1.1 percent). It should be emphasized that the fall in the reference market of the Telecom Cables and Systems Sector alone (-70 percent) led to a 9 percent reduction in net sales overall, again net of the currency exchange effect.

Gross operating profit is Euros 523 million (7.8 percent of net sales) compared to Euros 704 million in 2001 (9.1 percent). The reduction is entirely due to the contraction of the Telecom Cables and Systems Sector (Euros 156 million), owing to the intensification of the crisis in the TLC market, and the end of the supply contract with Cisco Systems (Euros 59 million), only partly offset by growth in the Energy Cables and Systems Sector, the Tyres Sector and the real estate sector.

Operating profit decreased from Euros 297 million (3.8 percent of net sales) to Euros 118 million (1.8 percent of net sales). Constant and continuing attention to the efficiency of production factors, in addition to the efforts taken by management to reduce costs through the restructuring plan, led to a gross reduction in costs of Euros 215 million in 2002. However, these savings were not sufficient to contain the negative effects of the economic scenario, particularly with regard to the Telecommunications Cables and Systems Sector. In any event, the Energy Cables and Systems Sector bettered its performance and the Tyres Sector reported a strong gain in results, especially compared to the competitive panorama of the reference industries.

The net financial position went from a debt position of Euros 2,029 million (Euros 1,954 million excluding a liability for project financing contracted by Pirelli & C. Real Estate S.p.A. with Deutsche Bank following the finalization of a preliminary contract for the sale of a building under construction, which in substance represents an advance payment against the work in progress) to Euros 2,050 million. The change is principally due to the change in the net financial position of the Pirelli S.p.A. group of Euros 380 million (mainly for disbursements regarding expenses for restructuring programs set aside in previous years, the final payment of income taxes on the sale of Optical Technologies to Corning, the payment of dividends, offset by the sale of tax receivables to Unicreditfactoring S.p.A. and Mediofactoring S.p.A. in the first half) and the payment of dividends for Euros 52 million, partly counterbalanced by the positive effect of the offering of Pirelli & C. Real Estate S.p.A. shares on the market (equal to Euros 284 million, of which Euros 105 million refer to the Pirelli & C. Real Estate S.p.A. capital increase and Euros 179 million to the sale of shares in the portfolio of Pirelli & C.).

The financial statements at December 31, 2002 of Pirelli & C., the parent company, show a net income of Euros 60 million compared to Euros 148 million in the prior year.

10 THE GROUP

The performance of the Group in 2002 was sharply affected by the unprecedented crisis in the telecommunications infrastructures market, which had serious repercussions on the performance of companies in the sector in all the major countries of the Western world. This market has been the focus of a worldwide contraction in demand of more than 70 percent in terms of value. In addition, in defiance of the negative trend of the international economy, combined with uncertainties in the economic scenario, the Energy Cables and Systems Sector, reported a slight improvement in profitability, although investments have so far failed to regain momentum. Conversely, it should be emphasized that the Tyres Sector continued to deliver growth. This being the case, management of the Group showed a high capacity for reacting to the drastic changes of the market, on the one hand, by implementing measures to limit costs, leading to considerable savings in operating expenses and a reduction of the breakeven point, and, on the other, by focusing even greater attention on the management of cash flows, which was confirmed by a significant growth in free cash flows and better control over net indebtedness. Against the market background described above, in November, the Group decided to step up and intensify action already in progress in the various operating sectors to improve efficiency, in order to create the optimum conditions for acting upon any signs of a recovery as soon as they are perceived. The restructuring plan, which concentrated on the Energy and Telecom Cables and Systems Sectors and focused on rationalizing resources and industrial facilities, impacted 2002 results for a total of Euros 275 million.

Widely tunable laser for optical networks, produced in the Pirelli Labs, Milan.

11 As for the real estate sector, 2002 was a particularly important year for Pirelli & C Real Estate S.p.A. and can be summed up as follows: – important transactions were carried out for the acquisition of highly prestigious real estate properties for their relative management and leveraging; – the company entered new lines of business with interesting prospects for development, the main field being non-performing loans; – steps were taken to begin the strategic reorganization of the tertiary portfolio by creating the first line of long-term investments which will lead to the start of real estate funds; – the listing of the Company on the stock exchange raised capital resources to finance investments and reinforce the Company’s visibility in the Italian and international panorama.

Having reached these strategic objectives, the year 2002 closed with sharply higher results that confirmed the development plan announced by the company at the time of its listing and laid the groundwork for a future that will deliver even higher growth.

The following is a description of the major events in 2002, in chronological order: In February, Pirelli Finance (Luxembourg) S.A. signed a derivative equity swap agreement with J.P. Morgan on 100,000,000 Olivetti S.p.A. shares, expiring December 2006. Settlement can either be made through the physical delivery of the shares or through the payment of the differentials compared to the market prices. The initial price is equal to Euros 1.4213 per share plus quarterly interest at the 3- month Euribor plus a spread of 143 bps.

In March, the placement was completed for bonds of Euros 500,000,000 issued by Pirelli Finance (Luxembourg) S.A., maturing April 4, 2007, with a fixed interest rate of 6.5 percent. The bond issue serves to satisfy the objective of refinancing short-term debt by optimizing the financial structure of the Group from the standpoint of both interest rates and maturity dates. The proceeds from the issue were received at the beginning of April.

On April 22, 2002, an agreement was signed for the sale of the 25.3 percent interest in EPIClink S.p.A., a company specialized in providing outsourcing services in the area of Information and Communication Technology, to Telecom Italia S.p.A.. The sale took place on August 1, 2002, once authorization was received from the antitrust authorities.

On April 2, 2002, the shareholders’ meeting of Pirelli & C. Real Estate S.p.A. passed a resolution to request the listing of Pirelli & C. Real Estate S.p.A.’s ordinary shares on the Mercato Telematico Azionario (automated screen market) of the stock exchange. On May 9, the Board of Managing Partners of Pirelli & C examined the structure of the Global Offer for the listing of the shares of the subsidiary, Pirelli & C. Real Estate S.p.A.. The transaction consisted of an offer of a maximum of 14,150,000 ordinary shares that partly (4,050,000 shares) came from a share capital increase

12 excluding option rights and partly (10,100,000 shares) from ordinary shares put on sale by Pirelli & C.. The Board of Managing Partners also passed a resolution to grant a greenshoe option for a maximum of 2,100,000 shares. Furthermore, having taken note of the decision made by the Pirelli & C. Real Estate Board of Directors to adopt a program that constantly involves the employees and management in the creation of economic value through a stock option plan for the three-years 2002 – 2004, the Board of Managing Partners of Pirelli & C. decided to close and settle the existing stock option plan for directors, executives and employees of Pirelli & C. Real Estate and its subsidiaries and associated companies. Borsa Italiana S.p.A., under measure No. 2358 dated May 29, arranged for trading of the shares, after verifying that there would be a sufficiently broad distribution of Pirelli & C. Real Estate S.p.A. ordinary shares floated under the Global Offer. On June 5, Consob authorized the publication of the Offering Memorandum for the Public Offer of Subscription and Sale and the official listing of Pirelli & C. Real Estate S.p.A. ordinary shares.

The P Zero Corsa tyre, fitted as original equipment to the Ferrari Challenge Stradale.

13 On June 20, the offer price was set at Euros 26 per share. On June 24, when the offer period had ended, 10,100,000 shares had been sold by Pirelli & C. (with realization of a pre-tax gain of Euros 143 million) and the entire share capital increase of 4,050,000 shares by Pirelli & C. Real Estate S.p.A. had been subscribed. Subsequently, on July 25, the greenshoe option was partly exercised for 265,442 Pirelli & C. Real Estate S.p.A. shares; Pirelli & C. realized a pre-tax gain on this transaction of Euros 6.7 million. After the greenshoe option was exercised, 14,415,442 Pirelli & C. Real Estate S.p.A. ordinary shares had been floated on the market, equal to 35.50 percent of the outstanding share capital of the company.

During 2002, Pirelli & C. purchased 16,329,356 Pirelli S.p.A. ordinary shares on the market at an average price per share of Euros 1.05. After these transactions and taking into account the writedown taken by Pirelli & C for tax purposes, at December 31, 2002, Pirelli & C. holds, directly or indirectly through Pirelli & C. Luxembourg S.A., 39.20 percent of voting capital (37.90 percent of the entire share capital) of Pirelli S.p.A.. The average carrying value is equal to Euros 2.10 per share. At the end of October, the first line of long-term investments was set up through two vehicle companies (commonly called Tiglio I and Tiglio II) to which tertiary properties were contributed worth Euros 3.15 billion. Pirelli & C. Real Estate – which holds about a 13 percent stake in the vehicles – performs asset management activities and acts as the service provider on an exclusive basis.

On December 19, 2002, a transaction was approved to expand the shareholder base of Olimpia S.p.A., with the consequent strengthening of the shareholders’ equity and financial structure of the company. The transaction provides for the early redemption of bonds issued by Olimpia denominated “Olimpia S.p.A. 1.5 percent 2001-2007” (about Euros 262.5 million of which are owned by Hopa S.p.A. (hereinafter “Hopa”) and about Euros 0.7 million by a third party in no way linked by any agreement with Hopa) and a subsequent merger by incorporation in Olimpia by a wholly-owned subsidiary of Hopa (Holy S.r.l., hereinafter “Holy”), with a shareholders’ equity of not less than Euros 961 million and with no debt. Hopa, after the merger by incorporation of its subsidiary Holy, will obtain an approx. 16 percent investment in Olimpia.

Subsequent to the merger, Olimpia S.p.A.’s share capital will be held by the following:

Pirelli: 50.4% Edizione Finance International: 16.8% Hopa: 16% Banca Intesa 8.4% Unicredito 8.4%

This transaction will permit Olimpia S.p.A. to reach the following important objectives:

– a stronger balance sheet structure due to the reduction in debt of some Euros 476 million (following the early redemption of the bonds); an increase in shareholders’ equity of Euros 961 million owing to the merger with Holy and an improvement in the net financial position due to the injection of liquidity of

14 approx. Euros 99 million which will occur as a result of the merger with Holy, with a better gearing ratio which decreases from 0.7 to 0.5.

– the greater flexibility that will be reached with the cessation of the restrictions and financial expenses connected with the bond issue which is expected to be almost totally extinguished.

The redemption of the bonds and the merger of Olimpia S.p.A. and Holy will take place as described below. Olimpia will offer early redemption to the bondholders with the delivery of not only Olivetti shares, as planned, but with a combination of about 99 million Olivetti shares and some 164 million Olivetti convertible bonds. Holy, at the time of the merger, will have liquidity of about Euros 99 million, some 100 million Olivetti shares, around 164 million Olivetti bonds, in addition to a 19.99 percent interest in Holinvest. Holy’s shareholders’ equity will be equal to Euros 961 million. Holinvest – 80.001 percent held directly and 19.999 percent held indirectly by Hopa, through Holy – will have assets consisting of some 135 million Olivetti 1.5% 2001-2010 convertible bonds, the right to obtain, by June 30, 2003, about 164 million Olivetti 1.5% 2001-2010 convertible bonds acquired from the repayment of the same number of Olimpia S.p.A. bonds and about 486 million CDC indexed bonds and the same number of Olivetti ordinary shares and 2,431 Olivetti shares. As a result of the new agreement that Hopa signed with Olimpia S.p.A.’s shareholders, Hopa will have the right to nominate a director in Olimpia S.p.A. and in the main listed companies of the Olivetti-Telecom Group. Hopa, which will hold no veto rights in Olivetti, in the event of dissent concerning important extraordinary transactions or if certain ratios are not met by Olimpia (1:1 debt to equity ratio), can obtain the spin-off of Olimpia S.p.A., whereas Olimpia S.p.A. can obtain the spin-off of Holinvest. Accordingly, Hopa would receive the proportional share of Olimpia S.p.A.’s assets and liabilities and Olimpia S.p.A. would receive the proportional share of Holinvest’s assets and liabilities. Regardless, the spin-off can not take place until 36 months have passed since the agreements came into force, unless extraordinary events occur of unusual severity. Moreover, Holinvest will keep at least the majority of the financial instruments and the Olivetti convertible bonds for a period of 20 months from the date of the signing of the agreements. Subsequently, a pre-emptive right on said instruments and bonds will be granted to Olimpia, at the same conditions. At the end of the agreement, a further pre- emptive right for a period of two years will be granted to Olimpia S.p.A..

On December 23, 2002, Pirelli S.p.A., through the subsidiary Pirelli Cavi e Sistemi Energia S.p.A., and the private equity fund Investitori Associati III (Alfieri Associated Investors), reached an agreement for the purchase, on the part of Investitori Associati, of the manufacturing and marketing business carried out by Pirelli in the enameled wires and transposed conductors sector in Europe and China through the affiliates Invex and Icew Insulated Conductors, as well as the option to purchase the business in Brazil at net equity value by September 2004. The deal falls under a broader plan for the rationalization of Pirelli’s Energy Cables and Systems Sector, announced in November, which focuses on business segments with higher value-added.

15 According to the understanding reached, Pirelli sold Investitori Associati the Invex plant facilities in Quattordio (Alessandria, Italy) and in Baoying (China), with about 350 employees and 2001 sales of some Euros 110 million, specialized in the manufacturing of copper and aluminum wires used as conductors in the production of engines and transformers, in particular, enameled wires, transposed conductors, enameled and belted straps with special belts and fiberglass. The transaction had a negative impact on the 2002 statement of income of about Euros 6 million and will have a positive impact on the net financial position of about Euros 28 million.

View of the laboratories for high voltage studies.

16 Key figures of the consolidated financial statements can be summarized as follows:

(in millions of euros) 12/31/2002 12/31/2002 12/31/2001 excluding Olimpia • Net sales 6,718 6,718 7,762 • Gross operating profit 523 523 704 % of net sales 7.8% 7.8% 9.1% • Operating profit 118 118 297 % of net sales 1.8% 1.8% 3.8% • Share of earnings (losses) of equity investments (25) (175) (32) • Operating profit (loss) including share of earnings (losses) of equity investments 93 (57) 265 • Financial income (expenses) (178) (178) (38) • Extraordinary items (83) (83) 156 • Icome (loss) before income taxes (168) (318) 383 % of net sales (2.5%) (4.7%) 4.9% • Icome taxes (87) (87) (189) • Net icome (loss) (255) (405) 194 % of net sales n.s. n.s. 2,5% • Net icome (loss) attributable to Pirelli & C. (58) 125 • Earnings (loss) per share (in euros) (0.09) 0.20 • Shareholders’ equity 4.626 5.407 • Net equity attributable to Pirelli & C. 1,933 2,119 • Equity per share (in euros) 2.96 3.39 • Net financial (liquidity)/debt position 2,050 2,029 • Capital expenditures 337 646 • R&D expenditures 219 237 • Employees (at year-end) 37,350 39,771 • Pirelli & C. ordinary shares (No. in millions) 618.3 591.4 • Pirelli & C. savings shares (No. in millions) 34.4 34.4 • Total Pirelli & C. shares (No. in millions) 652.7 625.8 • Treasury shares (No. in millions) 2.6 2.6

NET SALES Total Euros 6,718 million compared to Euros 7,762 million in the prior year. The reduction is due to:

• Foreign exchange effect (5.2%) • Volume (7.1%) • Prince/Mix (1.1%) (13.4%)

17 The distribution of net sales by sector is as follows:

Sector 2002 2001 • Pirelli S.p.A. Group – Cables and Systems Energy 45.0% 40.4% – Cables and System Telecom 7.0% 19.8% – Tyres 42.5% 36.7% – Intereliminations (0.5%) (0.2%) • Total Pirelli S.p.A. Group 94.0% 96.7% • Real Estate (Pirelli & C. Real Estate S.p.A. group) 6.3% 3.4% • Other and intereliminations (0.3%) (0.1%) 100.0% 100.0%

As far as the real estate sector is concerned, it should be borne in mind that net sales are not a significant indicator of the group’s operations since its activities are primarily developed through the acquisition of qualified minority stakes in companies which own real estate properties that are managed by the sector. A better expression of the real estate sector’s business volume, therefore, is aggregate production value (the sum of revenues and the change in inventories), which also includes the component generated by the minority-owned investments. Such aggregate production value, net of acquisitions, in 2002 is Euros 1,298 million (compared to Euros 608 million in 2001).

OPERATING PROFIT Is equal to Euros 118 million compared to Euros 297 million in the prior year, representing 1.8 percent (3.8 percent in 2001). Contributing to the operating profit of Euros 118 million are the industrial sector (Pirelli S.p.A. group) with Euros 117 million (Euros 295 million in 2001) and the real estate sector (Pirelli & C. Real Estate S.p.A. group) with Euros 42 million (Euros 44 million in 2001).

SHARE OF EARNINGS (LOSSES) OF EQUITY INVESTMENTS Is a loss of Euros 175 million compared to Euros 32 million in 2001. It includes the share of the result of companies accounted for using the equity method and writedowns in subsidiaries and associated companies. The caption particularly includes Pirelli S.p.A.’s share of the result of Olimpia S.p.A. (loss of Euros 150 million) and the writedowns of the investments in F.C. Internazionale Milano S.p.A. (Euros 18 million), e-Biscom S.p.A. (Euros 35 million) and Caltagirone Editore S.p.A. (Euros 24 million), whereas the share of the earnings of the companies in the real estate sector (Pirelli & C. Real Estate S.p.A. group) is Euros 60 million (compared to Euros 3 million in 2001).

OPERATING PROFIT (LOSS) INCLUDING SHARE OF EARNINGS (LOSSES) OF EQUITY INVESTMENTS The operating loss, including the share of earnings (losses) of equity investments totals Euros 57 million compared to an operating profit of Euros 265 million in 2001.

18 Contributing to this result are the Pirelli S.p.A. group with a loss of Euros 113 million (profit of Euros 262 million in 2001) and the real estate sector (Pirelli & C. Real Estate S.p.A. group) with earnings of Euros 102 million (Euros 47 million in 2001). Bearing in mind the business model adopted by the company, this is the most significant indicator of the real estate sector’s operating performance.

FINANCIAL INCOME (EXPENSES) Is an expense balance of Euros 178 million compared to Euros 38 million in the prior year. The balance includes Euros 38 million to adjust the value of securities in portfolio to market prices while the remaining amount of Euros 140 million represents the balance of financial income and expenses (including exchange gains and losses and accessory charges) relating to net indebtedness.

EXTRAORDINARY ITEMS Show an expense balance of Euros 83 million compared to an income balance of Euros 156 million in 2001. The current year mainly includes restructuring costs connected with the new rationalization measures focused on the Energy and Telecom Cables and Systems Sectors (Euros 275 million), the previously described gain on the offering of Pirelli & C. Real Estate S.p.A. shares on the market (Euros 149 million) and the gain realized by Pirelli & C. Real Estate S.p.A. on the sale of the last tranche of ex-Unim securities in portfolio (Euros 51 million).

In 2001, extraordinary items included the gain on real estate transactions by the Cables and Systems Sector (Euros 61 million), an earn-out at the end of the agreements with Cisco Systems (Euros 70 million) and gains realized by Pirelli & C. Real Estate S.p.A. (Euros 164 million) offset by industrial restructuring costs (Euros 151 million).

NET INCOME (LOSS) for the year 2002 is a net loss of Euros 405 million compared to a net income of Euros 194 million in 2001.

Contributing to the net result of Euros 405 million are the industrial sector (Pirelli S.p.A. group) with a loss of Euros 610 million and the real estate sector (Pirelli & C. Real Estate S.p.A. group) with a net income of Euros 125 million Before consolidating Olimpia S.p.A. using the equity method, the net loss is Euros 255 million.

19 SHAREHOLDERS’ EQUITY went from Euros 5,407 million to Euros 4,626 million, with a decrease of Euros 781 million, which can be analyzed as follows:

• Tanslation adjustments (336) • Net loss for the year (405) • Dividends to third parties paid by (141) – Pirelli & C. (52) – Pirelli S.p.A. (88) – Other Group companies (1) • Purchase of Pirelli S.p.A. shares (Pirelli & C.) (17) • Purchase of Pirelli & C. Real Estate S.p.A. treasury shares (50) • Conversion of Pirelli & C. 1998/2003 bonds 63 • Pirelli & C. Real Estate capital increase reserved for third parties 105 (781)

The shareholders’ equity attributable to Pirelli & C. is Euros 1,933 million (Euros 2.96 per share) compared to Euros 2,119 million (Euros 3.39 per share) at the end of last year.

NET FINANCIAL POSITION Went from a debt position of Euros 2,029 million (Euros 1,954 million excluding a liability for project financing contracted by Pirelli & C. Real Estate S.p.A. with Deutsche Bank following the finalization of a preliminary contract for the sale of a building under construction, which in substance represents an advance payment against the work in progress) to Euros 2,050 million.

The change of Euros 21 million can be analyzed as follows:

• Exchange differences (21) • Operating profit 118 • Depreciation and amortization 406 • Net investments – Pirelli S.p.A. group (375) – Other (67) (442) • Change in working capital 446 • Change in provisions and other (52) • Free cash flow 476 • Reclassification of derivatives referring to Olivetti securities (77) • Financial income (expenses) (178) • Extraordinary items (83) • Icome taxes (87) • Dividends paid (141) • Other changes (78) Net cash flows (168) Other changes in shareholders’ equity 168 Changes in net financial position (21)

20 “Reclassification of derivatives referring to Olivetti securities” refers to the reclassification, to financial assets in fixed assets, of Convertible Bond Asset Swaps on Olivetti S.p.A. 2010 convertible bonds and Share Swap Transactions on Olivetti S.p.A. shares / Olivetti S.p.A. 2010 convertible bonds held by the subsidiary Pirelli Finance Luxembourg S.A. (Pirelli S.p.A. group) that were previously classified in current financial assets.

“Other changes” mainly include the final payment of income taxes on the sale of Optical Technologies to Corning (Euros 263 million), the impact of the restructuring expenses accrued in prior years on cash (Euros 130 million), partly counterbalanced by the sale of tax receivables to Unicreditfactoring S.p.A. and Mediofactoring S.p.A. (Euros 113 million) and the reversal of the non-cash effects of the new accrued restructuring expenses and the reversal of the non-cash effects relating to new accrued restructuring charges (Euros 190 million).

DEBT TO EQUITY RATIO Is equal to 0.44 compared to 0.38 at December 31, 2001.

CAPITAL EXPENDITURES Amount to Euros 329 million compared to Euros 646 million in 2001. The ratio of capital expenditures to depreciation is 1.05.

R&D EXPENDITURES Are entirely charged to the statement of income and amount to Euros 219 million compared to Euros 237 million in 2001; they represent 3.3 percent of net sales (3.1 percent of net sales in 2001).

EMPLOYEES Number 37,350 at December 31, 2002 compared to 39,771 at December 31, 2001, with a reduction of 2,421. Taking into account the number of employees who left at the end of the year the total number of employees is 36,882.

21 SIGNIFICANT SUBSEQUENT EVENTS

On March 10, 2003, in accordance with the agreements reached by the two groups in March 1998, BZ Group exercised the second sales option relating to 2.5 percent of Pirelli S.p.A. ordinary shares with voting rights, at a price calculated - in compliance with the agreements - at the average price listed for the shares in the 90 trading sessions prior to the date the option is exercised, for a total amount of some Euros 43 million (equal to a price per share of Euros 0.90). Following the above, Pirelli & C. A.p.A. holds, directly and indirectly, a total of 800,191,375 Pirelli S.p.A. ordinary shares, equal to 41.7 percent of share capital with voting rights, at an average carrying value of Euros 2.03.

OUTLOOK FOR THE CURRENT YEAR

In the industrial sector (Pirelli S.p.A. group), the uncertainty surrounding the current economic and political situation does not allow for assumptions about an impressive upswing in the markets of the group. More particularly, in the Telecom Sector, no signs of improvement are expected until the end of the year, whereas, in the Energy Sector, selective investments in utilities are expected to continue and a slow recovery in demand is forecast for the other application sectors. The Tyres Sector will continue its policy of focusing on the high performance segment, which is expected to grow.

In this scenario, the Pirelli & C. Group expects to improve its operating result as a whole. In particular, the industrial sector (Pirelli S.p.A. group) will capitalize on the benefits arising from restructuring measures, whereas the real estate sector (Pirelli & C. Real Estate S.p.A. group), based on available information, can reasonably expect to achieve a higher operating profit in 2003, including the share of the results of its holdings, compared to the prior year.

RELATED PARTY DISCLOSURES

With reference to the disclosure required by Consob Communication No. 97001574 of February 20, 1997 and No. 98015375 of February 27, 1998 which refer to transactions by Group companies with related parties, a statement is made to the effect that all the transactions, including those between Pirelli & C. and its subsidiaries, and those among subsidiaries, fall under the ordinary operations of the Group, are governed by market terms, and there are no transactions of an unusual and exceptional nature or in potential conflict of interest.

The effects deriving from the transactions between Pirelli & C. and its subsidiaries are disclosed in the financial statements of the parent company and in the notes, just as transactions among subsidiaries are eliminated upon the preparation of the consolidated financial statements.

22 Furthermore, in order to provide more complete information, the transactions in 2002 between the Pirelli S.p.A. Group and the Olivetti Telecom group are described below. These transactions fall within the ordinary operations of the Group, are carried out at arm’s length and there are no transactions of an unusual and exceptional nature, or constituting a potential conflict of interests: revenues for goods and services, relating mainly to the supply of telecommunications cables (Euros 53 million); costs for goods and services, mainly relating to telephone services received (Euros 10 million); trade receivables, relating to the supply of the goods and services described above (Euros 8 million); trade payables, relating to the telephone services described above (Euros 1.6 million); other income, relating to the gain of Euros 6.8 million on the sale of the 25.3 percent stake held by Pirelli S.p.A. in EPIClink (sales price of Euros 17.7 million) and to the gain of Euros 0.8 million realized by Pirelli Informatica on the sale of a business segment to EPIClink (sales price of Euros 3 million).

The Scorpion STR tyre, latest addition to the Sport Utility Vehicle segment.

23 PERFORMANCE OF THE MAJOR GROUP COMPANIES

PIRELLI S.p.A. GROUP The key consolidated figures for the year ended December 31, 2002 are presented below:

Net sales amount to Euros 6,311 million and show a reduction of 10.6 percent compared to 2001, net of the foreign exchange effect (decrease of -5.4 percent). The change is principally due to lower volumes (-9.3 percent) and the negative price/mix effect (-1.3 percent). The fall in the net sales of the Telecom Cables and Systems Sector led to a 9.3 percent reduction in sales overall, again net of the exchange effect. Net sales by sector are 48 percent for the Energy Cables and Systems Sector, 7 percent for the Telecom Cables and Systems Sector and 45 percent for the Tyres Sector.

Gross operating profit is Euros 480 million, with a decrease of 27.9 percent compared to Euros 666 million in 2001. The reduction is entirely due to the contraction in the Telecom Cables and Systems Sector (Euros 156 million), owing to the intensification of the crisis in the TLC market, and the end of the supply contract with Cisco Systems (Euros 59 million), partly offset by growth in the Energy Cables and Systems Sector and the Tyres Sector.

Operating profit is Euros 117 million, equal to 1.9 percent of net sales, compared to Euros 295 million in 2001 (3.9 percent of net sales). Constant and continuing attention to the efficiency of production factors, in addition to the efforts taken by management to reduce costs through the restructuring plan were not sufficient to contain the negative effects of the economic scenario, particularly with regard to the Telecommunications Cables and Systems Sector. In any event, the Energy Cables and Systems Sector improved its performance and the Tyres Sector reported a strong gain in results especially compared to the competitive environment of the refered markets. The Group’s priority commitment to research and technological innovation is again confirmed by R&D expenditures which stand at roughly 3.5 percent of net sales compared to 3.2 percent in 2001.

The balance of financial income (expenses) is an expense of Euros 173 million compared to Euros 22 million in the prior year. The balance includes Euros 38 million to adjust the value of securities in the portfolio to market prices.

The share of the earnings (losses) of equity investments is a loss of Euros 230 million and refers to the share of the result of Olimpia S.p.A., accounted for using the equity method (Euros 150 million), the writedown of the investment in F.C. Internazionale Milano S.p.A. (Euros 18 million), the writedown of the investment in e-Biscom S.p.A. (Euros 35 million) and the writedown of the investment in Caltagirone Editore S.p.A. (Euros 24 million).

24 Extraordinary items show an expense of Euros 262 million compared to an expense of Euros 16 million in 2001. The current year mainly includes restructuring costs connected with the new rationalization measures focused on the Energy and Telecom Cables and Systems Sectors (Euros 275 million), offset by gains realized by Pirelli S.p.A. (Euros 17 million) on the sale of the building used as the representative offices in Rome and the historical Bicocca degli Arcimboldi to Pirelli & C. A.p.A., as part of the broader process for the reallocation of properties.

In 2001, extraordinary items included the gain on real estate transactions by the Cables and Systems Sector (Euros 61 million), an earn-out at the end of the agreements with Cisco Systems (Euros 70 million) and restructuring costs (Euros 151 million).

The net result for 2002 is a net loss of Euros 610 million compared to a net income of Euros 86 million in 2001. Before consolidating Olimpia S.p.A. using the equity method, the net loss is Euros 460 million. The net loss attributable to Pirelli S.p.A. is Euros 614 million (compared to a net income of Euros 82 million in 2001), corresponding to a loss per share of Euros 0.31 (earnings per share of Euros 0.04 in 2001).

Shareholders’ equity is Euros 4,576 million (Euros 5,660 million at December 31, 2001). The shareholders’ equity attributable to Pirelli S.p.A. is Euros 4,394 million (Euros 5,462 million at December 31, 2001) which corresponds to Euros 2.19 per share (Euros 2.72 at December 31, 2001).

Free cash flows from operations, in spite of the trend of the Group’s operating profit, were positive Euros 419 million thanks to a careful management of working capital and a selective investment policy. Net cash flows were negative Euros 376 million (negative Euros 4,617 million in 2001, including Euros 3,170 million for the investment in Olimpia S.p.A.). They reflect disbursements for the reorganization programs in the current and previous years of Euros 155 million, the final payment of income taxes on the sale of Optical Technologies to Corning of Euros 263 million, the payment of dividends of Euros 149 million and are offset by the sale of tax receivables to Unicreditfactoring S.p.A. and Mediofactoring S.p.A. of Euros 113 million in the first six months of the year. The net financial position was also negatively affected by the reclassification of Olivetti derivatives to financial assets in fixed assets. Consequently, the net financial debt position went from Euros 1,089 million at the end of 2001 to Euros 1,469 million at December 31, 2002. Capital expenditures total Euros 325 million in 2002 compared to Euros 643 million in 2001.

R&D expenditures are entirely charged to the statement of income and amount to Euros 219 million compared to Euros 237 million in 2001 and represent 3.5 percent of net sales (3.2 percent in 2001).

The number of employees was 36,079 at December 31, 2002, compared to 39,127 at December 31, 2001. The uncertainty surrounding the current economic and political situation does not allow for assumptions about an impressive upswing in the markets of the Group.

25 More particularly, in the Telecom Sector, no signs of improvement are expected until the end of the year, whereas, in the Energy Sector, selective investments in utilities are expected to continue and a slow recovery in demand is forecast for the other application sectors. The Tyres Sector will continue its policy of focusing on the high performance segment, which is expected to grow. In this scenario, the Group, in capitalizing on the benefits from restructuring measures, will aim to increase the operating profit of the Energy Cables and Systems Sector, partly through a major focus of its products portfolio on higher value-added segments. In the Telecom Cables and Systems Sector, the previously mentioned restructuring actions should lead to a breakeven in the operating result in the fourth quarter, while the Tyres Sector is expected to report a further increase in operating profit compared to 2002.

Energy Cables and Systems Sector Net sales amount to Euros 3,021 million and show a decrease of 14.5 percent from the prior year, due to the currency exchange effect (-3.9 percent), volume (-7.7 percent) and prices (-2.9 percent).

Operating profit is Euros 55 million (1.8 percent of net sales), compared to Euros 52 million in the prior year (1.5 percent of net sales).

Extraordinary items show an expense balance of Euros 121 million and mainly include restructuring expenses of Euros 120 million.

The net result is a loss of Euros 120 million after financial expenses of Euros 44 million, extraordinary expenses of Euros 121 million and income tax expenses of Euros 10 million.

A section of an Air-Bag™ cable.

26 The net financial position is a debt position of Euros 373 million. This is a significant improvement over Euros 526 million at the end of the prior year and is attributable to a selective policy of investments and actions taken to optimize working capital.

New capital expenditures amount to Euros 75 million. The ratio of capital expenditures to depreciation is 0.8 percent.

In 2002, 410 people were engaged in research activities for expenditures of Euros 44 million, representing 1.5 percent of total sales.

At December 31, 2002, total employees in the Energy Sector were 12,479 (including 683 employees with temporary contracts). Compared to December 31, 2001, there was a reduction of 2,044 (including 450 employees with temporary contracts). It should be emphasized that, as a result of the acceleration of the rightsizing program prior to the end of 2002, which led to a significant reduction in the headcount as at December 31, 2002, on January 1, 2003 the workforce in the Energy Sector totaled 12,187, with a decrease of a further 292 compared to December 31, 2002.

The forecast for the current year is for stable macro-economic conditions without signs of a recovery in the market. Actions taken to improve efficiency will continue for all of 2003 with the principal aim of mitigating the negative effects arising from the current market situation and making it possible to reach the forecast results.

Telecommunications Cables and Systems Sector Net sales amount to Euros 468 million and show a decrease of 62 percent from the prior year due to the currency exchange effect (-3.5 percent), volume (-47.9 percent)

The cable factory at Mudanya, Turkey.

27 and prices (-19.5 percent calculated on the basis of the prior year adjusted by the volume variance).

The operating loss is Euros 84 million compared to an operating profit of Euros 76 million in the prior year. The efficiencies achieved in respect of the structures and processes were not sufficient to offset the negative impact from the fall in volumes and the deterioration in the mix associated with the market trend.

Extraordinary items show an expense balance of Euros 121 million and mainly include restructuring expenses of Euros 118 million to implement the new measures aimed at rendering the restructuring actions more incisive.

The net result is a loss of Euros 263 million after financial expenses of Euros 54 million (of which Euros 35 million are for the writedown of the investment in e-Biscom), extraordinary expenses of Euros 121 million and income tax expenses of Euros 4 million.

The net financial position is a debt position of Euros 431 million compared to Euros 367 million at December 31, 2001. The steps taken to reduce working capital were not sufficient to compensate the negative impact of the economic result.

Capital expenditures amount to a total of Euros 78 million.

R&D is conducted by an integrated structure of research centers and development and engineering units in various countries. A total of 184 persons were engaged in R&D and expenditures totaled Euros 45 million, equal to 9.6 percent of net sales.

At December 31, 2002, total employees in the Telecommunications Sector were 2,546 (including 52 employees with temporary contracts). Compared to December 31, 2001, there was a reduction of 1,143 (including 190 employees with temporary contracts). It should also be emphasized that, as a result of the acceleration of the rightsizing program prior to the end of 2002, which led to significant reduction in the headcount as at December 31, 2002, on January 1, 2003 the workforce in the Telecommunications Sector totaled 2,408, with a decrease of a further 138 compared to December 31, 2002.

No significant changes in the economic scenario are forecast for the current year. The restructuring program begun in 2002 will make it possible to capitalize on efficiencies in costs which will allow an improvement in the operating result.

Tyres Sector Net sales amount to Euros 2,857 million and are moderately higher than in 2001. The significant growth in volume (+5.9 percent) and the price/mix (+3.6 percent) ) more than offset the negative currency exchange effect (-8.6 percent).

Operating profit is Euros 191 million, representing 6.7 percent of net sales, compared to Euros 172 million in the prior year, equal to 6.1 percent of net sales.

28 The positive contribution by volumes, prices and mix along with actions to reduce costs, have more than offset the negative currency exchange effects and the increase in both raw material costs and labor costs.

Extraordinary items show an expense balance of Euros 11 million (including restructuring costs of Euros 9 million) compared to Euros 27 million in 2001 (including Euros 26 million for layoff expenses).

Net income is Euros 78 million (after financial expenses of Euros 55 million, extraordinary expenses of Euros 11 million and income tax expenses of Euros 47 million) compared to Euros 34 million in the prior year (after financial expenses of Euros 75 million, extraordinary expenses of Euros 27 million and income tax expenses of Euros 36 million).

The net financial position is a debt position of Euros 492 million, a reduction of Euros 192 million from the end of 2001. The positive change is due to the capital increase with a share premium subscribed to by the parent company Pirelli S.p.A., equal to Euros 80 million, partly offset by the payment of dividends to the same parent company (Euros 30 million), actions taken in the management of working capital and investments focused and correlated to cash flows produced by depreciation.

A phase in the production of a new MIRS™ Moto, which is operative at Bicocca, Milan.

29 Capital expenditures amount to Euros 182 million in 2002 for a ratio of 1.1 to depreciation and representing 6.4 percent of net sales. In 2002, R&D expenditures totaled Euros 122 million, equal to 4.3 percent of net sales, and were focused on revitalizing the product range and pursuing the development of products and MIRS technology.

At December 31, 2002, employees in the Tyres Sector were 20,222, including 1,515 employees with temporary contracts. Compared to December 31, 2001, there was a reduction of 252 management and staff, of which 24 are employed under temporary contracts, owing to the continuation of programs and measures which have the aim of rationalizing the structures.

The Tyres Sector will continue to pursue its strategy of concentrating on the high performance tyre segment, supported by the Business Unit organization and thus by a focus on the product. The Tyres Sector will give priority to all operational and workable measures which will enable it to achieve an improvement in its operating profit compared to 2002.

PIRELLI S.p.A. The financial statements at December 31, 2002 of Pirelli S.p.A., the parent company, show a net income of Euros 112 million compared to Euros 1,489 million in 2001.

The shareholders’ equity is equal to Euros 4,936 million and reflects the net income for the year and the payment of dividends relating to the prior year.

The Board of Directors of Pirelli S.p.A. will put forth a proposal at the shareholders’ meeting for the payment of dividends of Euros 0.0364 for each savings share.

PIRELLI & C. LUXEMBOURG S.A. – LUXEMBOURG The company ended the year with a net loss of Swiss francs 34.7 million compared to a net income of Swiss francs 12.3 million in the prior year. The result for the year includes financial expenses of Swiss francs 32.3 million (Swiss francs 50.3 million in 2001), writedowns of investments for Swiss francs 7.1 million and gains from the sale of investments for Swiss francs 4.6 million.

Last year, the result included dividends from Pirelli S.p.A. of Swiss francs 62.6 million.

The company holds 527,813,101 Pirelli S.p.A. ordinary shares equal to 27.52 percent of voting capital and 26.30 percent of the entire share capital. Debt went from Swiss francs 1,532 million to Swiss francs 1,493 million.

30 PIRELLI & C. REAL ESTATE S.p.A. Pirelli & C. Real Estate is a management company which invests in real estate primarily by participating with minority stakes in qualified initiatives and taking over their management (Asset Management activities) and also providing them and third-party clients with a wide range of property services (Service Provider activities).

2002 was a particularly important year for the company: – important transactions were carried out for the acquisition of highly prestigious real estate properties for their related management and leveraging; – the company entered new lines of business with interesting prospects for development, the main field being non-performing loans; – steps were taken to begin the strategic reorganization of the tertiary portfolio by creating the first line of long-term investments which will lead to the start of real estate funds; – the listing of the company on the stock exchange raised capital resources to finance investments and reinforce the company’s visibility in the Italian and international panorama.

Having reached these strategic objectives, the year 2002 was able to close with sharply higher results that confirm the development plan announced by the company at the time of its listing and laid the groundwork for a future that will deliver even higher growth.

The financial statements at December 31, 2002 show an attributable consolidated net income from real estate operations of Euros 82.6 million, compared to Euros 33.5 million in 2001, with a growth of 147 percent. The consolidated net income, including other components, in both years is largely due to the sale of the ex-Unim portfolio and is equal to Euros 125.3 million, compared to Euros 161.4 million in 2001.

Realization by Pirelli & C. Real Estate: the residential area of Progetto Bicocca.

31 Major events in 2002 Pirelli & C. Real Estate S.p.A. group conducted a series of important transactions during the year which are listed below.

– In January 2002, the Company purchased, from the parent company Pirelli & C. A.p.A. (for Euros 5.3 million), the entire share capital of Pirelli & C. Credit Servicing S.p.A., a company that manages non-performing loan portfolios, thus entering into a new sector of business and completing the range of services it offers. – Again in January, the Company finalized the agreement signed in November 2001 for the acquisition, from the Edilnord 2000 group, of the share capital of three service companies (Edilnord Progetti S.p.A., Edilnord Gestioni S.p.A. and Servizi Immobiliari Edilnord S.p.A.) and, in keeping with the Company’s usual business model, the acquisition of qualified minority interests in vehicle companies owning property zoned for building in the Milan area, which have been given to Pirelli & C. Real Estate S.p.A. to manage. The transaction was valued at about Euros 220 million. – In March, in order to focus more completely on its core business, the minority stake in Eurostazioni S.p.A. was sold to the parent company Pirelli & C. A.p.A., realizing a gross gain of Euros 1.4 million. – At the end of March, the group, together with the Morgan Stanley funds, purchased, from Investimenti e Gestioni S.p.A. (Fiat group), the company Immobiliare San Babila S.p.A., which holds prestigious residential property mainly located in Milan and Rome. The transaction was valued at about Euros 240 million. – In April, Pirelli & C. Real Estate S.p.A. finalized two acquisitions in the sector of Facility Management services: the first, for the company Cam Energia e Servizi S.r.l. – now Pirelli & C. Real Estate Facility Management S.p.A. – purchased from Cam Finanziaria S.p.A., and the second, for the entire share capital of Altair Facilities Management S.p.A., purchased from companies owned by a group of private entrepreneurs, with the aim of strengthening the group’s presence in this sector of services. – In April, the group purchased a qualified minority interest in CFT Finanziaria S.p.A., a vehicle company which owns a portfolio of non-performing mortgage loans worth Euros 137 million. CFT Finanziaria S.p.A. later purchased moderate-size portfolios from some Tuscan banks for a total of Euros 28 million. – In May, together with the Morgan Stanley funds, the acquisition was concluded for the purchase of real estate property valued at Euros 553 million from Banca di Roma (now Capitalia), which kept a minority stake. – Again in May, Pirelli & C. Real Estate S.p.A. concluded, together with the Morgan Stanley funds and other partners, the purchase of residential real estate properties of the RAS Group, consisting of 107 mostly prestigious buildings and over 50 percent of them located in the center of Milan for a value of over Euros 1,720 million. Pirelli & C. Real Estate S.p.A. also acquired the Property and Facility Management Service Division. As provided in the original purchase agreements, 25 percent of the property purchased was sold at the end of October to the SAI Group through the transfer of the company IS; – In July, Pirelli & C. Real Estate and Soros Real Estate Investors set up a joint venture for investments in light industries and logistics; in keeping with the

32 Company’s usual business model, Pirelli & C. Real Estate participates with a qualified minority stake of 25 percent and full management of the initiatives. The joint venture, which expects to invest more than Euros 300 million in existing portfolios and development initiatives over a three-year period, is already committed for Euros 58 million. – At the end of October, the first line of long-term investments was set up through two vehicles (commonly called Tiglio I and Tiglio II) to which tertiary property was contributed for a total value of Euros 3.15 billion. Pirelli & C. Real Estate – which owns about 13 percent of the vehicles – carries out asset management activities and acts as the service provider on an exclusive basis. – At the end of December, the Pirelli & C. Real Estate S.p.A. group purchased a 20 percent interest in the newly established company to which the Marzotto group had contributed areas zoned for building. At the same time, a framework agreement was also signed for concentrating in this company, by the end of June 2003, areas zoned for building coming from the portfolios of the Pirelli & C. Real Estate, Olivetti and Telecom Italia groups (that will bring total surface space to about 3 million m2, of which about 1 million m2 is zoned for building) and to entrust Pirelli & C. Real Estate with asset management and specialist services related to this portfolio. – At the end of the last quarter, the company CFT Finanziaria, in which Pirelli & C. Real Estate holds a 47 percent stake, the same percentage as Cassa di Risparmio di Firenze, sold the non-performing mortgage loans in portfolio to a securitization vehicle company, whose services have been entrusted to Pirelli & C. Real Estate. – In the fourth quarter 2002, the group continued to purchase mainly residential property portfolios, finalizing deeds of purchase for a total of more than Euros 110 million.

Economic review

(in millions of euros) 2002 2001 delta • Aggregate production value, net of acquisitions 1,297,3 607,6 689,7 • Production value 491,5 326,2 165,3 • Operating profit including share of earnings (losses) of equity investments 102,2 47,2 55,0 • Income before exstraordinary items 99,9 43,9 56,0 • Net income from real estate operations-attributable 82,6 33,5 49,1 • Other components (*) 42,7 127,9 (85,2) • Net income - attributable 125,3 161,4 (36,1)

(*) Mainly arising in both periods from the sale of securities from the ex-Unim portfolio.

In the description of the economic and financial highlights that follows, it is important to note that Pirelli & C. Real Estate is a management company which invests in real estate primarily by participating with minority stakes in qualified initiatives and completely taking over their management. Therefore, Aggregate

33 production value net of acquisitions and the Operating profit (loss) including share of earnings (losses) of equity investments are the most significant indicators to give a better expression of the business volumes managed and the trend in results at the operating level.

Aggregate production value, net of acquisitions, amounts to Euros 1,297.1 million, a growth of 113 percent compared to Euros 607.6 million in 2001. Such amount, including acquisitions, is equal to Euros 6,018.6 million compared to Euros 792.7 million in 2001. Consolidated production value alone for 2002 is Euros 491.5 million compared to Euros 326.2 million in 2001.

The operating profit (loss) including the share of earnings (losses) of equity investments is a profit of Euros 102.2 million, compared to Euros 47.2 million in 2001 (+117 percent). This amount includes the share of the earnings, net of income taxes, of companies accounted for using the equity method, for Euros 60.1 million.

The income before extraordinary items amounts to Euros 99.9 million compared to Euros 43.9 million in 2001, an increase of 128 percent.

The attributable consolidated net income from real estate operations is Euros 82.6 million, compared to Euros 33.5 million in 2001. Taking into account the Other components of a extraordinary and nonrecurring nature that mainly relate to the sale of the securities portfolio that came from Unim, the consolidated net income is Euros 125.3 million compared to Euros 161.4 million in 2001.

Balance sheet review

(in millions of euros) 12.31.2002 12.31.2001 • Fixed assets 218,8 74,2 – including investments accounted for using the equity method 109,1 55,2 • Net working capital 190,5 249,4 – including inventories 383,7 350,3 • Net invested capital 409,3 323,6 • Shareholderds’ equity 368,8 132,1 – including minority interest 0,9 1,1 • Provisions and contributions 52,8 49,9 • Net financial position (12,3) 141,6 – including cash/short-term financial assets (74,2) (41,4) – including financing from shareholders (179,0) (239,1) – including other medium/long-term assets (0,2) (0,2) – including short-term financial payables 31,2 401,9 – including medium/long-term financial payables 209,9 20,4 • Total net invested capital financed 409,3 323,6

Shareholders’ equity attributable to the parent company is Euros 367.9 million, compared to Euros 131.0 million at December 31, 2001. The increase of

34 Euros 236.9 million is due to the result for the year and the effect of the capital increase connected with the listing of the company’s shares on the stock exchange (Euros 105 million).

The net financial position shows a liquidity position of Euros 12.3 million compared to a debt position of Euros 141.6 million at the end of 2001. The improvement from December 31, 2001 is due to the capital increase connected with the listing of the company’s shares on the stock exchange and cash flows provided by operations. The gearing ratio is practically nil compared to 1.1 at December 31, 2001.

The net financial position expressed before financing made to minority-owned companies also improved and shows a debt position of Euros 166.7 million compared to Euros 380.7 million at the end of 2001. The gearing ratio in this case is 0.5 compared to 2.9 at the end of December 2001.

Fixed assets total Euros 218.8 million, compared to Euros 74.2 million carried at the end of 2001, with an increase of Euros 144.6 million. The increase is due to investments in qualified minority-owned companies, investments in treasury shares and higher property, plant and equipment and intangible assets due to the consolidation of service companies purchased during the year and expenses connected with the shares listing.

Pirelli & C. Real Estate portfolios: building in Via del Tritone, Rome.

35 Net working capital is Euros 190.5 million, compared to Euros 249.4 million at December 31, 2001. The reduction in working capital reflects the operating improvement in the receivables/payables balance which compensated the increase in inventories connected with both new acquisitions and the stage of completion of the construction work on some important buildings.

Subsequent events

– In January and February 2003, the group continued to purchase real estate portfolios of mainly residential properties, signing preliminary contracts and final deeds of purchase for nine buildings situated in Milan and Naples for a total value of Euros 77 million (of which Euros 27 million refer to the group’s portion) in addition to another Euros 110 million of buildings purchased in the last quarter of 2002 (of which Euros 38 million refer to the group’s portion).

– In February, an agreement was reached with Deka Immobilien Investment GmbH (Deka Group), a leading company in the management of open real estate funds in Europe for portfolio management, for the sale, at about Euros 130 million realizing a gross gain of about Euros 20 million, of four prestigious buildings located in the center of Milan owned by the joint venture with The Morgan Stanley Real Estate Funds, for a surface area of more than 30,000 m2, originating from the ex-RAS real estate assets recently acquired.

– In February, the group filed an application, with other partners, in order to be admitted to the bidding arranged by the state properties agency for taking an administrative and technical consensus of state property.

– Again in February, Pirelli & C. Real Estate won, with other partners, the bid for the management and revision of computer services for Public Education. The contract will be valid for five years and renewable for another two and is worth about Euros 200 million. Pirelli & C. Real Estate’s facility management business will manage the center.

– On March 3, the group, jointly with the Goldman Sachs and Morgan Stanley Funds, presented a non-binding offer in the ENEL group’s bid to sell Enel Real Estate S.p.A., which comprises a portfolio of over 1,300 buildings mainly for office and industrial use located throughout the national territory and the dedicated staff for the management of the same buildings.

Outlook for the current year On the basis of available information, the operating profit including earnings (losses) of equity investments accounted for using the equity method for the year 2003 is expected to show a further growth over the prior year. Such growth, as occurred in 2002, will predictably be higher in the second half of the year when the leveraging of the real estate assets recently acquired will show its full effects.

36 PIRELLI & C. AMBIENTE S.P.A. In 2002, the company continued its activities in the field of renewable energy sources through the production of a quality fuel derived from waste (CDR-P) for the start of the recovery of energy through the replacement of primary fossil fuels.

Action taken during the year encompassed three areas:

– the start of investments for building the first plant for the production of CDR-P, which ended with the testing of the plant; – commercial action aimed at the start of several talks throughout Italy with potential CDR-P users both for direct co-combustion and with prior gasification; – protection of the legal process both in terms of the environment and energy to support the creation of a quality CDR market as a source of renewable energy.

As for direct co-combustion, the first industrial application in the project is represented by IDEA Granda S.Cons.R.L., set up in 2001 with a 49 percent stake held by Pirelli & C. Ambiente, and managed by the same company. At the end of last year the company completed the construction of a plant for the production of CDR-P and the CDR-P production stage began at start of this year. The CDR-P produced is destined to partially replace (initially on the basis of the authorized 10 percent limit against a 35/40 percent technological limit) the traditional fossil fuels used in the main burner of a cement factory owned by the Buzzi Unicem group. 2003 planning calls for the use of about 10,500 tons of dry compound from solid urban waste of the Province of Cuneo’s basin, to which additional ground plastic and tires will be added to obtain about 13,600 tons of CDR-P.

The result of the company for the year 2002, which is still in the start-up phase, was a loss of Euros 1.7 million compared to a loss of Euros 0.1 million in the prior year.

The logo of IDEA GRANDA, the new consortium 49% owned by Pirelli & C. Ambiente.

37 EQUITY INVESTMENTS HELD BY THE MANAGING PARTNERS

Pursuant to article 79 of Consob Regulation approved by resolution No. 11971 of May 14, 1999, the following information is provided as regards the equity investments held in the company Pirelli & C. and its subsidiaries by the Managing Partners, as well as spouses, not legally separated, and minor children, either directly or through subsidiaries, trustee companies or individual persons, resulting from the shareholders’ register at December 31, 2002, from notices received or other information acquired from the same Managing Partners.

Name Company in which equity No. of shares No. of No. of No. of shares investment held held at prior shares shares held at year-end purchased sold current year-end

Tronchetti Provera Marco Pirelli & C. 1,870 200* 2,070 Pirelli & C. 176,916,778 7,935,436 184,852,214 (indirect ownership) Pirelli S.p.A. 30,513,000 6,848,855 37,361,855 (indirect ownership)

Pirelli Alberto Pirelli & C. 4,000 500* 4,500 Buora Carlo Pirelli & C. 3,000 3,000 Pirelli S.p.A. 42,517 42,517 Puri Negri Carlo Alessandro Pirelli & C. 10,000 10,000 Pirelli & C. Real Estate S.p.A. 2,279,888** 1,185,121 2,279,888 1,185,121 Orlando Luigi Pirelli & C. 3,933 421* 4,354

* Conversion of Pirelli & C. 2.5% 1998-2003 bonds. ** The extraordinary shareholders’ meeting of Pirelli & C. Real Estate S.p.A. held April 2, 2002 voted to change the par value of the shares from € 52 to € 0.50 under a stock split, assigning 104 new shares for every one old share held. (1) There is no statutory auditor holding equity investments in Pirelli & C. and subsidiaries. (2) No stock options were granted (as regards the stock option plans of the subsidiary Pirelli & C. Real Estate S.p.A., reference should be made to the following note in this report, whereas for the stock option plans of Pirelli S.p.A., reference should be made to its 2002 Annual Report.

38 PROFORMA CONSOLIDATED FINANCIAL DATA ASSUMING THE LINE-BY-LINE CONSOLIDATION OF OLIMPIA S.p.A. AND THE USE OF THE EQUITY METHOD TO VALUE ITS INVESTMENT IN OLIVETTI S.p.A.

Proforma consolidated financial data at December 31, 2002 of Pirelli & C. A.p.A. is presented below, assuming the consolidation line-by-line of Olimpia S.p.A. and the use of the equity method to value Olimpia S.p.A.’s investment in Olivetti S.p.A..

Proforma data of Pirelli & C. A.p.A. - December 2001 (in millions of euros)

Proforma adjustments Consolidated Elimination of Olimpia S.p.A. Consolidation Total proforma Proforma financial Olimpia S.p.A. line-by-line adjustments and adjustments consolidated statements net result consolidation valuation of financial data 2002 Pirelli & attributable to investment in 2002 Pirelli C. A.pA. (1) Pirelli & C. Olivetti S.p.A. & C. A.p.A. A.p.A. using the equity (2) method Condensed Statement of Income Net sales 6,718 – - - – 6,718 Operating profit 118 – (1) - (1) 117 Financial income (expenses)/ Valuation adjustments to financial assets (353) 150 (241) (440) (531) (884) Exstraordinary items (83) – (4) (4) (87) Income taxes (87) – – (87) Net income (loss) (405) 150 (246) (440) (536) (941) Net income (loss) - Pirelli & C. (58) 62 (61) (108) (107) (165)

Goodwill amortization effect 3 - - 589 589 592 Net income (loss) (excluding godwill amortization) (402) 150 (246) 149 53 (349) Net income (loss) - Pirelli & C. (excluding goodwill amortization) (55) 62 (61) 36 37 (18)

Reclassified Balance Sheet Fixed assets 6,596 169 8,541 (3,597) 5,113 11,709 Net working capital 991 – 58 – 58 1,049 Total net invested capital 7,587 169 8,599 (3,597) 5,171 12,758

Financial by: Shareholders’ equity 4,626 169 4,923 (3,597) 1,495 6,121 – of which shareolders’ equity - Pirelli & C. 1,933 69 1,211 (1,396) (116) 1,817 Provisions 911 – – – – 911 Net financial (liquidity)/ debt position 2,050 – 3,676 – 3,676 5,726

(1) Pirelli & C. A.p.A. consolidated financial statements (investment in Olimpia S.p.A. accounted for using the equity method) (2) Proforma data (line-by-line consolidation of Olimpia S.p.A. and equity method valuation of Olivetti S.p.A.)

39 The proforma consolidated financial data has been prepared using the statutory financial statements of Olimpia S.p.A. at December 31, 2002 and the consolidated financial statements of the Olivetti S.p.A. Group at the same date approved by the Boards of Directors. The net loss for the year of Olimpia S.p.A. (Euros 246 million) was mainly due to financial expenses of Euros 173 million and the loss of Euros 68 million given the Olivetti 2001-2002 warrants were not exercised. The principal proforma adjustments included in the above table are as follows:

– in the column “Elimination of Olimpia S.p.A. net result attributable to Pirelli & C. A.p.A.”: elimination of the statement of income and balance sheet effects of valuing Olimpia S.p.A. with the equity method in the Pirelli & C. A.p.A. consolidated financial statements at December 31, 2002.

– in the column “Olimpia S.p.A. line-by-line consolidation”: inclusion of the assets, liabilities, revenues and costs resulting from the financial statements at December 31, 2002 of Olimpia S.p.A., attributing the share of net equity and results of operations to the minority interest.

– in the column “Consolidation adjustments and valuation of investment in Olivetti S.p.A. using the equity method”: inclusion of the effect of accounting for Olivetti S.p.A. using the equity method, giving rise to a negative valuation adjustment of Euros 440 million, of which Euros 220 million relate to the amortization of implicit goodwill for 12 months out of a total twenty-year period, and Euros 220 million to Olimpia S.p.A.’s share of the year 2002 results of the Olivetti Group.

The “goodwill amortization effect” on the net result is detailed as follows: – in the column “Consolidated financial statements at December 31, 2002 Pirelli & C. A.p.A.”, the amount of Euros 3 million refers to the amortization charge for the year on the goodwill booked by Pirelli S.p.A. in respect of Olimpia S.p.A.; – in the column “Consolidation adjustments and valuation of investment in Olivetti S.p.A. using the equity method”, the amount of Euros 589 million includes Euros 220 million for the goodwill booked by Olimpia S.p.A. in respect of Olivetti S.p.A. and Euros 369 million for the goodwill booked by Olivetti S.p.A. in respect of Telecom Italia S.p.A..

A comparison of shareholders’ equity and net debt between the consolidated financial data of Pirelli & C. A.p.A. and the proforma consolidated financial data of Pirelli & C. A.p.A. at December 31, 2002 and December 31, 2001 is presented below, assuming:

– the line-by-line consolidation of Olimpia S.p.A. and the valuation of the investment in Olivetti S.p.A. using the equity method; – the line-by-line consolidation of both Olimpia S.p.A. and the Olivetti S.p.A. group.

40 Proforma Pirelli & C. A.p.A. equity and financial summary data - December 2002 (in millions of euros)

Shareolders’ Net debt Net/debt/Shareholders’ Shareholders’ equity equity equity Pirelli & C. 31/12/02 31/12/01 31/12/02 31/12/01 31/12/02 31/12/01 31/12/02 31/12/01

Pirelli & C. Group: consolidated financial statements at 12/31 4,626 5,407 2,050 2,029 0.44 0.38 1,933 2,119

Pirelli & C. Group: proforma consolidated data with Olimpia S.p.A. consolidated lineby-line and Olivetti S.p.A. valued using the equity method 6,121 7,486 5,726 5,538 0.94 0.74 1,817 2,123

Pirelli & C. Group: proforma consolidated data with Olimpia S.p.A. and Olivetti Group consolidated line-by-line 23,428 30,182 39,125 43,900 1.67 1.45 1,817 2,123

The Mini Cooper fitted with Pirelli Eufori@ tyres, manufactured by the MIRS™ process.

41 Realization by Pirelli & C. Real Estate: the project of the new entertainment centre in construction in the Bicocca area, Milan.

42 43 STOCK OPTIONS PLANS

The Company has no stock option plans for its employees.

In 2001, Pirelli & C. granted the Managing Director-General Manager of the subsidiary Pirelli & C. Ambiente S.p.A., Nicolò Dubini, an option for the purchase of 183,600 shares of this company (equal to 6 percent of share capital) at a price of Euros 1.15 per share, based on an appraisal carried out for this purpose. In 2002, a new plan was started for the same company with options granted to four employees for the purchase of a total of 91,800 Pirelli & C. Ambiente S.p.A. shares, equal to 3 percent of share capital, at the same price per share of Euros 1.15, again based on an appraisal carried out for this purpose The above options can be exercised beginning from the time the financial statements at December 31, 2003 of Pirelli & C. Ambiente S.p.A. are approved and the shares from the options can be sold by the beneficiaries to Pirelli & C. within two years of the date the options are exercised at a price that will take into account the revaluation of the net assets of the company during the intervening period.

As regards the autonomous stock option plans put into place by Pirelli S.p.A. and Pirelli & C. Real Estate S.p.A., listed subsidiaries of Pirelli & C., reference can be made to the specific reports prepared by these companies.

44 CORPORATE GOVERNANCE

INTRODUCTION On November 16, 1999, the Company informed the market about the adoption of the “Code of Self-discipline of listed companies” (hereinafter “Code”), recommended by Borsa Italiana S.p.A.. In conformity with the Instructions for the Regulations of the markets organized and managed by Borsa Italiana, here below, the Company wishes to represent its corporate governance system which has gradually been formed over time. This year, too, an exact application of all the recommendations contained in the Code is difficult because of the particular type of Company (which has always been a limited partnership with share capital) and the salient feature which distinguishes the figure of the managing partner.

1. Board of Managing Partners 1.1 The role of the Board of Managing Partners Pursuant to the by-laws (art. 10), the Board is empowered with the management of the Company and, for this purpose, is invested with the fullest powers for finance and administration, except those, which according to the by- laws or by law, are reserved for the shareholders’ meetings. The Board, in fact, exercises its powers in conformity with point 1.2 of the Code, that is: – examines the corporate, industrial and financial plans of the Company and the corporate structure of the Group which the Company heads; – assigns and revokes the delegation of powers to the managing partners, establishing the limits and manner of exercising such powers; – establishes, after examining the proposals of the specific compensation committee and after having consulted the Board of Statutory Auditors, the fee to be paid to the managing partners and those who hold specific posts; – monitors the general performance of operations, with special attention being paid to the conflicts of interest, taking into account, in particular, the information received from the executive managing partners and the audit committee for internal control and corporate governance, as well as comparing the results with the budgets on a regular basis; – examines and approves transactions that have a significant economic, financial or equity impact, with particular reference to related party transactions; – generally, at the board meetings, held at least quarterly, the Board of Statutory Auditors is kept posted about the activities conducted and the most important transactions entered into, also by the subsidiaries; – verifies the adequacy of the general organizational and administrative structure of the Company and group; – keeps the shareholders informed at the shareholders’ meetings.

1.2 The appointment of managing partners In conformity with point 7 of the Code, and although not included in the by- laws, from now on, as a normal rule, the proposals for the post of managing partner will be accompanied by exhaustive disclosure concerning the personnel and professional characteristics of the candidates and will be deposited at the

45 corporate offices, if possible, at least ten days prior to the expected date of the shareholders’ meeting. The Board of Managing Partners did not deem it necessary to form an internal committee to nominate candidates for the post of managing partner, since, at present, the assumptions for doing so as contemplated by the Code do not apply to the Company and, particularly because no special difficulties are envisaged in proposing candidates, in view of the actual shareholder base. Lastly, the by-laws do not contemplate the system of voting by lists for the nomination of the managing partners.

1.3 The composition of the Board of Managing Partners The Board of Managing Partners is composed of the following: Dott. Marco Tronchetti Provera Dott. Alberto Pirelli Dott. Carlo Buora Dott. Luigi Orlando Carlo Alessandro Puri Negri Currently, therefore, the Board is composed of five managing partners, of whom four are executive, with the executive managing directors being, according to point 2.1 of the Code, - the Chairman Dott. Marco Tronchetti Provera, entrusted with delegated powers, the Deputy Chairman Dott. Alberto Pirelli (who carries out management functions in the Tyre Sector), Dott. Carlo Buora the Managing Director and General Manager of the subsidiary Pirelli S.p.A. and Carlo Alessandro Puri Negri, the General Manager of the Company and Deputy Chairman-Managing Director of the subsidiary Pirelli & C. Real Estate S.p.A. and Deputy Chairman, entrusted with delegated powers, in Pirelli & C. Ambiente S.p.A.. The Code, at point 3, provides a definition of “independent directors”, which, in view of, but especially on account of the particular features which distinguish the managing partners, none of them can be qualified as such. Given the type of Company, an expiration date for the term of office for the managing partners has not been established. A list of the posts held as director or statutory auditor by each of the managing partners in other listed companies in regulated markets, also abroad, in financial, banking, insurance or other companies of significant size are presented at the end of this section of the report.

1.4 Meeting of the Board A Chairman, and if necessary, one or more Deputy Chairmen shall be appointed from amongst the members of the Board. In the event of the Chairman being absent, the chair shall be taken by the senior in age of the Deputy Chairmen present. The Board shall appoint a Secretary who is not necessarily a member of the Board. The Board shall meet at the invitation of the Chairman or, if appointed, by a Deputy Chairman or a Managing Director, at the registered office of the Company or in any other place just so long as it is in Italy, or whenever a meeting has been requested by two managing partners or by at least two standing statutory auditors.

46 To this end, the by-laws do not establish a minimum number of meetings; it is nevertheless the practice to hold at least six meetings a year (to examine the preliminary data at June 30 and at December 31, the draft financial statements and the quarterly and semiannual reports). Meetings of the Board may be held by teleconference or videoconference. In this case the following must be guaranteed: a) identification of all the participants at each point in the teleconference or videoconference connection; b) the possibility for each participant to intervene, to orally put forward same’s own opinion, to view, receive and transmit all documentation, as well as the contextuality of considerations and resolutions; c) meetings of the Board of Managing Partners are considered to be held in the place in which the Chairman and the Secretary must be simultaneously. Board meetings shall be convened by means of a letter, telegram, telex or fax sent to the address of each managing partner and each statutory auditor, at least five days before (or in urgent cases at least six hours before) the day set for the meeting. The presence of at least half the members plus one is necessary for the resolutions of the Board to be deemed valid, and the favorable vote of the majority of those attending is required. Nevertheless, for the appointment of the Chairman and one or more Deputy Chairmen, in addition to the appointment of the managing director and the granting of powers by the Board of Managing Partners to one or more of its members, a favorable vote cast by all the members is required. The resolutions of the Board, even when passed by meetings held through videoconference, are recorded in a special book signed by the Chairman and the Secretary. Except in exceptional circumstances, the managing partners are provided with the necessary documentation and information reasonably in advance of the meetings in order to allow the board to express its opinion knowledgeably on the matters under examination. In 2002, nine Board meetings were held; total attendance by the managing partners was more than 90 percent. Two meetings have already been held in 2003 and at least another four are planned.

1.5 The compensation to the managing partners The compensation to the Board of Managing Partners, besides the reimbursement for expenses incurred during the course their duties, consists of an annual fee established by the shareholders’ meeting (set at Euros 51,500 for the three years 2001/2003 by the shareholders’ meeting held on May 10, 2001). The compensation to the managing partners invested with specific responsibilities are established by the provisions of art. 2389, paragraph 2 of the Italian Civil Code. The Board has internally set up the “Compensation Committee”, establishing that:

47 a) regarding its functions: – proposals are presented to the Board for the compensation of the managing partners having specific responsibilities and the remuneration of the top management of the Company; – preliminary examinations are made of the proposals for stock option plans; b) regarding its composition: – in general, it is composed of at least three managing partners who shall appoint the Chairman and a Secretary, who is not necessarily a member of the Board; – the Board of Statutory Auditors and the Chairman of the Board of Managing Partners shall also attend the Board meetings; – the managing partners invested with specific responsibilities shall absent themselves from the meeting when their compensation is being discussed and also in the event of discussions which interest them personally; c) as to its working format: – meetings are held at any time the Chairman deems it necessary or when a request has been made by another member; – for convening meetings and for the validity of its constitution and the resolutions, the same rules apply as those stated in the by-laws for the meetings of the Board of Managing Partners. The “Compensation Committee” is currently composed of the managing partners Dott. Luigi Orlando, who is Chairman, Dott. Alberto Pirelli and Dott. Carlo Buora; three meetings were held in 2002.

2. Granting of power. Information provided to the Board of Managing Partners The Board of Managing Partners granted the Chairman Dott. Marco Tronchetti Provera and the Deputy Chairman Dott. Alberto Pirelli the necessary powers necessary to carry out all the acts pertaining to corporate activity, to be exercised with single signature powers, with the exception of the power to issue guarantees for obligations of the Company and the subsidiaries in excess of single amounts of Euros 25 million or guarantees in the interest of third parties for obligations in excess of single amounts of Euros 10 million. Specific and more limited powers were conferred to the managers to be used to carry out their specific responsibilities. Also during 2002, as in the past, the above managing partners (as well as those to whom specific powers were granted) only used the powers conferred to them to carry out the normal operations of the Company - of which the other managing partners of the Company were periodically informed -, waiving such powers in the case of significant transactions in terms of quality or value from an economic and financial standpoint, and submitting them to the same Board of Managing Partners. In accordance with art. 10 of the by-laws (which is in compliance with that set forth by art. 150, paragraph 1 of Legislative Decree No. 59 of 1998), furthermore, the Board of Managing Partners has kept the Board of Statutory Auditors posted – on a quarterly basis – about the activities and any important economic, financial or equity transactions carried out by the Company or the subsidiaries as well as transactions involving any potential conflicts of interest, providing the necessary elements to comprehend the

48 transactions themselves. To this end, it should be pointed out that in July 2002, the Company adopted a specific procedure (the text of which is presented at the end of this section of the report) which defines, in precise terms, the rules to be followed to comply with the above-mentioned disclosure obligations. On this occasion, the principles of conduct were also established (the text of which is presented at the end of this section of the report) for carrying out transactions with related parties. Finally, the Chairman of the Board, also using information provided by the responsible internal functions, informs the managing partners and, if necessary, discuss any major new legislation and regulations that regard the Company and the corporate boards. Lastly, it should be pointed out that, starting from December 1, 2002, in accordance with the regulations of Borsa Italiana, a Code of Conduct on Insider Dealing was adopted (the text of which is presented at the end of this section of the report) which states the rules according to which transactions effected by relevant persons on the listed securities of the Group should be disclosed to the market.

3. Internal control Reporting directly to the Chairman of Pirelli & C. A.p.A., also with regard to the activities carried out in the subsidiaries, is the Internal Audit Function (not involved in financial operating activities and in the preparation of the financial statements and period statements) which has the main responsibility for verifying that the system of internal control of the Pirelli Group is working and is adequate in terms of effectiveness and efficiency. To this end, it should be pointed out that in 2002, activities continued in order to spread and develop the methodology for managing operating risk within all the major units of the Group. The Internal Audit Function has given support to the Sectors in defining an action plan to update and monitor the “risk portfolio” of the operating units. In relation to Legislative Decree No. 231/2001, based upon the guidelines published by Confindustria, the Internal Audit Function has assisted the Group in implementing a specific methodology aimed at ensuring a compliance with the Decree itself, which will be aimed at the construction of a model for organization, management and control in 2003. In line with the audit program for payments (Italy and abroad) begun in 2001, periodical tests were carried out during the year on selected types of financial payments. The Board of Managing Partners has internally set up an “Audit Committee” for internal control and corporate governance, establishing that: a) regarding its functions: – carries out advisory and proposal functions for the Board of Managing Partners and, in particular: – assists the Board in determining the guidelines of the internal control system and in the periodical testing of its adequacy and its effective functioning, in order to be sure that corporate risks are suitably managed; – evaluates the adequacy of the accounting principles used together with the persons in charge of the financial functions of the Company and the auditors;

49 – evaluates the work plan prepared by those in charge of internal control and receives their reports periodically; – evaluates the proposals formulated by the independent audit firms in order to be appointed as auditors as well as the audit work plan and the results expressed in the report and letter of recommendations; – informs the Board about the work carried out and the adequacy of the system of internal control at least every six months, at the time of the approval of the annual financial statements and six-month financial statements; – performs the additional tasks assigned by the Board of Managing Partners, particularly in relation to the reports of the independent audit firm; – monitors the continuous update of the rules of corporate governance and ascertains that the principles of conduct eventually adopted by the Company and its subsidiaries are followed; b) regarding its composition: – it is composed of at least three managing partners who shall appoint the Chairman and a Secretary, who is not necessarily a member of the Board; – the Board of Statutory Auditors and the Chairman of the Board of Managing Partners shall also attend the Board meetings, as well as, by invitation, the person in charge of the Internal Audit function; c) regarding its working format: – meetings are held at least twice a year, before the Board meetings for the approval of the annual financial statements and the six-month financial statements, or at any time the Chairman deems it necessary or a request has been made by another member or a managing director; – for convening meetings and for the validity of its constitution and the resolutions, the same rules apply as those stated in the by-laws for the meetings of the Board of Managing Partners. The “Audit Committee” for internal control and corporate governance is currently composed of the managing partners Dott. Luigi Orlando, who is Chairman, Dott. Carlo Buora and Mr. Carlo Alessandro Puri Negri. Three meetings were held in 2002. Again in 2002, the Internal Audit function reported on its work to the Chairman at least monthly and to the Audit Committee three times. The Audit Committee for internal control and corporate governance and the Board of Managing Partners, also on the basis of indications received from the Board of Statutory Auditors, have deemed the system of internal control to be adequate.

4. The Board of Statutory Auditors It is felt that the entire article 15 of the by-laws should be reported herein, as follows: “The Board of Statutory Auditors is composed of three standing statutory auditors and two alternate statutory auditors who must hold the requisites required by the existing laws and also by regulations; to this end, account will be taken that the matters and sectors of business strictly inherent to those of the Company are those indicated in the corporate business purpose with particular

50 reference to companies or entities operating in the financial, industrial, banking, insurance, real estate and services sectors in general. The ordinary General Meeting shall appoint the Board of Statutory Auditors and determine its compensation. The minority shareholders shall appoint one standing statutory auditor and one alternate statutory auditor. With the exception of the provisions of the second last paragraph of the present article, the appointment of the Board of Statutory Auditors is made on the grounds of lists put forward by the shareholders in which candidates are listed under progressive numbers. Each list contains a number of candidates which does not exceed the number of members to be appointed. All shareholders who, alone or together with other shareholders, represent at least 2 percent of the shares with voting rights in the ordinary general meeting, have the right to put forward a list. The lists of candidates, undersigned by the parties presenting them, must be filed at the Company’s registered office at least ten days before the day fixed for the meeting in first call. A description of the professional résumé of the individuals standing for election must be enclosed with the lists together with statements whereby the single candidates accept the nomination and attest, under their own personal responsibility, that no circumstances exist for ineligibility or incompatibility, and that they comply with requirements prescribed by law or by the articles for the position. Any lists put forward which do not comply with the aforesaid provisions shall be considered not to have been put forward. Each candidate may be included on only one list, under penalty of ineligibility. Likewise, any individuals who are not in possession of the requisites established by the applicable rules and regulations or who already hold the position of statutory auditor in more than five companies with stocks listed on official Italian markets, with the exception of the subsidiaries of Pirelli e C.. Each individual with voting rights may vote for only one list. The election of the members of the Board of Statutory Auditors is performed as follows: two standing statutory members and one alternate member are taken from the list which has obtained the highest number of votes, in the progressive order in which they are listed thereon; the remaining standing statutory member and the other alternate member are taken from the list which has obtained the highest number of votes from the meeting after the first list, again in the progressive order in which same are listed thereon; in the event of several lists obtaining the same number of votes, a new run-off vote between the said lists will be cast by all the shareholders present at the meeting, and the candidates on the list which obtains the simple majority of the votes will be appointed. The Chairman of the Board of Statutory Auditors shall be the statutory member indicated as the first candidate on the list which obtained the highest number of votes. In case of death, waiver or resignation of a Statutory Auditor, the alternate belonging to the same list as the resigned statutory auditor shall replace him. In the event of replacement of the Chairman of the Board of Statutory Auditors, the chair shall be taken by the other statutory member on the list to which the resigning chairman belonged; if it is not possible to perform substitutions and

51 replacements as set out hereinabove, then a meeting shall be convened to integrate and complete the Board of Statutory Auditors and which shall pass resolutions with a relative majority. When the meeting has to make provisions, pursuant to the terms of the aforegoing paragraph or to the terms of law, for the appointment of statutory auditors and/or alternates needed to complete the Board of Statutory Auditors, it shall proceed as follows: if statutory auditors appointed from the majority list have to be replaced, then the appointment is made with a relative majority vote without being tied to any list; if on the other hand statutory auditors appointed by the minority shareholders have to be replaced, the meeting shall replace them with a relative majority vote choosing names where possible from amongst the candidates indicated on the list on which the statutory auditor to be replaced appeared. If only one single list has been put forward, then the meeting shall cast its vote in relation to that list; if the list obtains a relative majority, then the first three candidates on the list in progressive order shall be appointed as the standing statutory auditors, and the fourth and fifth candidate shall be appointed as alternate statutory auditors; Chairman of the Board of Statutory Auditors shall be the person indicated at the top of the list put forward; in case of death, waiver or resignation of a statutory auditor, and in the event of substitution of the Chairman of the Board of Statutory Auditors, they shall be replaced respectively by an alternate statutory auditor and a standing statutory auditor in the order arising from the progressive numbering of the said list. Failing any lists, the Board of Statutory Auditors and its Chairman shall be appointed by the general meeting with the majorities prescribed by law. Resigning statutory auditors may be re-appointed”. The shareholders’ meeting of May 13, 2002 appointed as standing statutory auditors: Dott. Roberto Bracchetti (Chairman), Dott. Paolo Francesco Lazzati and Dott. Salvatore Spiniello. Dott. Paolo Andrea Colombo and Dott. Marco Reboa were appointed as alternate statutory auditors. The current Board of Statutory Auditors will remain in office until May 13, 2005.

5. The shareholders’ meetings It is the Company’s consistent policy to use the shareholders’ meetings to provide the shareholders with information about the Company and its prospects; this obviously is complied with, in accordance with the rules governing price sensitive issues and, therefore, where necessary, by providing the market with such information. It is also the Company’s policy to call attention to the location, date and time of the meeting in order to facilitate the participation of the shareholders at the meetings; furthermore, where possible, all the managing partners and statutory auditors try to attend the shareholders’ meetings, in particular the managing partners who, because of the posts they hold, can make a useful contribution to the discussion. Lastly, the Board of Managing Partners makes known that it does not feel – at the present time – that the Company has a need to establish rules for

52 conducting shareholders’ meetings, deeming that what is envisaged in the by- laws on this matter is sufficient for the orderly and proper execution of the shareholders’ meetings.

6. Relations with investors and the other shareholders The Company has always actively tried to establish a dialogue with its shareholders and institutional investors based on an understanding of the reciprocal roles, and also by planning periodical meetings with members of the Italian and international financial community. Moreover, as early as March 1999, an Investor Relations office has been set up in the Group, now entrusted to Dott. Roberto Rivellino.

7. Treatment of confidential information The management of confidential information, with special reference to price sensitive information, is under the direct responsibility of the Chairman of the Board of Managing Partners. Outside communications regarding documents and information about the Company and its subsidiaries are conducted – always in agreement with the Chairman – by the Secretary to the Board and the Corporate Secretary for communications to the authorities and the shareholders, by the External Relations function for communications to the press and the Investor Relations function for communications directed to institutional investors. The Chairman and those in charge of the aforementioned functions are invariably able to join together to issue any urgent external communications.

53 POSTS HELD AS DIRECTOR OR STATUTORY AUDITOR BY THE MEMBERS OF THE BOARD OF MANAGING PARTNERS IN OTHER LISTED COMPANIES AND IN FINANCIAL, BANKING, INSURANCE OR OTHER LARGE COMPANIES

Marco Tronchetti Provera Pirelli S.p.A. Chairman and Managing Director Camfin S.p.A. Chairman G.P.I. - Gruppo Partecipazioni Industriali S.p.A. Chairman Marco Tronchetti Provera & C. S.a.p.a. Chairman Olimpia S.p.A. Chairman Pirelli & C. Ambiente S.p.A. Chairman Pirelli & C. Real Estate S.p.A. Chairman Telecom Italia S.p.A. Chairman Olivetti S.p.A. Deputy Chairman and Managing Director

Alberto Pirelli G.P.I. - Gruppo Partecipazioni Industriali S.p.A. Deputy Managing Pirelli S.p.A. Deputy Managing Camfin S.p.A. Director G.I.M. - Generale Industrie Metallurgiche S.p.A. Director Olimpia S.p.A. Director Olivetti S.p.A. Director SMI - Società Metallurgica Italiana S.p.A. Director

Carlo Buora Tim S.p.A. Chairman Olivetti S.p.A. Managing Director Pirelli S.p.A. Managing Director and General Manager Telecom Italia S.p.A. Managing Director HDP Holding di Partecipazioni Industriali S.p.A. Director Mediobanca S.p.A. Director Olimpia S.p.A. Director Pirelli & C. Ambiente S.p.A. Director Pirelli & C. Real Estate S.p.A. Director Ras S.p.A. Director

Luigi Orlando Europa Metalli S.p.A. Honorary Chairman Orlando & C. - Gestioni Finanziarie S.p.A. Chairman G.I.M. - Generale Industrie Metallurgiche S.p.A. Chairman SMI - Società Metallurgica Italiana S.p.A. Chairman Pirelli S.p.A. Director RAS - Riunione Adriatica di Sicurtà S.p.A. Director

Carlo Alessandro Puri Negri Partecipazioni Real Estate S.p.A. Chairman Pirelli & C. Real Estate S.p.A. Deputy Chairman and Managing Director Camfin S.p.A. Deputy Chairman Pirelli & C. Ambiente S.p.A. Deputy Chairman GPI - Gruppo Partecipazioni Industriali S.p.A. Managing Director Aon Italia S.p.A. Director Olimpia S.p.A. Director Olivetti S.p.A. Director Permasteelisa S.p.A. Director Pirelli S.p.A. Director Telecom Italia S.p.A. Director

54 PROCEDURE FOR COMPLIANCE WITH THE REQUIREMENTS OF ART. 150, PARAGRAPH 1, OF LEGISLATIVE DECREE NO. 58 OF 1998

INTRODUCTION

In accordance with article 150, paragraph 1, of Legislative Decree No. 58 of 1998 (hereinafter, the “Italian Income Tax Code”) “the directors shall report to the Board of Statutory Auditors, on a timely basis, in accordance with the procedures set out in the by-laws and at least quarterly, on the activities performed and on transactions carried out by the Company or its subsidiaries that have a significant economic, financial or equity impact; in particular, they shall report on transactions involving a potential conflict of interest”1. The present procedure, pursuant to the above-cited provision and in light of the communications by Consob relating to corporate controls2, defines the individuals and transactions involved in the information flows of which the statutory auditors of Pirelli & C. (hereinafter “Pirelli” or “the Company”) are the recipients, and the phases and timing characterizing those flows. In particular, the procedure sets out: 1. the method, frequency and content of the information; 2. the collection of the information. Attached to this procedure is an illustrative report that considers the issues underlying the definition of the information flows in question and the decisions made. Consequently, the main objective of this procedure is to provide the Board of Statutory Auditors with the information that is necessary for the performance of its monitoring and oversight activities as required by the Italian Income Tax Code (article 149). Secondly, this procedure implements the corporate governance tools, allowing for the tangible realization of the recommendations contained in the Code of Self- discipline prepared by the Committee for Corporate Governance of Listed Companies which Pirelli has complied with since its release. In particular, by increasing the transparency of the Company’s management, this procedure allows each director to participate in that management in a more knowledgeable and informed manner. Furthermore, this procedure sets in motion the information flows between the directors with delegated powers and the board of directors, recommended by the Code of Self-discip line and aimed, on the one hand, at endorsing the “centrality” of the Company’s management body in its entirety and, on the other hand, at strengthening the internal control functions.

1 This provision was incorporated in Pirelli & C.’s by-laws; article 10, paragraph 2 of the by-laws states that “The Board of Managing Partners, also through its delegated bodies, shall report on a timely basis to the Board of Statutory Auditors on the activities performed and the most significant economic, financial and equity transactions carried out by the Company and its subsidiaries; in particular, it reports on the transactions involving a potential conflict of interest. The information is delivered, at least quarterly, during the Board meetings or through written communication to the Board of Statutory Auditors”. 2 See, currently, Consob Communication No. 97001574 dated February 20, 1997 and Consob Communication No. 1025564 dated April 6, 2001. See also, Consob Communication No. 2064231 dated September 30, 2002 which defines the concept of related parties.

55 METHOD, FREQUENCY AND CONTENT OF THE INFORMATION The Board of Managing Partners, also through its delegated bodies, shall send a specific written report to the Board of Statutory Auditors on a quarterly basis: a) on the activities performed; b) on transactions that have a significant economic, financial or equity impact; c) on transactions involving a potential conflict of interest, i.e.: c1) on intra-group transactions; c2) on transactions with related parties, other than intra-group transactions; d) on atypical or unusual transactions and on every other activity or transaction that it considers appropriate to communicate to the Board of Statutory Auditors. The information provided shall refer to the activities performed and transactions carried out during the period subsequent to the previous report. The report shall be sent simultaneously to all directors and standing statutory auditors.

1. Activities performed The information shall regard executive activities and the status of transactions already approved by the Board of Managing Partners, as well as the activities of Committees (Audit Committee, Compensation Committee and other internal committees); in particular, executive directors report on the activities performed by them – also through the Company’s and its subsidiaries’ structures – in exercising the powers delegated to them, including the initiatives adopted and the projects introduced.

2. Transactions having a significant economic, financial or equity impact The information shall focus on transactions that have a significant economic, financial or equity impact, highlighting, in particular, the strategic aims, consistent with the budget and the industrial plan, manner of execution (including terms and conditions, both economic and otherwise, of their realization) and developments, as well as any conditions and implications that they carry for the Pirelli Group’s activities. For the purposes of this procedure, the following transactions carried out by Pirelli or its subsidiaries - in addition to the transactions reserved for the Board of Managing Partners in accordance with article 2381 of the Italian Civil Code and the by-laws - are considered to have a significant economic, financial or equity impact: 1) the issue of financial instruments for a total equivalent value in excess of Euros 100 million; 2) the granting of real or personal guarantees in the interest of subsidiaries (and, in the interest of Pirelli in the case of real guarantees) against obligations in excess of single amounts of Euros 25 million; 3) the granting of financing or guarantees to the benefit of or in the interest of third parties in excess of Euros 10 million; 4) the granting of financing to subsidiaries, investment and divestiture transactions, also including real estate transactions, and transactions involving the acquisition and disposal of equity investments, of companies or business segments of companies, of property, plant and equipment and of other assets, in excess of Euros 100 million; 5) merger and demerger transactions, involving subsidiaries, if at least one of the following parameters, where applicable, is equal to or in excess of 15 percent:

56 a. total assets of the incorporated (merged) company or the activities subject to demerger/total assets of the Company (data taken from the consolidated financial statements); b. result before tax and extraordinary items of the incorporated (merged) company or the activities to be demerged/result before tax and extraordinary items of the Company (data taken from the consolidated financial statements); c. total shareholders’ equity of the incorporated (merged) company or the business segment subject to demerger/total shareholders’ equity of the Company (data taken from the consolidated financial statements). However, transactions involving the merger (by incorporation or by pooling of interests) of listed companies as well as the merger by pooling of interests of a listed company with an unlisted company or by incorporation of a listed company into an unlisted company are considered, for the purposes of this procedure, transactions that have a significant economic, financial or equity impact.

The information shall also include transactions that, while individually below the thresholds specified above or those that determine the exclusive responsibility of the Board of Managing Partners, are interconnected within the same strategic or executive structure and therefore, when considered in the aggregate, exceed the relevant thresholds.

3. Transactions involving a potential conflict of interest 3a) Intergroup transactions The information concerning intra-group transactions shall illustrate the underlying interests and the significance from the Group perspective, as well as how the transactions are executed (including the terms and conditions, both economic and otherwise, of their realization) with particular regard to the valuation methods followed. Specific emphasis shall be placed on transactions with a value exceeding Euros 50 million, or less if those transactions are not finalized at arm’s length conditions3. Emphasis should also be placed on transactions that, while individually below the specified threshold, are interconnected within the same strategic or executive structure and therefore, when considered in aggregate, exceed that threshold. For the purposes of this procedure, intra-group transactions4 shall be those transactions carried out by Pirelli or its subsidiaries with: a) companies that, directly or indirectly (i.e. also through fiduciary companies or nominees), control Pirelli pursuant to article 2359, paragraphs 1 and 2, of the Italian Civil Code and article 93 of the Italian Income Tax Code;

3 For the purposes of this procedure, transactions finalized at standard conditions are those transactions entered into at the same conditions as the Company applies to all arm’s length transactions with whatsoever party. 4 For the purposes of this procedure, intra-group transactions cover the disposal, with or without consideration, of personal or real property and of transferable economic rights, transactions involving the performance of works and services, the granting or securing of financing and guarantees, and cooperation agreements for conducting and developing the Company’s business.

57 b) companies that, directly or indirectly (i.e. also through fiduciary companies or nominees), are controlled by Pirelli pursuant to article 2359, paragraphs 1 and 2, of the Italian Civil Code and article 93 of the Italian Income Tax Code; c) companies that, directly or indirectly (i.e. also through fiduciary companies or nominees), are controlled by the same companies that control Pirelli pursuant to article 2359, paragraphs 1 and 2, of the Italian Civil Code and article 93 of the Italian Income Tax Code; d) associated companies of Pirelli pursuant to article 2359, paragraph 3, of the Italian Civil Code and those that exercise significant influence on Pirelli; an associated company relationship does not exist with the associated company of an associated company.

3b) Transactions with related parties, other than intra-group transactions The information concerning transactions with related parties, other than intra- group transactions shall highlight the underlying interests and illustrate how the transactions are executed (including the terms and conditions, both economic and otherwise, of their realization) with particular regard to the valuation methods followed. For the purposes of this procedure, transactions with related parties5 shall be those transactions carried out by Pirelli or its subsidiaries with parties directly or indirectly related to Pirelli. Parties directly related to Pirelli are: 1 individuals who hold (directly or indirectly, i.e. also through fiduciary companies or nominees) an investment equal to or exceeding 10 percent of the share capital represented by ordinary shares of Pirelli; 2 individuals who, even though holding (directly or indirectly, i.e. also through fiduciary companies or nominees) an investment below the percentage indicated in a), may, by virtue of shareholders’ agreements, nominate, alone or jointly with the other parties adhering to the agreements, a majority of the members of Pirelli’s Board of Managing Partners; 3 individuals who, even though holding (directly or indirectly, i.e. also through fiduciary companies or nominees) an investment below the percentage indicated in a), command, by virtue of shareholders’ agreements, alone or jointly with the other parties adhering to the agreements, a majority of the exercisable votes in Pirelli’s ordinary shareholders’ meetings; 4 Pirelli’s members of the Board of Managing Partners and standing statutory auditors; 5 Pirelli’s General Manager, Secretary to the Board of Managing Partners and Managers of Pirelli who report directly to the Chairman and the General Manager (so-called first reports). Parties indirectly related to Pirelli are: 1 spouses, not separated, of the parties referred to in a) to e) above; 2 relatives by blood or affinity, up to the second degree, of the parties referred to in a) to e) above; 3 companies in which the parties referred to in a) to g) above hold, directly or indirectly (i.e. also through fiduciary companies or nominees) an investment

5 See note 4.

58 equal to or exceeding 10 percent (if a listed company) or 20 percent (if an unlisted company) of the share capital represented by shares having voting rights in the ordinary shareholders’ meetings; 4 companies in which the parties referred to in a) to g) above, although holding investments below the percentage indicated in h), may, by virtue of shareholders’ agreements, nominate, alone or jointly with the other parties adhering to the agreements, a majority of the members of that company’s Board of Directors; 5 companies in which the parties referred to in a) to g) above, although holding investments below the percentage indicated in h), command, by virtue of shareholders’ agreements, alone or jointly with the other parties adhering to the agreements, a majority of the exercisable votes in that company’s ordinary shareholders’ meetings; 6 companies in which the parties referred to in a) to g) above have a strategic management role, and their subsidiaries; 7 companies that have a majority of their directors in common with Pirelli. The following are also related parties: those adhering, even indirectly, to shareholders’ agreements referred to in article 122, paragraph 1, of Legislative Decree No. 58/98, the objective of which is the exercise of voting rights, if the interests covered by such agreements constitute the controlling interest.

Information should be given of transactions exceeding Euros 500 thousand, or less if not finalized at arm’s length conditions, carried out (also through nominees) with parties directly or indirectly related to Pirelli. Further, evidence should be provided of transactions that, while individually below the specified threshold, are interconnected within the same strategic or executive structure and therefore, when considered in the aggregate, exceed that threshold.

4. Atypical or unusual transactions and other transactions The information on atypical or unusual transactions, including those carried out by subsidiaries, and on every other activity or transaction on which it is considered appropriate to provide information, shall highlight the underlying interests and illustrate the manner in which the transactions are executed (including the terms and conditions, both economic and otherwise, of their realization) with particular regard to the valuation methods followed. For the purposes of this procedure, atypical or unusual transactions shall be those transactions, which, by object or nature, are outside the normal course of the Company’s business and those that show particular critical elements due to their characteristics and to the inherent risks, the nature of the counterpart, or the time of their completion6.

PROCEDURE FOR THE COLLECTION OF INFORMATION The Board of Managing Partners shall report to the Board of Statutory Auditors through the delegated bodies. For the purposes of preparing the specific report, the information should be transmitted to the Chairman and the General Manager, in accordance with the following procedure.

6 Transactions carried out in proximity to the end or beginning of the year.

59 1. Information on the activities performed, on transactions that have a significant economic, financial or equity impact, on intra-group transactions and on atypical or unusual transactions Pirelli’s General Manager and Managers who report directly to the Chairman and General Manager (so-called first reports) through the General Administration and Control function, shall report monthly to the Chairman and the General Manager, by specific communication, on the activities performed by their structure in the period, giving details on transactions that have a significant economic, financial or equity impact, intra-group transactions exceeding Euros 50 million, or less if not finalized at arm’s length conditions, atypical or unusual transactions, executive activities and the status of transactions already approved by the Board of Managing Partners, as well as the principal activities performed by directors in exercising the powers delegated to them, comprising the most important projects introduced and the most significant initiatives adopted. They should also communicate transactions that, while individually below the previously specified thresholds or those that determine the exclusive responsibility of the Board of Managing Partners, are interconnected within the same strategic or executive structure and therefore, when considered in the aggregate, exceed the relevant thresholds7. Information on the activities of the Audit Committee, Compensation Committee and other internal committees are provided by the respective Chairmen. Each quarter, the General Administration and Control function shall prepare and send to the Chairman and General Manager summary reports containing the aggregate data of the above transactions that were carried out during the period subsequent to the previous report. Further, details should also be provided of transactions that, while individually below the previously specified threshold, are interconnected within the same strategic or executive structure and therefore, when considered in the aggregate, exceed the cited threshold8.

2. Information on transactions with related parties, other than intra-group transactions 2.1 Pirelli’s General Manager and Managers who directly to the Chairman and General Manager (so-called first reports) shall send to the General Administration and Control function, by specific communication, a list of transactions with related parties, other than intra-group transactions, carried out by Pirelli or its subsidiaries exceeding Euros 500 thousand or less if not finalized at arm’s length conditions, using the same methods and with the same frequency as in point 1) above. Pirelli’s Directors and Standing Statutory Auditors, Secretary to the Board of Managing Partners, General Manager and Managers who report directly to the Chairman and General Manager (so-called first reports) communicate to the General Management Administration and Control – in accordance with the

7 In such case, the transactions are relevant also if carried out over a period of time exceeding the three months covered by the report. 8 See note 7.

60 format laid down in Appendix A – any transactions carried out with Pirelli or with its subsidiaries by each of them or by parties indirectly related to Pirelli through them9 that exceed Euros 500 thousand, or less if not finalized at arm’s length conditions, within fifteen days of the transaction’s conclusion. 2.2 In providing the information on transactions with related parties, other than intra-group transactions, set forth in point 2.1, above, emphasis should also be given to transactions that, while individually below the previously specified threshold, are interconnected within the same relationship and therefore, when considered in the aggregate, exceed the mentioned threshold10. 2.3 Each quarter, on the basis of the information received in accordance with points 2.1 and 2.2 above, the General Administration and Control function shall send a summary to the Chairman and General Manager containing all of the elements necessary to comply with the disclosure requirements related to the above transactions.

9 This declaration is requested mainly in view of the difficulty, if not impossibility, for Pirelli to know or to identify with certainty parties indirectly related to it through the aforementioned individuals; nor would it appear appropriate, first and foremost for reasons of privacy, to request from each of those individuals a list of said possible parties. 10 See note 7.

61 RULES OF CONDUCT FOR CARRYING OUT TRANSACTIONS WITH RELATED PARTIES

1. Transactions with related parties, including intra-group transactions, with the exception of transactions that are typical or usual or to be finalized at standard conditions shall be approved in advance by the Board of Managing Partners.

2. Typical or usual transactions are those transactions, which, by subject or nature, are not outside the normal course of the Company’s business and that do not present particular critical elements due to their characteristics or to the risks inherent to the nature of the counterpart or to the time of their completion. Transactions finalized at standard conditions are those transactions entered into at the same conditions as the Company applies to all arm’s length transactions with whatsoever party.

3. The Board of Managing Partners shall receive adequate information on the nature of the relationship, the manner in which the transaction is to be executed, the conditions, both economic and otherwise, for its realization, the valuation method followed, the underlying interests and motivations and any risks to the Company. In the event that the relationship is with a director or with a party related through a director, the director concerned shall limit his involvement to providing clarification and shall leave the Board meeting at the time the decisions are taken.

4. In relation to the nature, value or other characteristics of the transaction, the Board of Managing Partners, in order to avoid that the transaction is entered into at unsuitable conditions, is assisted by one or more experts who, depending on the circumstances, express an opinion on the economic conditions, and/or the legitimacy, and/or the technical aspects of the transaction.

5. With respect to transactions with related parties, including intra-group transactions, that are not submitted to the Board of Managing Partners in that they are typical or usual and/or at standard conditions, the directors with delegated powers or managers responsible for the realization of the transaction, except for the observance of the specific procedure as per article 150, paragraph 1, of the Italian Income Tax Code, shall collect and conserve, including by transaction type or group, adequate information on the nature of the relationship, the manner in which the transaction is to be executed, the conditions, both economic and otherwise, for its realization, the valuation method followed, the underlying interests and motivations and any risks to the Company. One or more experts may be appointed also for these transactions as provided above.

6. The choice of experts shall be from among individuals with recognized professional credentials and expertise on the subject matter, who shall be carefully evaluated in terms of their independence and the absence of conflicts of interest.

62 PIRELLI & C. ACCOMANDITA PER AZIONI’S CODE OF CONDUCT ON INSIDER DEALING

1. Introduction Further to the provisions set by article 180 and subsequent articles of Legislative Decree No. 58/1998 on the topic of misuse of privileged information, this Code of Conduct of Pirelli & C. Accomandita per Azioni (the “Code”) aims to regulate the binding obligations referring to the declaration requirements and conduct inherent to Transactions carried out by Relevant Persons and the related disclosure to the market.

2. Definitions For the purposes of this Code, it is intended by: A. Relevant Persons: the members of the Board of Managing Partners (executive and non-executive), the Standing Statutory Auditors, the General Managers, the Secretary to the Board of Managing Partners, the Heads of Departments. Furthermore, Relevant Persons are considered to be the heads of the functions which form the General Affairs Department, Legal and Corporate Affairs Department and the External Communications Department. The heads of the following Departments of Pirelli S.p.A. are also considered Relevant Persons: General Administration and Control, General Finance, Legal Affairs and Investor Relations. The heads of the following functions of Pirelli & C. Real Estate S.p.A. are also considered Relevant Persons: Corporate Administration, Finance and Control, Legal and Corporate Affairs, as well as the heads of the functions of Pirelli S.p.A. and Pirelli & C. Real Estate S.p.A. which form such Departments. Each of the above identified Relevant Persons may indicate other Relevant Persons, in relation to the activity they carry out or their assigned job, for a indefinite or limited period of time; immediate communication of such identification – and of the respective time limits, if set – should be made to the person concerned and to the Referee. B. Financial Instruments: (i) negotiable financial instruments listed on Italian and foreign regulated stock markets issued by Pirelli & C., its subsidiaries and its parent companies, excluding non-convertible bonds; (ii) listed or unlisted financial instruments that attribute a right to subscribe to, acquire or sell the instruments referred to in (i), above, and the certificates representative of the instruments referred to in (i), above; (iii) derivative financial instruments, and covered warrants, having as their underlyings the financial instruments referred to in (i), above, even when their exercise occurs through the payment of a cash differential. C. Transaction(s): any type of act creating, modifying or extinguishing rights on Financial Instruments, even if carried out within an individual investment portfolio management relationship. Included in such category are also acts for exercising any stock options or options rights on Financial Instruments. D. Significant Transaction: every Transaction that, alone or in aggregate with other Transactions carried out in the previous three months and not yet declared to the Company, exceeds Euros 80,000. The notional equivalent value of derivative financial instruments or covered warrants is calculated as

63 the product of the number of shares on which the instrument is based and the official price of the underlyings recorded on the day of conclusion of the transactions. E. Referee: the Secretary to the Board of Managing Partners of Pirelli & C., responsible for the receipt of declarations and administration of the information relating to Transactions carried out by Relevant Persons, who shall provide for the subsequent disclosure to the market in accordance with the procedures provided by the Code.

3. Declaration Requirements of Relevant Persons Within the seventh calendar day after the end of each calendar quarter, Relevant Persons shall send the Referee the list of Transactions carried out in the quarter on Financial Instruments, that in total amount to or exceed Euros 35,000. In the event that a Significant Transaction was carried out, the Relevant Person should declare this without delay to the Referee, together with the list of Transactions carried out in the preceding three months and not yet declared to the Company. Transactions carried out by the Relevant Person’s spouse, if not legally separated, or minor children, or delegated to be carried out by nominees, trustees or subsidiaries are also subject to the declaration requirements. The declaration to the Referee should be made on the form corresponding to the one required by Borsa Italiana S.p.A. in the Instructions for the Regulation of Markets Organized and Managed by Borsa Italiana S.p.A. for information purposes.

4. Exemption from Transaction declaration requirements The Transactions carried out – even through nominees or trustees – between the Relevant Person and his or her spouse, if not legally separated, or minor children, are excluded from the declaration requirements to the Referee. Also excluded are transactions involving the loan of securities, in the case where the Relevant Person, directly or indirectly, his or her spouse, if not legally separated, or minor children, acts as the lender, and Transactions creating liens or beneficial interests.

5. Limitations on carrying out Transactions Transactions carried out – directly or through nominees – by Relevant Persons, excluding non-executive members of the Board of Managing Partners and statutory auditors, is permitted only from the day after the first release of final or preliminary economic-financial data regarding each quarter1 until the closing of next quarter. The non-executive members of the Board of Managing Partners and statutory auditors shall abstain from carrying out Transactions from the day of convocation of the Board meeting called to examine the above-cited economic-financial data, or from the time that they became acquainted with that data, if earlier, until the day after its release. Relevant Persons may carry out Transactions outside the allowed period only in the event of exceptional situations of personal necessity that are adequately justified by

1 Or, the six months or full year, in the case of exemption from the publication of the second and fourth quarter reports, respectively.

64 the person concerned. The assessment of the existence of a situation of personal necessity is referred to the Chairman of the Board of Managing Partners. The limitations referred to in the first paragraph of this article shall not apply in the event of exercising the stock options or option rights on Financial Instruments and the consequent Transactions, provided that they are carried out at the same time the options or rights are exercised. The Board of Managing Partners can identify additional periods or circumstances in which Transactions are subject to limits and conditions, providing the Referee and the Relevant Persons with immediate communication.

6. Disclosure of transactions to the Market The Referee discloses the information received from the Relevant Persons to the market within the tenth trading day of the stock market after each calendar quarter by means of the transmission of a specific communication to Borsa Italiana, in accordance with the procedures provided in the Regulation of Markets Organized and Managed by Borsa Italiana and in the related Instructions. Significant Transactions shall be disclosed to the market without delay, by means of the procedures stated in the previous paragraph.

7. Sanctions Apart from the possibility of Pirelli & C. seeking compensation for any damages and/or liability that may result from conduct in violation of the Code, the breach of the declaration requirements or of the limitations on carrying out Transactions shall lead to: (i) for employees, the imposition of disciplinary sanctions as provided by the laws in force and the applicable collective national labor contract; (ii) for any other collaborators, the termination – with or without notice – of the relationship; (iii) for the members of the Board of Managing Partners and statutory auditors, the Board may propose the revocation of their appointments to the next shareholders’ meeting.

8. Acceptance Acceptance of this Code by each Relevant Person shall be by signing the form attached as an Appendix.

9. Updating of the Code and treatment of personal data The Referee is responsible for monitoring the application and effectiveness of the Code in respect of its intended purpose, and the submission of any modifications or integrations to the Board of Managing Partners. The Referee shall conserve the written declarations by which the Relevant Persons confirm their full knowledge and acceptance of the Code and grant their consent, in accordance with Law No. 675/1996, for the treatment of the requested data.

10. Transitory regulations The regulations of the Code shall become effective as from December 1, 2002. Transactions carried out during the month of December 2002 shall be accumulated, for the purposes of the declaration requirements referred to in article 3, with those of the first quarter of 2003.

65

THE PARENT COMPANY: PIRELLI & C.

The financial statements at December 31, 2002 of Pirelli & C. show a net income of Euros 60.2 million compared to a net income of Euros 148.4 million in the prior year. The condensed statement of income is as follows:

(in thousands of euros) STATEMENT OF INCOME 12/31/2002 12/31/2001 Variazioni Financial income and expenses 13,167 11,427 1,740 Dividends and tax credits 83,449 228,389 (144,940) Gains on sales of securities – 163 (163) Value adjustments to financial assets (134,377) (998) (133,379) Depreciation and amortization (2,067) (1,711) (356) Other operating income and expenses (6,908) (7,319) 411

Income from ordinary operations before income taxes (46,736) 229,951 (276,687)

Extraordinary items 139,612 (3,455) 143,067 Income taxes (32,679) (78,110) 45,431 Net income 60,197 148,386 (88,189)

An analysis of the main components of the statement of income shows that financial income, net is generally in line with that in the prior year.

Dividends, including tax credits of Euros 30 million, are equal to Euros 83.4 million compared to Euros 228.4 million in the prior year.

Dividends (including tax credits) are mainly from the subsidiaries Pirelli & C. Real Estate S.p.A. (Euros 78.3 million) and Pirelli S.p.A. (Euros 0.4 million for savings shares in portfolio only).

Value adjustments to financial assets mainly consist of the writedown made for tax purposes by Pirelli S.p.A. (Euros 134 million).

Other operating expenses, net of income from the recovery of expenses for services rendered to Group companies and other income, decreased from Euros 7.3 million to Euros 6.9 million.

Extraordinary items, net mainly include the pre-tax gain on the offering of Pirelli & C. Real Estate S.p.A. shares on the stock market (Euros 139.5 million).

67 The condensed balance sheet is as follows:

(in thousands of euros) BALANCE SHEET 12/31/2002 12/31/2001 Change Property, plant and equipment and intangible assets 24,458 2,095 22,363 Financial assets Investments 752,188 859,263 (107,075) Other securities 2,582 2,582 – Treasury shares 4,678 4,678 – Financial receivables 894,345 988,025 (93,680) Current financial assets 8,447 8,335 112 Other assets 60,563 62,611 (2,048) 1,747,261 1,927,589 (180,328) Shareholders’ equity 1,264,980 1,194,513 70,467 Provisions 17,410 13,334 4,076 Financial payables 457,024 696,248 (239,224) Other liabilities 7,847 23,494 (15,647) 1,747,261 1,927,589 (180,328)

Property, plant and equipment increased following Pirelli S.p.A.’s purchase of the representative offices in Rome (Euros 17,300 thousand) and Bicocca degli Arcimboldi (Euros 7,000 thousand) on June 28, 2002.

Investments decreased by Euros 107.1 million mainly as a result of the writedown taken for tax purposes by Pirelli S.p.A. (Euros 134 million), the sales of Pirelli & C. Real Estate S.p.A. shares in the offering on the stock market (Euros 11 million), the stake in Superga S.p.A. to third parties (Euros 4 million) and Pirelli & C. Credit Servicing S.p.A. to Pirelli & C. Real Estate S.p.A. (Euros 5 million), offset by purchases of Pirelli S.p.A. shares (16,329,356 ordinary shares for Euros 17 million), Pirelli & C. Real Estate S.p.A. shares (600,000 for Euros 11 million) and the 31.67 percent stake in Eurostazioni by Pirelli & C. Real Estate S.p.A. (Euros 19 million). At December 31, 2002, the average carrying value per share of Pirelli S.p.A. ordinary shares is equal to Euros 1.75. A complete analysis is provided in the notes.

Shareholders’ equity at December 31, 2002 is equal to Euros 1,265 million compared to Euros 1,194.5 million at December 31, 2001. The increase is the result of the net income for the year (Euros 60.2 million), net of dividends paid (Euros 52.4 million) and the partial conversion of 2.5% 1998-2003 bonds (Euros 62.6 million).

The net financial position shows a liquidity balance of Euros 445.8 million at December 31, 2002 compared to Euros 300.1 million at the end of the prior year.

68 (in thousands of euros) 12/31/2002 12/31/2001 Change Financial receivables 894,344 988,025 (93,681) Current financial assets 8,447 8,335 112 Financial payables (457,024) (696,248) 239,224 445,767 300,112 145,655

The change in the net financial position is due to the following:

(in thousands of euros) 12/31/2002 Increase in share capital and reserves 62,635 Funds provided by operations 23,541 Net financial investments 111,844 Dividends paid to shareholders (52,365) 145,655

Other assets mainly consist of tax receivables (Euros 21.9 million) and dividends receivable (Euros 31.4 million).

Other liabilities chiefly comprise payables for the payment of the unified VAT return filed for the entire Group, with a contra-entry to other assets (Euros 3 million).

69

SHAREHOLDERS’ RESOLUTIONS

APPROPRIATION OF NET INCOME The year ended December 31, 2002 shows a net income of Euros 60,197,784.

The Board proposes the distribution of dividends, gross of any withholding taxes, of:

– Euros 0.08 for each ordinary share and – Euros 0.0904 for each savings share.

Dividends proposed for distribution are entitled to an ordinary tax credit with refund rights equal to 56.25 percent (art. 105, paragraph 1, letter a) of D.P.R. 917/86).

Therefore, dividends on: –ordinary shares are entitled to a tax credit with refund rights of Euros 0.04500; – savings shares are entitled to a tax credit with refund rights of Euros 0.05085.

If in agreement with our proposal, we ask you to pass the following

Resolution

The shareholders’ meeting: – having examined the Report of the Managing Partners; – having examined the Report of the Board of Statutory Auditors; – having examined the financial statements at December 31, 2002, which show a net income of Euros 60,197,784

Votes a) to approve: • the Report of the Managing Partners; • the balance sheet, statement of income, the notes to financial statements for the year ended December 31, 2002 as presented by the Board of Managing Partners in their entirety, in their individual items, with the accruals proposed; b) to appropriate the net income of Euros 60,197,784 as follows: • to the legal reserve (until it reaches one-fifth of share capital) Euro 4,628 • to the shareholders: Euros 0.08 to 615,700,346 (*) ordinary shares, for a total of Euro 49,256,028 Euros 0.0904 to 34,418,257 savings shares, for a total of Euro 3,111,410 with the assignment of the tax credit as proposed by the Board of Managing Partners

71 • to retained earnings Euro 7,825,718 (*) net of 2,617,500 treasury shares currently held by the Company. c) to authorize the managing partners, in the event treasury shares are purchased before the dividend coupon is presented in the preceding point b), to appropriate the dividends to which such shares are entitled to retained earnings, as well as appropriate the balance of the amounts rounded off, which could arise at the time of payment of the dividends, to retained earnings.

Proposal for the purchase and procedures for the disposal of own shares, subject to the prior revocation of the resolution adopted on 13 May 2002, insofar as it has not been employed.

Shareholders, the resolution adopted on 13 May 2002 authorised the purchase of own shares (both ordinary and savings shares) not exceeding the ceiling of 100 million Euros for a period of 18 months starting from the date of the same resolution.

The above authorisation will expire on 12 November.

In reference to the purchase of own shares, especially after the merger that will be submitted to you for approval during the extraordinary meeting, the opportunities arisen are similar to those which led the Directors to suggest the resolution of 13 May 2002, namely that it is convenient to act (within the legal framework and ensuring the equal treatment of shareholders) upon existing market trends to provide a stabilising initiative which can improve market liquidity, promote the regular performance of transactions and facilitate the overall consistency between the quotation and the intrinsic value of shares.

We therefore believe it appropriate, in order to avoid calling a dedicated meeting in view of the aforementioned expiry date, to suggest the issuance of a new authorisation on this matter during today’s assembly proceedings, repealing the existing authorisation insofar as it has not been employed. The draft resolution described hereunder includes the buying and selling procedures and also the procedures for selling the own shares already in the portfolio.

As to the ceilings set to buying, we would suggest that the previously stated maximum amount (100 million Euros) be replaced by the limit set by the Italian Civil Code, thereby stating that the face value of the total purchased shares may not exceed 10% of the pro-tempore share capital. This amendment appoints your Directors greater freedom of action as to the procedures and methods stated by the laws in force.

As regards the procedures for assigning own shares, we suggest an amendment to the previous resolution which authorised the assignment of own shares at no less than the purchase price. Due to the unfavourable market trend and the market rate

72 of our shares, the average cost price of own shares presently in the portfolio (approximately 1.79 Euros) is remarkably higher than the share’s existing market prices making it unfeasible to place presently owned own shares in compliance with these procedures.

The amendment we are putting forward enables the Board to assign own shares at a value which is no less than the lower between: (a) the average of the official stock exchange prices recorded by the shares over the 15 days prior to the individual act of assignment, and (b) the value achieved by discounting by no more than 5% the minimum price recorded by the Pirelli & C. share (ordinary or savings share) on the day of each act of assignment or, in any case, the latest available price.

We would also suggest the extension of the authorisation to buy own shares to include those made available through the right to withdrawal due to shareholders as per art. 2437 of the Italian Civil Code, subject to the implementation of the resolutions stated under item 1 of the agenda of the extraordinary meeting.

Should this proposal meet with your approval, we would invite you to endorse this

RESOLUTION

“The Shareholders’ Meeting:

– having viewed the Directors’ proposal; – bearing in mind the provisions of articles 2357 and 2357-ter of the Italian Civil Code; – aware that, in this date, the company holds 2,617,500 ordinary shares, equal to approximately 0.4% of the share capital corresponding to 339,422,773.56 Euros;

HAS RESOLVED a) to revoke the resolution approved by the ordinary assembly on 13 May 2002 authorising the purchase and other procedures for the assignment of own actions, insofar as it has not been employed; b) to authorise the purchase of own shares (ordinary or savings) having a face value per unit of 0.52 Euros within the maximum ceiling of 10% of the pro-tempore share capital set by art. 2357 Italian Civil Code, providing that: – the purchase may occur once or several times within 18 months from the date of this resolution; – the purchase shall take place based on the procedures agreed with the market management company in order to ensure equal treatment amongst Shareholders, as per art. 132 of Legislative Decree no. 58 of 24 February 1998, or even when the right to withdrawal is exercised as per art. 2437 of the Italian Civil Code; – in both cases, the buying price for each share shall neither exceed nor cut the average official stock exchange prices recorded in the three sessions prior to

73 each individual operation by more than 15%, except when buying subsequent to a withdrawal, in which case reference will be made to the price set by law; – the purchase must occur using distributable profits and available reserves from the previous and regularly approved balance sheet, establishing a reserve of own shares within the terms and conditions of law ; c) to authorise the Board and on its behalf the Chairman, Vice-Chairman and, if any are appointed, the Managing Directors, to individually make use, without restrictions of time, of the own shares in the portfolio or purchased based on item b) of the resolution even before having completed the purchase; the assignment may occur once or several times; the shares may be assigned by sale or exchange (even by offering to the public, to shareholders and to the employees and/or directors and/or collaborators, also within possible shareholding incentive plans (“stock options”)); when selling, the price shall not cut the lower between: (a) the average official stock exchange prices recorded by the share over the 15 days prior to the individual act of assignment, and (b) the value achieved by discounting by no more than 5% the minimum price recorded by the ordinary or savings Pirelli & C. share on the day of each act of assignment or, in any case, the latest available price; this price restriction shall not apply if the shares are assigned to employees and/or directors and/or collaborators of the company or its subsidiaries, in the framework of possible stock option plans; the shares may be assigned also coupled to bonds or to warrants on the same; d) to appoint the Board, and on its behalf the Chairman, Vice-Chairman and, if any are appointed, the Managing Directors, all the individual powers needed for the buying and assigning procedures and, moreover, to implement the aforementioned resolutions also by means of their representatives, in compliance with the possible requirements of the authorities in charge”.

74 CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2002 CONSOLIDATED BALANCE SHEETS

ASSETS (in thousands of euros) 12/31/2002 12/31/2001 A) CAPITAL SUBSCRIPTION RIGHTS Portion uncalled -- B) FIXED ASSETS I) Intangible assets Formation costs 10,616 6,042 Patents and desing patent rights 4,048 4,101 Concessions, licenses, trademarks and similar rights 12,362 8,076 Goodwill 39,912 15,416 Difference on consolidation 508,269 544,938 Intangible assets in progress and payments on account 4,656 12,781 Other intangible assets 82,139 83,393 TOTAL INTANGIBLE ASSETS 662,002 674,747 II) Property, plant and equipment Land and buildings 667,363 721,589 Plant and machinery 1,229,889 1,329,564 Industrial and commercial equipment 134,647 147,790 Other property, plant and equipment 173,332 192,035 Assents under construction and payments on account 201,175 434,922 TOTAL PROPERTY, PLANT AND EQUIPMENT 2,406,406 2,825,900 III) Financial assents Investments in: a) Subsidiaries 646 1,136 b) Jointly controlled subsidiariers 3,000,888 3,150,840 c) Associated companies 157,868 115,559 d) Other companies 282,677 315,570 Financial receivables: a.1) Subsidiaries due within 1 year 9,092 - a.2) Subsidiaries due beyond 1 year 14,662 14,662 b.1) Associated companies due within 1 year 165,911 215,858 b.2) Associated companies due beyond 1 year 5 22 c.1) Other companies due within 1 year 2,466 21,280 c.2) Other companies due beyond 1 year 69,901 74,893 Other securities 85,803 14,247 Treasury shares 4.678 4.678 TOTAL FINANCIAL ASSETS 3,794,597 3,928,745 TOTAL FIXED ASSENTS 6,863,005 7,429,392

76 ASSETS (continued) (in thousands of euros) 12/31/2002 12/31/2001 C) CURRENT ASSETS I) Inventories Raw materials, auxiliaries and consumables 257,246 295,545 Work in process and semifinished products 302,979 325,373 Contract work in progress 161,465 153,482 Finisced products and goods for resale 539,325 580,295 Advances 22.199 8.758 TOTAL INVENTORIES 1,283,214 1,363,453 II) Receivables Trade 1,355,815 1,784,613 Subsidiaries 3,930 292 Associated companies 100.192 23,889 Other receivables 622,467 920,769 TOTAL RECEIVABLES 2,082,404 2,729,563 III) Current financial assets Other investments - 20,700 Other securities 198,652 562,110 TOTAL CURRENT FINANCIAL ASSETS 198,652 582,810 IV) Cash and banks Bank and postal deposits 380,370 454,784 Checks 2,027 8,751 Cash on hand 2,722 7,851 TOTAL CASH AND BANKS 385,119 471,386 TOTAL CURRENT ASSENT 3,949,389 5,147,212 D) ACCRUED INCOME AND PREPAID EXPENSES Accrued income 42,337 37,652 Prepaid expenses 42,594 37,790 TOTAL ACCRUED INCOME AND PREPAID EXPENSES 84,931 75,442 TOTAL ASSETS 10,897,325 12,652,046

77 CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS’ EQUITY (in thousands of euros) 12/31/2002 12/31/2001 A) SHAREHOLDERS’ EQUITY - Parent company interest 1,932,938 2,118,705 I) Share capital 339,423 325,408 II) Share premium reserve 549,673 501,054 III) Revaluation reserve 707 707 IV) Legal reserve 67,880 65,014 V) Reserve for treasury shares in portfolio 4,678 4,678 VII) Other reserves 786,538 947,624 VIII)Retained earnings 242,422 149,265 IX) Net income (loss) (58.383) 124.955 - Minority interest 2,693,450 3,288,687 a) Capitale e riserve 3,040,227 3,219,430 b) Net income (346,777) 69,257 TOTAL SHAREHOLDERS’ EQUITY 4,626,388 5,407,392 B) PROVISIONS FOR LIABILITIES AND EXPENSES Pensions and similar obligations 205,232 237,806 Income taxes 214,464 225,560 Other provision 331,906 401,264 TOTAL PROVISIONS FOR LIABILITIES AND EXPENSES 751,602 864,630 C) PROVISION FOR EMPLOYEES’ LEAVING INDEMNITY 158,951 105,271 D) PAYABLES Bonds 1,164,796 661,407 Convertible bonds 21,977 86,177 Bank borrowings 1,637,782 2,513,307 Other financial companies 99,726 155,308 Advances from customers 179,693 188,249 Trade 1,259,407 1,328,243 Subsidiaries 126 - Associated companies 34,592 4,529 Taxes 193,214 531,591 Social security agencies 56,789 49,817 Other payables 433,825 473,856 TOTAL PAYABLES 5,081,927 5,992,484 E) ACCRUED LIABILITIES AND DEFERRED INCOME Accrued liabilities 242.535 238.314 Deferred income 35.922 43.955 TOTAL ACCRUED LIABILITIES AND DEFERRED INCOME 278.457 282.269 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 10.897.325 12.652.046

78 MEMORANDUM ACCOUNTS (in thousands of euros) 12/31/2002 12/31/2001 PERSONAL GUARANTEES - Sureties on behalf of other companies 224,605 159,722 - Credit guarantees on behalf of other companies 10,656 34,969 235,261 194,691 THIRD PARTY ASSETS HELD IN DEPOSIT - Securities held in deposit 1,107,883 167,072 - Third-party goods held in deposit 7,625 2,799 1,115,508 169,871 ASSETS HELD BY THIRD PARTIES - Securities held guarantees and sureties 52,670 68,081 - Share held in deposit 552,528 245,150 - Goods held by third parties 9,103 10,757 614,301 323,988 COMMITMENTS - Capital expenditures 600,914 57,635 - Nominal value of put options given to third parties 2,151,517 2,165,102 - Sale of tax receivables 102,052 - - Purchase of equity investments - 38,786 - Securities to be delivered - 75,946 2,854,483 2,337,469 OTHER MEMORANDUM ACCOUNTS - Potential losses for risk of default on discounted bills 31,500 67,188 - Forward securities purchase 200,000 200,000 231,500 267,188 TOTAL MEMORANDUM ACCOUNTS 5,051,053 3,293,207

79 CONSOLIDATED STATEMENTS OF INCOME

(in thousands of euros) 12/31/2002 12/31/2001 A) PRODUCTION VALUE Revenues from sales and services 6,717,915 7,761,985 Changes in inventories of work in process, semifinisced and finisced products (14,840) (93,782) Changes in contract work in progress 15,312 (4,876) Increase in property, plant and equipment 11,218 16,512 Other revenues and income: a) Miscellaneous 126,653 210,815 b) Government grants 5,188 7,516 TOTAL PRODUCTION VALUE 6,861,446 7,898,170 B) PRODUCTION COSTS Raw materials, auxiliaries, consumables and goods for resale (3,223,030) (3,888,402) Service expenses (1,289,691) (1,314,288) Lease and rent expenses (76,777) (85,581) Personnel costs (1,426,439) (1,549,744) Amortization, depreciation and writedowns: a) amortization of intangible assets (90,844) (82,098) b) depreciation of property, plant and equipment (314,738) (325,566) c) writedowns of receivables included in current assets and cash and banks (40,871) (79,945) Changers in inventories of raw materials, auxiliaries, consumables and goods for resale (485) (6,511) Accruals for liabilities (8,207) (3,765) Other accruals (19,598) (3,521) Other operating expenses (253,264) (235,224) TOTAL PRODUCTION COSTS (6,743,944) (7,601,645) DIFFERENCE BETWEEN PRODUCTION VALUE AND PRODUCTION COSTS 117,502 296,525 C) FINANCIAL INCOME AND EXPENSES Investment income 20.121 12.176 Other financial income: a) From receivables included in fixed assents - from subsidiaries 163 - - associated companies 12.906 - - other companies 250 319 b) from securities included in fixed assets 90 518 c) from securities included in current assets 13.237 3.550 d) Income other than the above 498.910 461.018 Interest and other financial expenses (723.099) (515.383) TOTAL FINANCIAL INCOME AND EXPENSES (177.422) (37.802)

80 CONSOLIDATED STATEMENTS OF INCOME

(continued) (in thousands of euros) 12/31/2002 12/31/2001 D) VALUATION ADJUSTMENTS TO FINANCIAL ASSENTS Revaluation 67,440 9,951 Writedowns (242,536) (41,517) TOTAL VALUATION ADJUSTMENTS (175,096) (31,566) E) EXTRAORDINARY ITEMS Extraordinari income 259,108 425,670 Extraordinari expenses (341,840) (270,075) TOTAL EXTRAORDINARY ITEMS (82,732) 155,595 INCOME (LOSS) BEFORE INCOME TAXES (317,748) 382,752 Income taxes (87,412) (188,540) NET INCOME (LOSS) (405,160) 194,212 PARENT COMPANY INTEREST (58,383) 124,955 MINORITY INTEREST (346,777) 69,257

81 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FORM AND CONTENT The consolidated financial statements for the year ended December 31, 2002 have been drawn up in accordance with the provisions introduced by Legislative Decree No. 127 of April 9, 1991 which incorporate those of the VII directive of the EC.

The consolidated financial statements include the financial statements of Pirelli & C., the parent company, and the companies in which Pirelli & C. holds, directly or indirectly, control as defined by Legislative Decree 127/91, art. 26. Also included in the consolidation are some companies in which Pirelli & C. owns less than 50 percent of the share capital in joint venture with other operators to carry out specific real estate projects. These companies, in which no one shareholder has direct control, are consolidated proportionally. The subsidiaries which fall under the cases indicated in Legislative Decree 127/91, art. 28 are excluded from the scope of consolidation.

The list of companies in consolidation, the statement of cash flows and the statement of changes in shareholders’ equity are presented in the supplementary information.

All amounts are expressed in thousands of Euros, unless otherwise indicated. The audit report on the consolidated financial statements has been issued by PricewaterhouseCoopers S.p.A. pursuant to art. 159 of Legislative Decree No. 58 of February 24, 1998 and takes into account CONSOB recommendation of February 20, 1997, in execution of the resolution passed by the shareholders’ meeting of May 13, 2002 which appointed the audit firm for the three-year period 2002-2004. The agreed fee is Euros 12 thousand per year.

The fees for the audit of the individual Group companies have been borne directly by the companies concerned; the equivalent Euro amount of fees for the year 2002 has amounted to approximately Euros 3,340 thousand, including the fees for the limited review of the six-month financial statements.

PRINCIPLES OF CONSOLIDATION The financial statements used in consolidation are those at December 31, 2002 prepared for approval by the shareholders of the individual companies adjusted, where necessary, to agree with the “Common Accounting Principles” of the Group, which comply with those established by Legislative Decree 127/91 and the principles set forth by the National Boards of Dottori Commercialisti and Ragionieri.

The financial statements of subsidiaries operating in high-inflation countries have been adjusted to take into account the changed purchasing power of the local currency, in accordance with the principles for inflation accounting.

82 The financial statements expressed in foreign currency have been translated into Euros at rates prevailing at year-end for the balance sheet and at average exchange rates for the statement of income, with the exception of the financial statements of companies operating in high-inflation countries, whose statements of income have been translated at year-end rates. The differences arising from the translation of beginning shareholders’ equity at year-end exchange rates have been recorded in translation adjustments in shareholders’ equity.

The exchange rates which have been applied are presented under “Other information” in the notes.

The principles of consolidation are as follows:

– For companies consolidated using the full and proportional consolidation methods, the accounting value of each investment is eliminated against the underlying net equity. For companies accounted for using the equity method, the cost of acquisition is adjusted to the underlying share of net equity at December 31, 2002, as shown by the related financial statements. For investments in consolidated companies and for those valued using the equity method, the differences, at acquisition, between the carrying value of the investments and the corresponding share of net equity have been accounted for as follows: – negative differences are shown as a deduction from fixed assets, except those of definite amount; any additional negative difference is recorded in the consolidation reserve; – positive differences, where not attributable to the assets or liabilities of the investee companies, have been recorded as a reduction of the consolidation reserve up to the amount of same and the remaining amount has been recorded as an asset in “difference on consolidation”. – The assets, liabilities, revenues and costs related to transactions among consolidated companies, including dividends paid within the Group, have been eliminated. – The gains and losses arising from transactions among consolidated companies, if not yet realized through transactions with third parties, have been eliminated. – The minority interest in the share of the net equity and the results of operations are shown separately, respectively, under shareholders’ equity in the balance sheet and in the statement of income.

The reconciliation between the net results and shareholders’ equity of Pirelli & C. at December 31, 2002 and the corresponding consolidated figures is presented in the supplementary information.

83 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted are those set forth by the provisions of art. 2426 of the Italian Civil Code, referred to and supplemented by the provisions of Consob and by the accounting principles issued by the National Boards of Dottori Commercialisti and Ragionieri.

The accounting principles have been applied on a basis consistent with the prior year. Unless otherwise indicated, the accounting principles applied in the valuation of the components of the consolidated financial statements are in compliance with those adopted in the financial statements of the parent company.

INTANGIBLE ASSETS “Formation costs” relate to the capital increase costs of consolidated companies and are amortized over a period of five years.

“Patents and design patent rights” and “concessions, licenses, trademarks and similar rights” are amortized over their expected economic lives, estimated in a period of five years.

“Goodwill” includes the amount paid for this purpose by the Group companies for the acquisition of companies or other corporate transactions. Goodwill is amortized over a period of ten years, which identifies the possible period of utilization.

“Difference on consolidation”, relative to the acquisition of investments, is amortized over a period of between ten and twenty years; this period identifies the possible period of utilization.

The caption “other intangible assets” includes sundry costs benefiting future periods, and in particular refers to: – applied software acquisition costs, amortized over a period of five years; – leasehold improvements, amortized over the duration of the lease and, in any case, not exceeding five years; – loan acquisition costs, amortized over a period not exceeding the duration of the loan and, in any case, not exceeding five years; – image awareness costs benefiting future periods, amortized over the duration of the contract and, in any case, not exceeding five years.

PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at purchase or production cost including directly attributable incidental expenses and eventually increased by revaluations effected in accordance with specific laws.

Depreciation is calculated starting from the month when the asset is available and ready for use or potentially able to provide economic benefits.

84 Depreciation is calculated on the straight-line method on a monthly basis at rates designed to completely write-off the assets over their estimated useful lives or, for disposals, up to the last month of utilization, as follows:

Buildings 3% - 10% Plant 7% - 10% Machinery 5% - 10% Equipment 10% - 33% Furniture 10% - 33% Motor vehicles 10% - 25%

In addition, property, plant and equipment are written down when the net recoverable amount is permanently impaired and lower than the net book value, in accordance with article 2426, point 3 of the Italian Civil Code.

Ordinary maintenance and repair costs are expensed in the year incurred.

Government investment grants relating to property, plant and equipment are recorded in a special provision under liabilities and are released to income in proportion to the future depreciation of the assets to which they refer.

Assets acquired under financial leasing contracts are accounted for as property, plant and equipment with a contra-entry to financial payables and are therefore capitalized and depreciated over their estimated useful lives. The lease installment is divided between interest expense, recorded in the statement of income, and the repayment of principal, recorded as a deduction of the financial liability.

FINANCIAL ASSETS - Investments Equity investments in associated companies are valued using the equity method, in accordance with article 2359 of the Italian Civil Code. Equity investments in unconsolidated subsidiaries and other companies are valued at cost and reduced, if necessary, to account for any permanent impairment in value. The original amount is reinstated whenever the reasons for the adjustment no longer apply.

- Other securities Other securities are stated at cost, reduced for any permanent impairment in value.

- Treasury shares Treasury shares are valued at purchase cost. In accordance with article 2357-ter of the Italian Civil Code, an undistributable reserve has been recorded in shareholders’ equity for an amount corresponding to the carrying value.

85 RECEIVABLES AND PAYABLES Receivables (under both fixed assets and current assets) are stated at estimated realizable value. Payables are stated at nominal value. Receivables and payables in foreign currencies other than the functional currency of the individual companies are adjusted to the year-end exchange rates or the agreed exchange rates under hedging contracts; the effects of the hedging contracts are recorded in accrued income and accrued liabilities; related exchange gains or losses are recorded in the statement of income in accordance with the accrual basis of accounting.

INVENTORIES Inventories are stated at the lower of cost, determined on the FIFO basis, and estimated realizable value. Work in process on long-term contracts is stated in proportion to the stage of completion of the work on the basis of agreed prices and taking into account estimated losses.

Inventories of real estate property consist of areas for building, property under renovation, property under construction, property completed and intended for sale, real estate trading property for sale and construction in progress against orders. Areas for building are stated at the lower of purchase cost, plus incremental expense and interest expense capitalized in the pre-construction phase, and the corresponding realizable value. Property under construction and/or in the process of renovation also take into account the income earned on the construction order. This income is calculated on the basis of the total agreed sales price in proportion to the stage of completion of the work determined as a percentage of total cumulative costs incurred up to the balance sheet date in relation to estimated costs to completion. Property under construction and/or in the process of renovation, for which a preliminary lease agreement has been signed, is valued at the lower of cost plus incremental expenses and interest expense, and the corresponding realizable value. Real estate trading property for sale is valued at the lower of cost and market value. Incremental expenses incurred up to the time of sale are added to the purchase cost. Construction in progress is valued according to the agreed sales price in relation to the stage of completion of the project. Any losses to complete the project are charged entirely in the year in which they become known. Inventories also include requests for higher expenditures incurred in constructing university buildings, according to a conservative estimate of their recognition. Requests for additional prices over the contract price are recorded in the financial statements if the amounts are reasonably certain. Penalties for late delivery of the property are accrued whenever such delays are chargeable to the contractor and not the principal.

86 OTHER INVESTMENTS AND OTHER SECURITIES Investments and other securities recorded in current assets designated for trading purposes and/or to meet treasury requirements, are stated at the lower of cost and fair value.

CASH AND BANKS Cash and banks are stated at nominal value.

PROVISIONS FOR LIABILITIES AND EXPENSES - Provisions for pensions and similar obligations These provisions refer to pensions, health care and other benefits in favor of employees, not included in specific laws but covered by local labor agreements, and benefit plans operating at some Group companies. The accounting method is based on the allocation of the entire cost at maturity over the service lives of the employees based on entitlement earned, using actuarial methods.

- Provision for income taxes The provision for income taxes includes deferred tax liabilities and tax losses that are certain or likely to be incurred but uncertain as to the amount or as to the date on which they will arise; definite and certain income taxes payable are recorded in a specific account in the balance sheet. The provision also includes deferred tax liabilities.

- Other provisions Other provisions include liabilities that are certain or likely to be incurred but uncertain as to the amount or as to the date on which they will arise.

PROVISION FOR EMPLOYEES’ LEAVING INDEMNITY The provision for employees’ leaving indemnity includes amounts payable to employees accrued on their behalf in accordance with specific laws or national labor contracts.

ACCRUALS AND DEFERRALS Accruals and deferrals are accounted for on the accrual basis.

GUARANTEES AND COMMITMENTS Guarantees given to third parties are recorded at the contract value of the commitment assumed on behalf of the beneficiary. Options granted to third parties and third party securities held in deposit are recorded at nominal value.

87 FINANCIAL INSTRUMENTS Forward contracts and derivative financial instruments used for hedging purposes are recorded under commitments at the time the contract is stipulated, for the notional amount. Income and expenses, as well as any effects, corresponding to the difference between the original contract amount and the fair value at the end of the year, are accounted for on the accrual basis.

RECOGNITION OF REVENUES Revenues from the sale of products are recognized at the time of transfer of title of ownership which generally coincides with the delivery or shipment of the goods. Revenues from sales are shown net of discounts and allowances.

RESEARCH, DEVELOPMENT AND ADVERTISING COSTS “Research & development and advertising costs” are charged to the statement of income in the year incurred.

DIVIDENDS Dividends are recorded on a cash basis, gross of tax credits.

INCOME TAXES Current income tax liabilities are determined on the basis of a realistic estimate of the tax expenses payable under current tax laws; the related liability is shown in taxes payable net of advance payments, withholdings and tax credits.

Deferred taxes are calculated on the temporary difference existing between the value of assets and liabilities in the balance sheet and their tax basis (liability method). Any deferred tax liabilities are recorded in the provision for income taxes. Deferred tax assets are accounted for only where is a reasonable certainty of recovery and these are recorded in “Other receivables”.

88 CONSOLIDATED BALANCE SHEETS

ASSETS B) FIXED ASSETS I) Intangible assets Intangible assets can be analyzed as follows:

(in thousands of euros)

12/31/2001 Translation Increase Decrease Amortization 12/31/2002 adjustment

• Formation costs 6,042 43 9,579 (241) (4,807) 10,616 • Patents and desing patent rights 4,110 9 2,545 - (2,616) 4,048 • Concessions, licenses, trademarks and similar rights 11,383 (266) 8,337 (666) (6,426) 12,362 • Goodwill 15,416 (606) 29,420 (720) (3,598) 39,912 • Difference on consolidation 544,938 - - (3,414) (33,255) 508,269 • Other 92,858 (5,545) 43,552 (3,928) (40,142) 86,795 674,747 (6,365) 93,433 (8,969) (90,844) 662,002

The increase in “formation costs” is due to the registration tax capitalized by Pirelli Tyre Holding N.V. – Amsterdam – as a consequence of the increase in share capital subscribed to by Pirelli S.p.A. and the costs incurred for listing Pirelli & C. Real Estate S.p.A..

The increase in “patents and design patent rights” is mainly due to costs incurred by Pirelli Cavi e Sistemi S.p.A. (a company merged in Pirelli S.p.A.) to file industrial patents.

“Concessions, licenses, trademarks and similar rights” mainly include the costs incurred to extend the number of software user rights for Pirelli S.p.A.’s new integrated information system (SAP/Oracle).

The increase in “goodwill” principally relates to the purchases made during the year by Pirelli & C. Real Estate S.p.A. (Agied S.r.l., Edilnord Progetti S.p.A., Servizi Immobiliari Edilnord S.p.A. and project, property and agency business segments received from Telecom Italia S.p.A. and Olivetti Multiservices S.p.A. for the execution of Progetto Tiglio).

The major items included in “other” relate to software applications costs, expenses for the development of a new commercial and financial reporting system, expenses for the CCM project, corporate reorganization expenses, expenses for the implementation of e- business solutions, loan acquisition costs and leasehold improvements. “Difference on consolidation” at December 31, 2002 includes Euros 448,444 thousand representing the difference between the price paid and the underlying net

89 equity of the consolidated company Pirelli S.p.A. which arose following the purchases of shares by Pirelli & C. and by Pirelli & C. Luxembourg S.A. net of amortization (calculated over a period of 20 years).

II) PROPERTY, PLANT AND EQUIPMENT The movements in property, plant and equipment during the year are as follows:

(in thousands of euros) 12/31/2002 12/31/2001 Gross value Opening balances 6,405,699 6,263,534 Translation adjustment (714,050) (269,905) Change in scope of consolidation 1,551 (14,405) Additions 328,964 646,218 Disposals (265,134) (219,743) 5,757,030 6,405,699 Accumulated depreciation Opening balances 3,579,799 3,645,534 Translation adjustment (390,047) (224,702) Change in scope of consolidation 714 (4,244) Depreciation charge 314,738 325,566 Disposals (154,580) (162,355) 3,350,624 3,579,799 Net book value 2,406,406 2,825,900

The net increase from the prior year is due to the combination of the following:

– translation adjustments, in reference to property, plant and equipment included in the financial statements of foreign companies; – additions, which are lower than the prior year, equal to 1.05 times depreciation; – disposals, mainly in reference to plants as a consequence of production rationalization.

Gross values include about Euros 21,147 thousand of assets which are no longer in use and are being held for transfer to other Group companies or disposal to third parties.

III) Financial assets Financial assets went from Euros 3,583,105 thousand to Euros 3,442,079 thousand. Details are as follows:

90 (in thousands of euros) 12/31/2001 Change in Increase Decrease 12/31/2002 scope of consolidation Investments in subsidiaries 1,136 (192) 210 (508) 646 Investments in jointed controlled subsidiaries 3,150,840 - - (149,952) 3,000,888 Investments in associated companies 115,559 2.382 117,660 (77,733) 157,868 Investments in other companies 315,570 (2,039) 74,283 (105,137) 282,677 3,583,105 151 192,153 (333,330) 3,442,079

“Investments in subsidiaries” amount to Euros 646 thousand and consist of companies recently formed and/or insignificant to the consolidated financial statements in terms of net equity or results of operations and/or in which the rights of the parent company are subject to restrictions. Details are as follows:

(in thousands of euros) Description Country % holding Amount AFCAB Holding (Proprietary) Ltd. Sud Africa 50,00% 197 Pirelli & C. Real Estate Ltd. Great Britain 100,00% 100 LSF Italian Finance Company S.p.A. Italy 100,00% 100 Parcheggi Bicocca S.r.l. Italy 75,00% 64 Tintoretto S.r.l. Italy 100,00% 55 Verdi S.r.l. Italy 100,00% 130 646

“Investments in jointly controlled subsidiaries” amount to Euros 3,000,888 thousand and refer to the investment in Olimpia S.p.A. (60 percent) which has been accounted for using the equity method. This amount includes goodwill that will be amortized over 20 years ( Euros 47,030 thousand).

91 “Investments in associated companies” amount to Euros 157,868 thousand compared to Euros 115,559 thousand at December 31, 2001. Details are as follows:

(in migliaia di euro) Real estate group Auriga Immobiliare S.r.l. 23,818 CFT Finanziaria S.p.A. 15,915 M.S.M.C. Holding B.V. 23,089 Trixia S.r.l. 7,172 Dixia S.r.l. 6,780 Massetto 1 B.V. 5,092 Immobiliare Prixia S.r.l. 4,230 Iniziative Immobiliari S.r.l. 4,929 Popoy B.V. 2,757 Sci Roev Partners L.P. 2,572 IN Holding Italy S.a.r.l. 2,352 Induxia S.r.l. 2,576 Inim Due S.a.r.l. 2,040 Ortensia S.r.l. 1,272 Progetto Bicocca La Piazza S.r.l. (Italia) 616 Other minor companies 3,300 108,510 Industrial group Power Cables Malaysia Sdn Bhd (Malesia) 9,243 Drathcord Saar & Co. K.G. (Germania) 5,403 Rodco Ltd. (U.K.) 4,131 Kabeltrommel Gmbh & Co. K.G. (Germania) 2,810 STIP Tunisi (Tunisia) 2,410 SMP Melfi S.r.l. (Italia) 1,807 Auto Cable Tunisie 1,796 K.M.P. Cabos Especiais e Sistemas Ltda (Brasile) 1,353 Industriekraftwerk (Germania) 521 Euro Drive Car S.L. (Spagna) 129 Other minor companies 787 30,390 Other Eurostazioni S.p.A. 18,335 I.D.E.A. Grande Società consortile 633 18,968 Total 157,868

The increase is mainly due to investments made in CFT Finanziaria S.p.A., Masseto 1 BV, Dixia S.r.l. and Trixia S.r.l..

92 “Investments in other companies” can be summarized as follows:

(in thousands of euros) 12/31/2002 12/31/2001 Investments in Italian listed companies 163,228 204,238 Investments in Italian unlisted companies 89,043 78,981 Investments in unlisted companies 30,406 32,351 282,677 315,570

The decrease in “Investments in Italian listed companies” is mainly due to writedowns in e-Biscom S.p.A. (Euros 34,666 thousand) and Caltagirone Editore S.p.A. (Euros 24,079 thousand). “Investments in Italian unlisted companies” relate to the subscription to the share capital increase of F.C. Internazionale Milano S.p.A. (Euros 40,890 thousand) which was offset by the writedown of the same investment (Euros 18,437 thousand).

“Financial receivables from other companies due beyond one year” amount to Euros 68,825 thousand and include:

– Euros 4,502 thousand of interest-bearing fixed rate loans; the carrying value approximates fair value at the end of the year; – Euros 26,639 thousand of interest-bearing fixed rate obligatory deposits; – Euro 22,171 thousand of interest-bearing variable rate loans; – Euro 2,307 thousand of non-interest bearing security deposits; – Euro 13,206 thousand of non-interest bearing loans.

Receivables due beyond five years total Euros 26,859 thousand.

“Other securities” total Euros 85,803 thousand compared to Euros 14,247 thousand at December 31, 2001. They include Fenera Holding S.p.A. bonds and investment securities of Pirelli Financial N.V. (Pirelli S.p.A. group). The change is mainly due to the reclassification from current financial assets of Convertible Bond Asset Swaps on Olivetti S.p.A. 2010 convertible bonds and Share Swap Transactions on Olivetti S.p.A. shares / Olivetti S.p.A. 2010 convertible bonds held by the subsidiary Pirelli Finance (Luxembourg) S.A.. The strategic value of the Olivetti S.p.A. securities was taken into consideration in making this reclassification. The effect of adjusting these securities to market value, had they remained in current financial assets, would have been a writedown of about Euros 69 million.

“Treasury shares” relate to 2,617,500 ordinary shares, equal to 0.42 percent of share capital (0.44 percent of ordinary share capital). As provided by art. 2357-ter of the Italian Civil Code, a “Reserve for treasury shares in portfolio” has been established for the same amount. A comparison of the treasury shares with the average market prices shows a lower value of Euros 0.5 million. The valuation at cost, which approximates the net equity per share, has been maintained in the financial statements as there is no permanent impairment in value.

93 C) CURRENT ASSETS I) Inventories Inventories amount to Euros 1,283,214 thousand, compared to Euros 1,363,453 thousand in the prior year, and may be analyzed as follows:

(in thousands of euros) 12/31/2002 12/31/2001 Pirelli S.p.A. group • Energy Cables and Systems Sector 385,211 441,529 • Telecommunications Cables and Systems Sector 91,144 128,240 • Tyres Sector 429,983 455,756 • Other - 1 Total Pirelli S.p.A. group 906,338 1,025,526 Pirelli & C. Real Estate S.p.A. group 383,702 346,029 • Other and intereliminations (6,826) (8,102) 1,283,214 1,363,453

II) Receivables Receivables total Euros 2,082,404 thousand compared to Euros 2,729,563 thousand in the prior year, and can be analyzed as follows:

(in thousands of euros) 12/31/2002 12/31/2001 Financial Trade Financial Trade and other and other • Trade – 1,355,815 – 1,784,613 • Subsidiaries 190 3,740 – 292 • Associated companies 34,382 65,810 1,336 22,553 • Other receivables 25,382 597,085 21,284 899,485 59,954 2,022,450 22,620 2,706,943

– trade receivables from customers by due date are detailed as follows:

(in thousands of euros) 12/31/2002 12/31/2001 due within 1 year 1,507,816 1,925,196 due beyond 1 year 540 19,382 allowance for doubtful receivables (152,541) (159,965) 1,355,815 1,784,613

No receivables are due beyond five years. The carrying value of receivables, adjusted for probable future losses, approximates estimated fair value at year-end.

94 – receivables from associated companies include financial receivables and refer to a loan made to Eurostazioni S.p.A. (Euros 32,717 thousand) subsequent to transactions with Pirelli & C. A.p.A.. The most significant trade receivables refer to direct and indirect associated companies of Pirelli & C. Real Estate S.p.A. - Euros 64,597 thousand (Euros 22,158 thousand at December 31, 2001). All amounts are receivable within one year.

– other receivables – “Trade and other”, which amount to Euros 597,085 thousand, include the balance of deferred tax assets (Euros 119,156 thousand); amounts due from the tax authorities of Euros 224,539 thousand; receivables from sales of fixed assets of Euros 1,542 thousand; receivables from employees of Euros 9,223 thousand and receivables from social security agencies, export refunds and other minor amounts of Euros 242,625 thousand. Part of the reduction from December 31, 2001 is due to the sale of tax receivables to Unicreditfactoring S.p.A. and Mediofactoring S.p.A.. for Euros 112,815 thousand. The amount due beyond one year and within five years is Euros 86,875 thousand, while receivables due beyond five years amount to Euros 85,475 thousand.

III) Current financial assets – other securities amount to Euros 198,652 thousand and include the following: Euros 62,359 thousand of fixed rate bonds issued and guaranteed by banking institutions; Euros 66,953 thousand of variable rate bonds issued and guaranteed by banking institutions; Euros 5,505 thousand of fixed rate bonds issued and guaranteed by governments of various countries; Euro 10,109 thousand of variable rate bonds issued and guaranteed by governments of various countries; Euro 5,189 thousand of bonds issued and guaranteed by primary issuers; Euro 33,589 thousand of equity securities intended for sale; Euro 14,648 thousand of premiums paid on call options on Olivetti S.p.A. ordinary shares or Olivetti S.p.A. 2001-2010 convertible bonds; Euro 280 thousand of investments in mutual funds convertible into cash on demand.

The securities are held in safe-keeping at leading banking institutions.

IV) Cash and banks – bank and postal deposits are concentrated in the financial companies, holding companies and subholding companies of the Group. Available liquidity is mainly invested in the short-term deposit market at leading banking counterparts primarily at interest rates in line with market rates.

95 D) Accrued income and prepaid expenses – accrued income amounts to Euros 42,337 thousand compared to Euros 37,652 thousand. The amount is determined on the accrual basis and mainly relates to hedging revenues, interest income, insurance, and other minor items.

– prepaid expenses increased from Euros 37,790 thousand to Euros 42,594 thousand and mainly refer to prepaid insurance, property rent and other minor items.

96 LIABILITIES AND SHAREHOLDERS’ EQUITY A) Shareholders’ equity Of Pirelli & C. At December 31, 2002, share capital amounts to Euros 339,422,773.56 and consists of 618,317,846 ordinary shares and 34,418,257 savings shares, all with a par value of Euros 0.52 per share and normal dividend rights.

During 2002, 26,950,148 ordinary shares were issued against the conversion of the same number of 2.5% 1998-2003 bonds. Such bonds matured on January 1, 2003 and the bonds that were not converted (for a total of 9,225,571) were reimbursed.

The share premium reserve increased from Euros 501,054 thousand to Euros 549,674 thousand following the aforementioned conversion of 2.5% 1998-2003 bonds.

The revaluation reserve ex Law No. 413/1991 and the reserve for treasury shares in the portfolio have remained unchanged compared to December 31, 2001.

The legal reserve increased from Euros 65,014 thousand to Euros 67,880 thousand subsequent to resolutions passed by the shareholders’ meeting of May 13, 2002.

The statement of changes in shareholders’ equity is presented in the supplementary information.

Minority interest The minority interest in shareholders’ equity amounts to Euros 2,693,450 thousand compared to Euros 3,288,687 thousand at December 31, 2001.

The change principally derives from the balance of the results for the year 2002, the payment of dividends and the translation adjustment from the conversion of foreign currency financial statements to Euros.

The main percentage of investments held by the minority interest is as follows:

12/31/2002 12/31/2001 Pirelli S.p.A. 59,01% 59,87% Pirelli & C. Real Estate S.p.A. 35,56% 7,73%

B) Provision for liabilities and expenses Provisions for pensions and similar obligations These provisions include accruals for pensions, health care and other benefits in favor of employees, not governed by specific laws but covered by local labor agreements and benefit plans operating at some Group companies.

97 In those companies operating in the U.S.A. and the United Kingdom where the defined benefit pension schemes are in place, the comparison between the liability for future obligations towards those entitled to benefits and the value of assets invested by the plans shows, at December 31, 2002, a deficit valued at about Euros 150 million, which will be amortized over the remaining service period of the participants in the plan in accordance with suitable actuarial methods. The deficit arose in the last part of the year as a result of the continuous deterioration of the financial markets with the consequent reduction in the value of plan assets.

Provisions for income taxes The provisions for income taxes include accruals relating to income taxes likely to be incurred but uncertain as to the amount or as to the date on which they will arise, as well as deferred taxation, as follows:

(in thousands of euros) 12/31/2002 12/31/2001 Provision for current taxes 57,138 41,731 Provision for deferred taxes 157,326 183,829 214,464 225,560

The tax charge for the year is composed of the following:

(in thousands of euros) 12/31/2002 12/31/2001 Current taxes 96,129 184,383 Deferred taxes (8,717) 4,157 87,412 188,540

The tax rates in the principal countries in which the Group operates are as follows:

Europe: United States 40.00% Italy 40.25% Canada 33.00% France 35.43% Australia 30.00% Spain 35.00% South America: Germany 38.00% Argentina 35.00% United Kingdom 30.00% Brasil 34.00% Turchey 33.00% Venezuela 34.00%

98 Other provisions The movements during the year in other provisions are as follows:

(in thousands of euros) Restructuring costs Other Total Balance at Decembre 31, 2001 200.225 201,039 401,264 Translation adjustment (4,621) (6,692) (11,313) Utilization (294,642) (107,722) (402,364) Increase 275,189 69,130 344,319 Balance at Decembre 31, 2002 176,151 155,755 331,906

Utilizations of the provision for restructuring costs were in respect of the Energy Cables and Systems Sector for Euros 133,392 thousand, the Telecommunications Cables and Systems Sector for Euros 98,201 thousand and the Tyres Sector for Euros 31,523 thousand of the Pirelli S.p.A. Group. The balance of the provision relates to the Energy Cables and Systems Sector for Euros 104,557 thousand, the Telecommunications Cables and Systems Sector for Euros 42,048 thousand and the Tyres Sector for Euros 7,571 thousand. The increase in the provision for restructuring costs mainly relates to the reorganization plan for the industrial structures.

The total of other provisions of Euros 155,755 thousand includes accruals for litigation, industrial risks and claims, product warranties, and other contingencies.

D) Payables Payables decreased from Euros 5,992,484 thousand to Euros 5,081,927 thousand and may be analyzed as follows:

(in thousands of euros) 12/31/2002 12/31/2001 Financial Trade Financial Trade and other and other Bonds 1,164,796 - 661,407 - Convertible bonds 21,977 - 86,177 - Bank borrowings 1,637,782 - 2,513,307 - Other financial companies 99,726 - 155,308 - Advances from customers - 179,693 - 188,249 Trade - 1,259,407 - 1,328,243 Subsidiaries 1 125 - - Associated companies 752 33,840 79 4,450 Taxes - 193,214 - 531,591 Social security agencies - 56,789 - 49,817 Other payables 7,759 426,066 3,369 470,487 2,932,793 2,149,134 3,419,647 2,572,837

99 The analysis of payables by due date is as follows:

Financial payables

(in thousands of euros) 12/31/2002 12/31/2001 within 1 year beyond 1 year within 1 year beyond 1 year Bonds 4 1,164,792 4 661,403 Convertible bonds 21,977 - 2,102 84,075 Bank borrowings 970,317 667,465 1,456,202 1,057,105 Other financial companies 41,071 58,655 96,200 59,108 Subsidiaries 1--- Associated companies 752 - 79 - Other payables 7,759 - 3,369 - 1,041,881 1,890,912 1,557,956 1,861,691

Financial payables are secured by liens and mortgages for Euros 40,098 thousand. Financial payables due beyond five years amount to Euros 1,092,663 thousand.

Additional disclosure is provided as follows:

Bonds

(in thousands of euros) Non convertible Convertible within 1 year beyond 1 year within 1 year beyond 1 year Pirelli & C. (Italy) Lire 287,9 billion 1998-2003 2,5% convertible in Pirelli & C. share - - 21.977 - Pirelli S.p.A. (Italy) Euros 500 million 1998-2008 4,875% - 500.000 - - Unredeemed bonds 4--- Pirelli Finance Luxembourg S.A. Euros 500 milion 2002-2007 6,5% - 500.000 - - Pirelli & C. Luxembourg S.A. Euros 150 milion 1999-2009 5,125% - 164.792 - - Total 4 1.164.792 21.977 -

Convertible bonds total Euros 22 million and refer to the residual amount of the 2.5% 1998-2003 bonds originally issued for Lire 287.9 billion (Euros 148.7 million), authorized by a resolution passed at the extraordinary shareholders’ meeting of Pirelli & C. on May 22, 1998. These bonds were reimbursed on January 2, 2003.

100 Bank borrowings Bank borrowings due within one year amount to Euros 970,317 thousand and include the current portion of long-term debt for Euros 40,896 thousand. Bank borrowings due beyond one year amount to Euros 667,465 thousand and include floating rate loans for Euros 660,734 thousand and fixed rate loans for Euros 156,731 thousand.

Pavables to other financial companies The amount due beyond one year includes an amount of Euros 31,901 thousand payable beyond five years.

Trade and other payables

(in thousands of euros) 12/31/2002 12/31/2001 within 1 year beyond 1 year within 1 year beyond 1 year Advances from customers 177,702 1,991 188,249 - Trade 1,259,390 17 1,310,725 17,518 Subsidiaries 125 - - - Associated companies 33,840 - 4,450 - Taxes 151,825 41,389 451,452 80,139 Social security agencies 56,789 - 49,817 - Other payables 383,524 42,542 436,485 34,002 2,063,195 85,939 2,441,178 131,659

Payables to associated companies As for trade payables, the most significant amounts refer to Société Tunisienne des Industries De Pnéumatiques S.A. (Euros 16,023 thousand), Drahtcord Saar GmbH & Co. K.G. (Euros 2,399 thousand), Progetto Bicocca la Piazza S.r.l. (Euros 7,862 thousand) and Progetto Bicocca Università S.r.l. (Euros 3,074 thousand).

Taxes payable The decrease in taxes payable is principally due to the payment of taxes on the extraordinary sales transactions regarding the Terrestrial Optical Systems and the Optical Components businesses.

Other payables These amount to Euros 426,066 thousand and include payables to employees for Euros 90,456 thousand, security deposits from customers for packaging for Euros 10,380 thousand, legal and consulting fees for Euros 7,180 thousand, purchases of fixed assets and urbanization fees for Euros 64,267 thousand, notes payable for Euros 54,047 thousand, building management by third parties for Euros 18,886 thousand and other minor items for the difference.

101 E) Accrued liabilities and deferred income – Accrued liabilities Accrued liabilities increased from Euros 238,314 thousand to Euros 242,535 thousand and include the portion of exchange differences on hedging transactions, interest expense, property leases payable, hedging costs and other minor items.

– Deferred income Deferred income decreased from Euros 43,955 thousand to Euros 35,922 thousand and includes installment payments received in advance and insurance premiums.

102 MEMORANDUM ACCOUNTS Memorandum accounts amount to Euros 5,051,053 thousand compared to Euros 3,293,207 thousand in the prior year.

Personal guarantees Sureties on behalf of other companies Sureties on behalf of other companies are mainly to guarantee loans received and job orders in the process of being delivered or tested.

Third party assets held in deposit Securities held in deposit Securities held in deposit include securities entrusted for administration.

Assets held by third parties Securities held as guarantees and sureties Securities held as guarantees and sureties include owned securities held by third parties in deposit as guarantees (mainly in reference to the quotas pledged of the companies Auriga Immobiliare S.r.l., Trixia S.r.l. and Dixia S.r.l.), owned securities held in deposit for safe-keeping and sureties given by Pirelli S.p.A. against commitments and contractual obligations.

Commitments and contingencies Capital expenditures include Euros 235,333 thousand for the commitment undertaken by Pirelli & C. Real Estate S.p.A. and Pirelli & C. Agenzia Residenziale S.p.A. to purchase the buildings that are not sold by certain associated companies starting December 31, 2004. The caption also includes Euros 320,000 thousand for the commitment to purchase a part of the buildings owned by Imser 60 S.r.l..

Nominal value of put options given to third parties The amount represents the nominal value of the options given to IntesaBci S.p.A. (Euros 520,000 thousand) and Unicredito Italiano S.p.A. (Euros 520,000 thousand) (hereinafter, the “Banks”) and to Edizione Holding S.p.A. (Euros 1,040,000 thousand) in respect of their investments in Olimpia S.p.A., under the Olimpia S.p.A. shareholder agreements. The put options granted to the Banks can be exercised from September 2006 or, before that date, in the case of a deadlock among the shareholders or in the case of the withdrawal of Pirelli S.p.A. from the shareholders agreements, at a price equal to the value of the economic capital of Olimpia S.p.A., plus a premium (the “Price”). This Price shall be determined by the parties and shall not be less than the outlays made by the Banks (Floor) nor higher than such sum, less any dividends received, increased by an annual IRR, before income taxes, equal to 15 percent (Cap). The put options granted to Edizione Holding S.p.A. can be exercised in the case of a (I) deadlock situation among the shareholders, (II) withdrawal on the part of Pirelli S.p.A. from the shareholder agreements and (III) the occurrence of a substantial change in the controlling structure of Pirelli S.p.A. (including for these purposes Pirelli & C. Accomandita per Azioni), by which is meant the exercise by parties

103 other than those currently holding the determining power to nominate the majority of the components of the management board, with a consequent potential modification of the strategic guidelines. The exercise price of the put options granted to Edizione Holding S.p.A. is equal to, respectively, (I) the Price indicated above, (II) the Price increased by an additional 50 percent and (III) the Price increased by an amount equal to 200 percent of the Price. In this case, however, there is no expectation of a Floor or Cap as in the aforementioned agreements with the Banks. This item also includes the nominal value of the option given to Cisco Systems on the Pirelli Submarine Telecom Systems Holding B.V. shares which it holds. This amount (U.S. $75 million) is already shown in the financial statements under the minority interest in shareholders’ equity.

Other memorandum accounts Forward securities purchase This refers to the forward securities purchase (expiration date of November 23, 2006) of 200,000,000 Olivetti 2001-2010 convertible bonds effected with Credit Agricole Lazard Financial Products Bank as described in the report on operations.

Financial instruments It is the Group’s policy to reduce financial risks deriving from international activities conducted in research, manufacturing and distribution through operating and financial management decisions.

To this end, the Group uses forward exchange contracts and derivative financial instruments to protect its operating results from unfavorable fluctuations of exchange and interest rates and the prices of raw materials. With an overall view towards reducing exposure to risk, the Group deals exclusively with leading bank counterparts and in highly liquid instruments.

104 The following table gives a description of the financial derivative contracts in the major currencies:

(in thousands of euros) Gross Fair value Maturing Maturing notional within beyond amounts one year one year (at year-end exchange rates) Exchange rate risk - Forward contracts 2,430 2,388 2,380 8 - Swaps contracts 576 694 - 694 - Futures contracts 225 - - - Interest rate risk - Forward rate agreement - 1 1 - - Interest rate swaps - 43 43 - Raw materials prince risk - Futures contracts 1 1 1 -

The fair value of the derivative financial instruments used to hedge exchange, interest rate and materials price risks approximates the fair value of the positions being hedged.

105 CONSOLIDATED STATEMENTS OF INCOME A) Production value Revenues from sales and services The distribution of sales by geographical area of destination and industry sector are reported in the following table.

(in thousands of euros) 2002 2001 Geographical area Italy 1,538,711 22,90% 1,422,719 18,33% Other European countries 2,759,848 41,08% 3,377,174 43,51% North America 73,366 10,89% 1,017,876 13,11% Central and South America 778,441 11,59% 904,938 11,66% Oceania, Africa and Asia 909,549 13,54% 1,039,278 13,39% Total 6,717,915 100,00% 7,761,985 100,00% Sector Pirelli S.p.A. - Energy Cables and System 3,021,391 44.98% 3,457,938 44,55% - Telecommunications Cables and System 468,151 6,97% 1,230,000 15,85% - Tyres 2,857,000 42.53% 2,831,171 36,47% - Other and intereliminations (35,066) (0,52%) (9,889) (0,13%) Total Pirelli S.p.A. group 6,311,476 93,96% 7,509,220 96,74% Pirelli & C. Real Estate S.p.A. group 424,050 6,31% 267,156 3,44% Other and intereliminations (17,611) (0,27%) (14,391) (0,18%) Totale 6,717,915 100,00% 7,761,985 100,00%

Other revenues and income The caption “miscellaneous” includes rent income, commissions, insurance indemnities and refunds, gains from the ordinary disposal of property, plant and equipment and other minor items. Last year, the caption also included the supply agreement with Cisco Systems (Euros 59 million).

B) Production costs Service expenses Service expenses total Euros 1,289,691 thousand and include selling expenses (Euros 345,868 thousand), electrical power (Euros 167,892 thousand), advertising (Euros 126,610 thousand), ordinary maintenance (Euros 75,697 thousand), costs relating to the construction of buildings (Euros 98,926 thousand), consulting fees (Euros 86,732 thousand), EDP expenses (Euros 45,724 thousand), insurance (Euros 45,600 thousand), outside processing costs (Euros 35,132 thousand), building management expenses (Euros 45,441 thousand) and other minor expenses.

Lease and rent expenses Lease and rent expenses consist of rent expenses of Euros 48,499 thousand, operating lease installments of Euros 17,219 thousand and patent utilization rights of Euros 5,329 thousand.

106 Personnel costs Personnel costs consist of the following: (in thousands of euros) 2002 2001 Salaries and wages 1,091,439 1,203,565 Social security costs 243,318 259,197 Leaving indemnity 45,121 41,464 Pension and similar costs 27,356 21,898 Other costs 19,205 23,620 1,426,439 1,549,744

Amortization, depreciation and writedowns The depreciation charge for property, plant and equipment may be analyzed as follows:

(in thousands of euros) 2002 2001 Buildings 31,503 32,668 Plant and machinery 201,814 212,439 Commercial and industrial equipment 45,300 41,482 Other assets 36,121 38,977 314,738 325,566

Other operating expenses Other operating expenses went from Euros 235,224 thousand to Euros 253,264 thousand and include administrative expenses (Euros 13,718 thousand), travel expenses (Euros 58,026 thousand), revenue stamps and local taxes (Euros 34,036 thousand), losses on the elimination of property, plant and equipment (Euros 6,940 thousand), legal fees (Euros 8,139 thousand), association dues (Euros 8,388 thousand), entertainment, audit and other minor items.

C) Financial income and expenses

Investment income Investments income includes:

(in thousands of euros) 2002 2001 Dividends from subsidiaries 1,389 1,117 Dividends from associated companies 27 - Dividends from other companies 18,705 10,315 Other income - 744 20,121 12,176

Other investment income refers to gains on the sale of securities.

107 Other financial income “Income other than the above” consists of the following:

(in thousands of euros) 2002 2001 Interest from subsidiaries 11 2 Interest from jointly controlled subsidiaries - 75 Interest from associated companies 1,868 13,623 Bank interest 52,746 190,339 Other interest 3,071 3,154 Other financial income 55,853 36,174 Gains on exchange 385,361 217,651 498,910 461,018

“Miscellaneous” financial income includes revenues from forward contracts, gains on the sale of fixed rate securities, interest on receivables to be collected from the tax authorities and other minor items.

Interest and other financial expenses These expenses include:

(in thousands of euros) 2002 2001 Interest to associated companies 390 102 Bond interest 56,836 34,262 Bank interest 152,810 152,560 Other financial expenses 113,177 101,717 Losses on exchange 399,886 226,742 723,099 515,383

“Miscellaneous” financial expenses include costs for forward contracts, losses on the sale of fixed rate securities, bank commissions, etc..

Financial expenses, net, excluding amounts not directly associated with receivables and payables, amount to Euros 209,664 thousand.

108 D) Valuation adjustments to financial assets Revaluations (Euros 67,440 thousand) mainly comprise the share of the results of the associated companies of Pirelli & C. Real Estate S.p.A. accounted for using the equity method (Euros 67,232 thousand).

Writedowns refers to:

(in thousands of euros) 2002 2001 Losses of companies accounted for using the equity method 7,165 7,057 Losses of jointly controlled subsidiaries 149,953 19,312 Writedowns of investments 85,418 15,148 242,536 41,517

The share of the losses of companies accounted for using the equity method refer to associated companies of Pirelli & C. Real Estate S.p.A.. The share of the losses of jointly controlled subsidiaries refers to Olimpia S.p.A., which is accounted for using the equity method. The writedowns of investments mainly relate to F.C. Internazionale Milano S.p.A. of Euros 18,437 thousand, e-Biscom S.p.A. of Euros 34,666 thousand, Caltagirone Editore S.p.A. of Euros 24,079 thousand and Euroqube S.A. of Euros 3,143 thousand.

E) Extraordinary items Extraordinary income Extraordinary income totals Euros 259,108 thousand compared to Euros 425,670 thousand in the prior year, and may be analyzed as follows:

(in thousands of euros) 2002 2001 Gains on disposals 240,755 294,596 Miscellaneous 18,353 131,074 259,108 425,670

“Gains on disposals” mainly comprise Euros 173,744 thousand from the listing on the stock exchange (at Euros 26 per share) of 10,365,442 shares of the subsidiary Pirelli & C. Real Estate S.p.A., the gain on the sale of securities from the partial disposal of the securities underlying the equity swaps in Pirelli & C. Real Estate S.p.A.’s portfolio of Euros 53,611 thousand. Last year, the caption included gains on the sale of Pirelli S.p.A. treasury shares on the market of Euros 30,285 thousand, gains on the disposal of real estate properties by the Cables and Systems Sector of Euros 72,102 thousand and gains on the sale of securities from the partial disposal of the securities underlying the equity swaps in Pirelli & C. Real Estate S.p.A.’s portfolio of Euros 178,589 thousand.

109 “Miscellaneous” principally includes the adjustment for the higher tax credit of Euros 5,108 thousand on dividends received by the parent company, other prior years’ taxes of Euros 2,465 thousand relating to the company Pirelli Labs and the remaining amount relates to insurance compensation, sundry refunds and other minor items. Last year, this caption primarily included an earn-out of Euros 70,497 thousand on the closing of agreements with Cisco Systems for the sale of the Terrestrial Optical Systems business.

Extraordinary expenses Extraordinary expenses amount to Euros 341,840 thousand compared to Euros 270,075 thousand in the prior year, and may be analyzed as follows:

(in thousands of euros) 2002 2001 Losses on disposals 2,529 1,127 Miscellaneous 339,311 268,948 341,840 270,075

“Miscellaneous” mainly includes restructuring costs relating to the industrial structure of Euros 275,000 thousand and costs for the shares offering on the stock market of the subsidiary Pirelli & C. Real Estate S.p.A. of Euros 24,029 thousand.

110 OTHER INFORMATION Directors’ and statutory auditors’ fees Fees to the directors and statutory auditors of Pirelli & C., who also carry out these functions in other companies included in consolidation, are as follows:

(in thousands of euros) directors 13.043 statutory auditors 342 13.385

Employees At December 31, 2002, the average number of employees, by category, in companies included in consolidation is as follows:

- Senior executives 663 - Staff 10.338 - Blue-collar 24.997 - Temporary employment 2.650 38.648

111 Exchange rates The main exchange rates used for the translation of the foreign currency financial statements in the consolidated financial statements are as follows:

(local currency against euros) Year-end Change in Averange Change in 12/31/2002 12/31/2001 % 2002 2001 %

Europe British pound 0,6505 0,6085 6,90% 0,62879 0,62172 1,14% Swiss franc 1,4524 1,4829 (2,06%) 1,4670 1,5102 (2,86%) Hungarian forint 236,2900 245,1800 (3,63%) 242,9587 256,5446 (5,30%) Slovakian koruna 41,5030 42,2610 (1,79%) 42,6933 43,2811 (1,36%)

North America America dollar 1,0487 0,8813 18,99% 0,9454 0,8954 5,58% Canadian dollar 1,6550 1,4077 17,57% 1,4835 1,3865 7,00%

South America

Brazilian real 3,7054 2,0450 81,19% 2,7709 2,1062 31,56% Venezuelan bolivar 1.471,3261 667,1441 120,54% 1.112,7547 647,6493 71,81% Argentine peso 3,5341 1,4100 150,65% 3,0120 0,8954 236,39%

Oceania

Australian dollar 1,8556 1,7280 7,38% 1,7374 1,7320 0,31%

Asia

Chinese yuan RMB 8,6832 7,2942 19,04% 7,8250 7,3827 5,99% Singapore dollar 1,8199 1,6269 11,86% 1,6909 1,6048 5,37% Indonesian rupiah 9.121,0000 9.121,0000 0,00% 8.794,7906 9.165,0000 (4,04%)

Africa

Egyptian pound 4,840 4,019 20,43% 4,3581 3,6236 20,27% Ivory Coast franc 655,957 655,957 0,00% 655,9570 655,9570 0,00%

112 Net financial position The composition of the net financial position presented below, and the change compared to December 31, 2001, are commented in the introduction to the report:

(in thousands of euros) 12/31/2002 12/31/2001 Short-term financial payables 1,041,881 1,557,956 Accrued and prepaid interest expenses 50,320 12,549 Cash and banks (385,119) (471,386) Other securities and investments in current assets (198,652) (562,110) Short-term financial receivables (228,331) (258,333) Accrued interest income (22,263) (9,577)

Net short-term liquidity 257,836 269,099 Medium/long-term financial payables 1,890,912 1,861,691 Medium/long-term financial receivables (92,584) (89,564) Other securities (5,779) (11,665)

Net medium/long-term debt 1,792,549 1,760,462

Net financial debt position 2,050,385 2,029,561

R&D expenditures In 2002, the Group incurred research and development expenditures and technical management costs for a total of Euros 219 million, entirely charged to operating expenses, compared to Euros 237 million in the prior year. Expenditures represented 3.5 percent of consolidated net sales compared to 3.2 percent in the prior year.

The geographical breakdown of these expenditures is as follows:

Europe 92% Oceania 1% North America 1% South America 4%

A number of research programs are subsidized by the governments of various countries. In particular, in Italy, where the research activities are mainly concentrated, the projects financed under the various laws are numerous and apply, in differing proportions, to all sectors of activity.

113

SUPPLEMENTARY INFORMATION CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2002

115 116 CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousand of euros) 12/31/2002 12/31/2001 Net cash flows Operating profit 117,502 296,525 Depreciation and amortization 405,582 407,735 Investments in intangible assets (89,489) (97,179) Investments in property, plant and equipment (328,964) (646,218) Investments in financial assets (304,693) (3,648,052) Disposal of intangible assets 5,123 2,786 Disposal of property, plant and equipment 28,017 33,682 Disposal of financial assets 248,017 125,446 Changes in inventories 80,239 159,232 Changes in trade and other accounts receivable/payable 366,024 (167,773) Changes in provisions (59,348) (35,218) Other changes 8,049 21,556 Free cash flows 476,059 (3,547,478) Financial income/expenses, net (177,422) (69,368) Income taxes, net (87,412) (188,540) Extraordinary items, net (82,732) 155,595 Other changes (155,096) (712,817) Cash flows before dividends (26,603) (4,362,608) Dividends paid (141,218) (328,906) Net cash flows (167,821) (4,691,514) Share capital increase Pirelli & C. 62,635 19,886 Share capital increase Pirelli & C. Real Estate S.p.A. 105,299 - Share capital increase Pirelli S.p.A. - 29,158 Share capital increase minority interest - 6,080 Changes in share capital 167,934 55,124 Translation adjustments (20,937) (28,103) Net decrease in cash (20,824) (4,664,493) Net liquidity (debt) at beginning of the year (2,029,561) 2,634,932 Net debt at end of the year (2,050,385) (2,029,561)

117 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31 DECEMBER 2002

(In thousand of euros) Share Share Legal Cumulative Other reserves* Total capital premium reserve translation retained earnings reserve adjustments net income (loss) BALANCE AT DECEMBER 31, 2000 320,959 485,617 62,212 (640) 1,303,113 2,171,261 Appropriation of net income (shareholders’ resolution of May 11, 2000) - Payment of dividends - - - - (128,907) (128,907) - Legal reserve - - 2,802 - (2,802) - Conversion of bonds 1998/2003 4,449 15,437 - - - 19,886 Adjustment to net equities of subsidiaries and associated companies ----(13,154) (13,154) Translation adjustment and other changes - - - (55,336) - (55,336) Net loss for the year - - - - 124,955 124,955 BALANCE AT DECEMBER 31, 2001 325,408 501,054 65,014 (55,976) 1,283,205 2,118,705 Appropriation of net income (shareholders’ resolution of May 11, 2001) - Payment of dividends - - - - (52,365) (52,365) - Legal reserve - - 2,866 - (2,866) - Conversion of bonds 1998/2003 14,015 48,620 - - - 62,635 Adjustment to net equities of subsidiaries and associated companies ----3,912 3,912 Translation adjustment and other changes - - - (141,566) - (141,566) Net loss for the year - - - - (58,383) (58,383) BALANCE AT DECEMBER 31, 2002 339,423 549,674 67,880 (197,542) 1,173,503 1,932,938

* Other reserves include the Revaluation reserve, the Reserve for treasury shares in portfolio and the amortized Difference on consolidation.

118 RECONCILIATION OF NET RESULTS AND SHAREHOLDERS’ EQUITY OF PIRELLI & C. A.P.A. AND THE CORRESPODING CONSOLIDATED FIGURES OF THE GROUP AT DECEMBER 31, 2002

(In thousand of euros) Net income Shareholders’ equity Pirelli & C. A.p.A. financial statements 60,198 1,264,981 Share of earnings of: - consolidated subsidiaries (152,879) (152,879) - companies valued using the equity method (17,983) (17,983) Elimination of dividends received from subsidiaries (50,440) (50,440) Elimination of gains on the sale of intergroup fixed assets (4,855) (4,855) Elimination of gains on intergroup sales (4,105) (4,105) Gain on the offering of shares of consolidated companies on the stock exchan 6,490 6,490 Amortization of goodwill (28,809) (28,809) Elimination of writedowns of consolidated companies 134,000 134,000 Difference between share of net equity of consolidated companies and their carrying value: - consolidated subsidiaries 796,700 - associated companies accounted for using the equity method (10,162) Group consolidated financial statements (58,383) 1,932,938

119 COMPANIES CONSOLIDATED USING THE FULL CONSOLIDATION METHOD

Company Business Headquarters Share Capital % ownership % of vote Held by

EUROPE

AUSTRIA

Pirelli Gesellschaft mbH Tyre Vienna Euro 726,728 100.00% Lunares S.A.

Pirelli-Oekw GmbH Energy Cables and Systems Vienna Euro 2,071,176 100.00% Pirelli Cable Holding N.V.

BELGIUM

Pirelli Tyres Belux S.A. Tyre Bruxelles Euro 700,000 100.00% Lunares S.A.

FINLAND

Pirelli Cables and Systems OY Energy Cables and Systems Helsinki Euro 10,000,000 100.00% Pirelli Cable Holding N.V.

FRANCE

Eurelectric S.A. Energy Cables and Systems La Bresse Euro 4,036,500 100.00% Pirelli Energie Câbles et Systèmes France S.A.

Pirelli Moto France S.A.S. - PMF S.A.S. Tyre Gonesse Euro 77,000 100.00% Metzeler Reifen GMBH

Pirelli Energie Câbles et Systèmes France S.A. Energy Cables and Systems Paron de Sens Euro 136,800,000 100.00% Pirelli Cable Holding N.V.

Pirelli Telecom Câbles et Systèmes France S.A. Telecom Cables and Systems Bagnolet Cedex Euro 16,295,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A.

Pneus Pirelli S.A. Tyre Puteaux Euro 3,062,400 100.00% Lunares S.A.

Project Saint Maurice S.A. Real estate Paris Euro 38,200 100.00% Pirelli & C. Real Estate S.p.A.

Superent Bis France S.A. Energy Cables and Systems Bagnolet Cedex Euro 40,000 100.00% Pirelli Energie Câbles et Systèmes France S.A.

GERMANY

Bergmann Kabel und Leitungen GmbH Energy Cables and Systems Schwerin Euro 1,022,600 100.00% Pirelli Kabel und Systeme Holding GmbH

Deutsche Pirelli Reifen Holding GmbH Financial Breuberg/Odenwald Euro 7,694,943 100.00% Pirelli Tyre Holding N.V.

ISO Industrie Spedition Odenwald GmbH Tyre Breuberg/Odenwald Euro 25,565 100.00% Pirelli Reifenwerke GmbH & Co. K.G.

Materialverwertungsgesellschaft Breuberg GmbH Tyre Breuberg/Odenwald Euro 25,565 100.00% Deutsche Pirelli Reifen Holding GmbH

Metzeler Reifen GmbH Tyre Breuberg/Odenwald Euro 16,361,340 100.00% Pirelli Deutschland A.G.

Pirelli Deutschland A.G. Tyre Breuberg/Odenwald Euro 26,075,886 100.00% Deutsche Pirelli Reifen Holding GmbH

Pirelli Kabel Grundstücksverwaltungs GmbH Energy Cables and Systems Berlin Euro 25,600 100.00% Pirelli Kabel und Systeme Holding GmbH

Pirelli Kabel und Systeme Beteiligungs GmbH Energy Cables and Systems Berlin Euro 25,600 100.00% Pirelli Kabel und Systeme Holding GmbH

Pirelli Kabel und Systeme Holding GmbH Energy Cables and Systems Berlin Euro 26,000 99.00% Pirelli Cable Holding NV

1.00% Pirelli Cavi e Sistemi Energia S.p.A.

Pirelli Kabel und Systeme GmbH Energy Cables and Systems Berlin Euro 50,000 100.00% Pirelli Kabel und Systeme (gà Pirelli Kabel und Systeme Verwaltungs GmbH) Beteiligungs GmbH

Pirelli Reifenwerke Geschaeftsfuehrungs GmbH Services Breuberg/Odenwald Euro 25,565 100.00% Deutsche Pirelli Reifen Holding GmbH

Pirelli Reifenwerke GmbH & Co. K.G. Tyre Breuberg/Odenwald Euro 35,790,943 100.00% Pirelli Deutschland A.G.

Pirelli Telekom Kabel und Systeme Deutschland GmbH Telecom Cables and Systems Berlin Euro 25,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A.

Pneumobil GmbH Tyre Breuberg/Odenwald Euro 259,225 99.62% Pirelli Reifenwerke GmbH & Co. K.G.

Veith Wohnungsbau GmbH Real estate Breuberg/Odenwald Euro 127,823 100.00% Pirelli Deutschland A.G.

120 Company Business Headquarters Share Capital % ownership % of vote Held by

UNITED KINGDOM

Aberdare Cables Ltd Energy Cables and Systems London British Pound 609,654 100.00% Pirelli General plc

Cable Makers Properties and Services Ltd Energy Cables and Systems East Molesey British Pound 33 63.531% Pirelli General plc

Central Tyre Ltd Tyre London British Pound 100,000 100.00% Pirelli UK Tyres Ltd

Comergy Ltd Energy Cables and Systems London British Pound 1,000,000 100.00% Pirelli Cable Holding N.V.

Courier Tyre Company Ltd Tyre London British Pound 10,000 100.00% Pirelli UK Tyres Ltd

CPK Auto Products Ltd Tyre London British Pound 10,000 100.00% Pirelli UK Tyres Ltd

CTC 1994 Limited Tyre London British Pound 984 100.00% Centrale Tyre Ltd

Pirelli Cables (2000) Limited Energy Cables and Systems London British Pound 118,653,473 100.00% Pirelli General plc

Pirelli Cables (Industrial) Limited Energy Cables and Systems London British Pound 9,010,935 100.00% Pirelli General plc

Pirelli Cables (Supertention) Ltd. Energy Cables and Systems London British Pound 5,000,000 100.00% Pirelli General plc

Pirelli Cables and Systems International Ltd Energy Cables and Systems London Euro 100,000 100.00% Pirelli Cable Holding N.V.

Pirelli Cables Ltd Energy Cables and Systems London British Pound 100,000 100.00% Pirelli General plc

Pirelli Construction Company Ltd Energy Cables and Systems London British Pound 8,000,000 100.00% Pirelli General plc

Pirelli Focom Limited Energy Cables and Systems London British Pound 6,447,000 100.00% Pirelli General plc

Pirelli General plc Cables and Systems London British Pound 144,139,360 100.00% Pirelli UK plc “B1”/“B2”

Pirelli International Limited Financial London Euro 250,000,000 100.00% Pirelli Finance (Luxembourg) S.A.

Pirelli Metals Ltd Energy Cables and Systems London British Pound 100,000 100.00% Pirelli General plc

Pirelli Telecom Cables and Systems UK Limited Telecom Cables and Systems London British Pound 100,000 100.00% Pirelli General plc

Pirelli Tyres Ltd Tyre London British Pound 16,000,000 100.00% Pirelli UK Tyres Ltd

Pirelli UK Employee Share Trustee Limited Financial London British Pound 2 100.00% Pirelli UK plc “C”

Pirelli UK Finance Ltd Financial London British Pound 6,969,280 100.00% Pirelli UK plc “C”

Pirelli UK plc “A” Tyre holding company London British Pound 68,535,300 100.00% Pirelli Tyre Holding N.V. Energy Cables and System

Pirelli UK plc “B1” Holding company London British Pound 69,188,889 100.00% Pirelli Cable Holding N.V. Telecom Cables and System

Pirelli UK plc “B2” Holding company London British Pound 27,149,529 100.00% Pirelli Cavi e Sistemi Telecom S.p.A.

Pirelli UK plc “C” Financial holding company London British Pound 11,625,978 100.00% Pirelli S.p.A.

Pirelli UK Tyres Ltd Tyre London British Pound 68,000,000 100.00% Pirelli UK plc “A”

GREECE

Elastika Pirelli S.A. Tyre Athens Euro 1,632,010 99.90% Lunares S.A. 0.10% Pirelli Pneumatici Holding S.p.A.

Pirelli Hellas S.A. (in liquidazione) Tyre Athens $ USA 22,050,000 79.86% Pirelli Tyre Holding N.V.

HUNGARY

Kabel Keszletertekesito BT. Energy Cables and System Budapest Hun. Forint/000 1,239,841 100.00% MKM Magyar Kabel Muvek Rt.

MKM Magyar Kabel Muvek RT. Energy Cables and System Budapest Hun. Forint/000 6,981,070 100.00% Pirelli Cable Holding N.V.

Pirelli Construction Hungary Limited Energy Cables and System Budapest Hun. Forint/000 3,000 100.00% Pirelli Cable Holding N.V.

Pirelli Hungary Tyre Trading and Services Limited Tyre Budapest Hun. Forint/000 3,000 100.00% Lunares S.A.

IRELAND

Pirelli Reinsurance Company Ltd Reinsurance Dublino $ USA 7,150,000 100.00% Pirelli Finance (Luxembourg) S.A.

121 Company Business Headquarters Share Capital % ownership % of vote Held by

ITALY

Acquario S.r.l. (in liquidazione) Real estate Genoa Euro 255,000 100.00% Pirelli & C. Real Estate S.p.A.

Agied S.r.l. Real estate Milan Euro 100,000 100.00% Pirelli & C. Real Estate Property Management S,p.A.

Alfa S.r.l. Real estate Milan Euro 2,600,000 100.00% Pirelli & C. Real Estate S.p.A.

Alfa Due S.r.l. Real estate Milan Euro 1,300,000 100.00% Pirelli & C. Real Estate S.p.A.

Altair Building Services S.r.l. Real estate Genoa Euro 500,000 80.00% Pirelli & C. Real Estate Facility Management S.p.A.

Altofim S.r.l. Real estate Milan Euro 78,000 100.00% Pirelli & C. A.p.A.

Cagisa S.p.A. Real estate Milan Euro 624,000 100.00% Pirelli & C. Real Estate Property Management S.p.A.

Casaclick S.p.A. Real estate Milan Euro 5,413,000 99.08% Pirelli & C. Real Estate Agenzia Residenziale S.p.A.

0.27% Pirelli & C. Luxembourg S.A.

Centrale Immobiliare S.p.A. Real estate Milan Euro 5,200,000 100.00% Pirelli & C. Real Estate S.p.A.

Centro Servizi Amministrativi Pirelli S.r.l. Service Milan Euro 51,000 100.00% Pirelli S.p.A.

Driver Italia S.p.A. Commercial Milan Euro 200,000 80.935% Pirelli Pneumatici S.p.A.

Edilnord Gestioni S.p.A. Real estate Milan Euro 517,000 100.00% Pirelli & C. Real Estate S.p.A.

Edilnord Progetti S.p.A. Real estate Milan Euro 250,000 100.00% Pirelli & C. Real Estate S.p.A.

Elle Dieci Società Consortile a.r.l. Real estate Milan Euro 100,000 50.00% Agied S.r.l. 40.00% Pirelli & C. Real Estate Property Management S.p.A.

Elle Tre Società Consortile a.r.l. Real estate Milan Euro 100,000 50.00% Agied S.r.l. 40.00% Pirelli & C. Real Estate Property Management S.p.A.

Elle Uno Società Consortile a.r.l. Real estate Milan Euro 100,000 60.00% Edilnord Gestioni S.p.A.

Fibre Ottiche Sud - F.O.S. S.p.A. Optical Battipaglia (SA) Euro 5,200,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A.

Holdim S.r.l. Real estate Milan Euro 14,404 100.00% Pirelli & C. Real Estate S.p.A.

Invex S.r.l. Energy Cables and System Quattordio (AL) Euro 10,000 100.00% Pirelli Cavi e Sistemi Energia Italia S.p.A.

Iota S.r.l. Real estate Milan Euro 93,600 100.00% Pirelli & C. Real Estate S.p.A.

Kappa S.r.l. Real estate Milan Euro 10,400 100.00% Pirelli & C. Real Estate S.p.A.

Lambda S.r.l. Real estate Milan Euro 578,760 100.00% Pirelli & C. Real Estate S.p.A.

Localto S.p.A. Financial Milan Euro 5,200,000 100.00% Pirelli & C. A.p.A.

Maristel S.p.A. Telecom Cables and System Milan Euro 1,020,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A.

Partecipazioni Real Estate S.p.A. Real estate Milan Euro 1,360,280 100.00% Pirelli & C. Real Estate S.p.A.

Pirelli & C. Ambiente S.p.A. Environment Milan Euro 3,060,000 100.00% Pirelli & C. A.p.A.

Pirelli & C. Opere Generali S.p.A. Real estate Milan Euro 104,000 100.00% Pirelli & C. Real Estate S.p.A.

Pirelli & C. Real Estate S.p.A. Real estate Milan Euro 20,302,491 61.20% Pirelli & C. A.p.A. 5.31% Pirelli & C. Real Estate S.p.A.

Pirelli & C. Real Estate Agenzia Residenziale S.p.A. (formely Pirelli & C. Casa S.p.A.) Real estate Milan Euro 520,000 100.00% Pirelli & C. Real Estate S.p.A.

Pirelli & C. Real Estate Commercial Agency S.p.A. (formely Pirelli & C. Commercial Agency S.p.A.) Real estate Milan Euro 832,000 100.00% Pirelli & C. Real Estate S.p.A.

122 Company Business Headquarters Share Capital % ownership % of vote Held by

Pirelli & C. Real Estate Credit Servicing S.p.A. (formely Pirelli & C. Credit Servicing S.p.A.) Financial Milan Euro 5,200,000 100.00% Pirelli & C. Real Estate S.p.A.

Pirelli & C. Real Estate Facility Management S.p.A. (formely Pirelli & C. Facility Management S.p.A.) Real estate Milan Euro 561,000 100.00% Pirelli & C. Real Estate S.p.A.

Pirelli & C. Real Estate Project Management S.p.A. (formely Pirelli & C. Project Management S.p.A.) Real estate Milan Euro 520,000 100.00% Pirelli & C. Real Estate S.p.A.

Pirelli & C. Real Estate Property Managament S.p.A. (formely Pirelli & C. Property Management S.p.A.) Real estate Milan Euro 114,400 100.00% Pirelli & C. Real Estate S.p.A.

Pirelli & C. Real Estate Servizi di Rete S.p.A. (formely Servizi Immobiliari Edilnord S.p.A.) Real estate Milan Euro 500,000 100.00% Pirelli & C. Real Estate S.p.A.

Pirelli S.p.A. Holding Milan Euro 1,043,604,420 11.18% 11.69% Pirelli & C. A.p.A. 26.30% 27.51% Pirelli & C. Luxembourg S.A. 8.13% 0.00% Pirelli S.p.A.

Pirelli Cavi e Sistemi Energia S.p.A. Holding Cables and Systems Milan Euro 100,000,000 98.749% Pirelli S.p.A. 1.251% Pirelli Finance (Luxembourg) S.A.

Pirelli Cavi e Sistemi Energia Italia S.p.A. Energy Cables and Systems Milan Euro 110,000,000 100.00% Pirelli Cavi e Sistemi Energia S.p.A.

Pirelli Cavi e Sistemi Telecom S.p.A. Holding Cables and Systems Telecomunicazioni Milan Euro 70,000,000 98.749% Pirelli S.p.A. 1.251% Pirelli Finance (Luxembourg) S.A.

Pirelli Cavi e Sistemi Telecom Italia S.p.A. Telecom Cables and System Milan Euro 41,000,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A.

Pirelli Cultura S.p.A. Sundry Milan Euro 1,000,000 100.00% Pirelli S.p.A.

Pirelli Informatica S.p.A. Information System Milan Euro 520,000 100.00% Pirelli S.p.A.

Pirelli Labs S.p.A. Research and Development Milan Euro 10,000,000 100.00% Pirelli S.p.A.

Pirelli Nastri Tecnici S.p.A. (in liquidazione) Sundry Milan Euro 384,642 100.00% Pirelli S.p.A.

Pirelli Pneumatici Holding S.p.A. Financial Milan Euro 121,800,000 100.00% Pirelli Tyre Holding N.V.

Pirelli Pneumatici S.p.A. Tyre Milan Euro 252,320,000 100.00% Pirelli Pneumatici Holding S.p.A.

Pirelli Servizi Finanziari S.p.A. Financial Milan Euro 1,976,000 100.00% Pirelli S.p.A.

Pirelli Submarine Telecom Systems Italia S.p.A. Telecom Cables and System Milan Euro 50,000,000 100.00% Pirelli Submarine Telecom Systems Holding B.V.

Polo Viaggi S.r.l. Travel Agency Milan Euro 46,800 100.00% Pirelli S.p.A.

Progetti Creativi S.r.l. Real estate Milan Euro 51,000 100.00% Pirelli & C. Real Estate Commercial Agency S.p.A.

Progetto Ambiente Alfa S.r.l. Environment Milan Euro 25,500 100.00% Pirelli & C. Ambiente S.p.A.

Progetto Ambiente Beta S.r.l. Environment Milan Euro 25,500 100.00% Pirelli & C. Ambiente S.p.A.

Progetto Ambiente Gamma S.r.l. Environment Milan Euro 25,500 100.00% Pirelli & C. Ambiente S.p.A.

Progetto Bicocca Centro Tecnologico S.r.l. Real estate Milan Euro 93,600 100.00% Pirelli & C. Real Estate S.p.A.

Progetto Bicocca Esplanade S.p.A. Real estate Milan Euro 2,500,000 100.00% Pirelli & C. Real Estate S.p.A.

Progetto Bicocca Il Centro S.r.l. Real estate Milan Euro 93,000 100.00% Pirelli & C. Real Estate S.p.A.

Progetto Grande Bicocca S.r.l. Real estate Milan Euro 93,600 100.00% Pirelli & C. Real Estate S.p.A.

Progetto Moncalieri S.r.l. Real estate Milan Euro 90,000 100.00% Pirelli & C. Real Estate S.p.A.

Progetto Salute Bollate S.r.l. Real estate Milan Euro 100,000 100.00% Pirelli & C. Real Estate S.p.A.

Rofau S.r.l. Real estate Milan Euro 10,000 100.00% Altofim S.r.l.

Servizi Amministrativi Real Estate S.p.A. Real estate Milan Euro 520,000 100.00% Pirelli & C. Real Estate S.p.A.

123 Company Business Headquarters Share Capital % ownership % of vote Held by

Servizi Aziendali Pirelli S.C.p.A. Service Milan Euro 104,000 93.00% Pirelli S.p.A. 0.50% Pirelli Cavi e Sistemi Energia S.p.A. 0.50% Pirelli Cavi e Sistemi Telecom S.p.A. 1.00% Pirelli Pneumatici S.p.A. 1.00% Polo Viaggi S.r.l. 1.00% Pirelli Pneumatici Holding S.p.A. 1.00% Alfa Due S.r.l. 1.00% Pirelli & C. A.p.A. 1,00% Pirelli & C. Real Estate S.p.A.

Sistema Puntogomme S.p.A. Tyre Milan Euro 3,060,000 100.00% Pirelli Pneumatici Holding S.p.A.

Somogi S.r.l. Travel Agency Vimodrone (MI) Euro 90,000 88.00% Pirelli & C. Real Estate Facility Management S.p.A.

Stella Polare S.r.l. (in liquidazione) Real estate Napoli Euro 289,215 100.00% Pirelli & C. Real Estate S.p.A.

Tau S.r.l. Real estate Milan Euro 93,600 100.00% Pirelli & C. Real Estate S.p.A.

Trefin S.r.l. Financial Milan Euro 4,242,476 100.00% Pirelli S.p.A.

LUXEMBOURG

Gamirco S.A. Financial Luxembourg Swiss Franc. 2,100,000 100.00% Pirelli Finance (Luxembourg) S.A.

Pirelli & C. Luxembourg S.A. Financial Luxembourg Swiss Franc./000 270,000 100.00% Pirelli & C. A.p.A.

Pirelli Finance (Luxembourg) S.A. Financial Luxembourg Euro 270,228,168 100.00% Pirelli S.p.A.

Pirelli Financial Services Company S.A. Financial Luxembourg Euro 35,000 100.00% Pirelli Finance (Luxembourg) S.A.

Pirelli International Finance S.A. (formerly Pirelli Finance (N.A.) N.V.) Insurance Luxembourg Euro 35,000 100.00% Pirelli Finance (Luxembourg) S.A.

NORWAY

Pirelli Kabler og Systemer AS Energy Cables and System Ski Nor. Krone 100,000 100.00% Pirelli Cables and Systems OY

POLAND

Pirelli Polska Sp.z.o.o. Tyre Varsaw Pol. Zloty/mil. 6,258 100.00% Lunares S.A.

PORTUGAL

Desco Fabrica Portuguesa de Material Electrico e Electronico S.A. Energy Cables and System Arcozelo Vngaia Euro 1,545,000 70.93% Pirelli Energie Câbles et Systèmes France S.A. 29.07% Eurelectric S.A.

ROMANIA

S.C. Pirelli Romania Cabluri si Sisteme S.A. Energy Cable and System Slatina Rom. Leu/000 208,927,700 100.00% Pirelli Cable Holding N.V.

RUSSIA

OOO Pirelli Tyre Russia Commercial Moscow Rus. Rouble 950,000 95.00% Lunares S.A. 5.00% Pirelli Tyre Holding N.V.

SPAIN

Fercable S.A. Energy Cables and System Barcelona Euro 3,606,073 100.00% Pirelli Cables y Sistemas S.A.

Omnia Motor S.A. Tyre Barcelona Euro 1,502,530 100.00% Pirelli Neumaticos S.A.

Pirelli Cables y Sistemas S.A. Energy Cables and System Barcelona Euro 24,000,000 100.00% Pirelli Cable Holding N.V.

Pirelli Esmar S.A. Energy Cables and System Torredembarra Euro 8,714,675 100.00% Pirelli Cables y Sistemas S.A.

Pirelli Neumaticos S.A. Tyre Barcelona Euro 45,075,908 100.00% Pirelli Tyre Holding N.V.

Pirelli Telecom Cables y Sistemas Espana S.L. Telecom Cables and System Barcelona Euro 12,000,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A.

124 Company Business Headquarters Share Capital % ownership % of vote Held by

SLOVAKIA

Kablo Bratislava Spol. S.R.O. Energy Cable and System Bratislava Slov. Korona 523,334,000 100.00% Pirelli Cable Holding N.V.

Pirelli Slovakia S.R.O. Tyre Bratislava Slov. Korona 200,000 100.00% Lunares

SWEDEN

Pirelli Kablar och System AB Energy Cables and System Hoganas Swed. Korona 100,000 100.00% Pirelli Cables and Systems OY

Pirelli Tyre Nordic AB Tyre Bromma Swed. Korona 950,000 100.00% Lunares S.A.

SWITZERLAND

Agom S.A. Tyre Conthey Swiss Franc. 50,000 75.00% Lunares S.A.

Agom S.A. Bioggio Tyre Bioggio Swiss Franc. 590,000 75.00% Lunares S.A.

Lunares S.A. Tyre holding company Basel Swiss Franc. 10,000,000 100.00% Pirelli Tyre Holding N.V.

Pirelli Cables and Systems S.A. Energy Cables and System Basel Swiss Franc. 500,000 100.00% Pirelli Cable Holding N.V.

Pirelli Société de Services S.a.r.l. Financial Basel Swiss Franc. 50,000 100.00% Pirelli Société Générale S.A.

Pirelli Société Générale S.A. Financial Basel Swiss Franc. 28,000,000 100.00% Pirelli S.p.A.

Pirelli Submarine Telecom Systems S.A. (in liquidation) Telecom Cables and System Basel Swiss Franc. 1,230,000 100.00% Pirelli Submarine Telecom Systems Holding B.V.

Pirelli Tyre (Europe) S.A. Tyre Basel Swiss Franc. 1,000,000 100.00% Lunares S.A.

THE NETHERLANDS

ICEW (Insulated Conductors and Enameled Wires) N.V. (già Pirelli Telecom Cables and Systems The Netherlands N.V.) Energy Cables and System Delft Euro 250,000 100.00% Pirelli Cable Holding N.V.

Pirelli Cables and Systems N.V. Energy Cables and System Delft Euro 5,000,000 100.00% Pirelli Cable Holding N.V.

Pirelli Cable Holding N.V. Energy Cables and System Delft Euro 272,515,065 100.00% Pirelli Cavi e Sistemi Energia S.p.A. Holding company

Pirelli Cable Overseas N.V. Telecom Cables and System Delft Euro 10,000,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A.

Pirelli Submarine Telecom Systems Holding B.V. Telecom Cables and System Delft Euro 4,500,000 90.00% Pirelli Cavi e Sistemi Telecom S.p.A.

Pirelli Tyre Holding N.V. Type holding company Breukelen Euro 250,000,000 100.00% Pirelli S.p.A.

Pirelli Tyres Nederland B.V. Tyre Breukelen Euro 18,152 100.00% Lunares S.A.

Sipir Finance N.V. Financyal Rotterdam Euro 13,021,222 100.00% Pirelli S.p.A

TURKEY

Celikord A.S. Tyre Istanbul Turk Lire/mil. 17,100,000 50.466% Pirelli Tyre Holding N.V. 0.267% Pirelli Pneumatici Holding S.p.A. 0.267% Pirelli Deutschland A.G.

Turk-Pirelli Lastikleri A.S. Tyre Istanbul Turk Lire/mil. 88,000,000 62.449% Pirelli Tyre Holding N.V. 0.076% Pirelli Deutschland A.G. 0.076% Pirelli UK Tyres Ltd 0.076% Pirelli Pneumatici S.p.A. 0.076% Lunares S.A. 0.076% Pirelli Pneumatici Holding S.p.A. 0.076% Metzeler Reifen GmbH 0.076% Pirelli Reifenwerke GmbH & Co. K.G. 0.076% Pirelli Neumaticos S.A.

Türk Pirelli Kablo ve Sistemleri A.S. Energy Cables and System Mudania / Bursa Turk Lire/mil. 9,828,000 83.746% Pirelli Cable Holding N.V.

Zalsan Zirai Arac Lastikleri A.S. Tyre Istanbul Turk Lire/mil. 1,400,000 70.00% Turk-Pirelli Lastikleri A.S.

125 Company Business Headquarters Share Capital % ownership % of vote Held by

NORTH AMERICA CANADA

Pirelli Power Cables and Systems Canada Ltd Energy Cables and System Saint John (New Brunswich) $ Can. 40,000,000 100.00% Pirelli Cable Holding N.V.

Pirelli Tire Inc. Tyre Ottawa (Ontario) $ Can. 6,000,000 100.00% Lunares S.A.

U.S.A.

Metzeler Motorcycle Tire North America Corp. Tyre Seattle (Washington) $ Usa 150,000 100.00% Metzeler Reifen GmbH

Pirelli Communications Cables and Systems USA LLC Telecom Cables and System Wilmington (Delaware) $ Usa 10 100.00% Pirelli North America Inc. "B1"

Pirelli Communications Cables Corporation Commercyal Wilmington (Delaware) $ Usa 1 100.00% Pirelli Communications Cables and Systems USA LLC

Pirelli Construction Services Inc. Energy Cables and System Dover (Delaware) $ Usa 1,000 100.00% Pirelli Power Cables and Systems USA LLC

Pirelli North America Inc. "A" Tyre Wilmington (Delaware) $ Usa 3,15 100.00% Pirelli Tyre Holding N.V.

Pirelli North America Inc. "B1" Telecom Cables and System Wilmington (Delaware) $ Usa 5,75 100.00% Pirelli Cavi e Sistemi Telecom S.p.A.

Pirelli North America Inc. "B2" Energy Cables and System Wilmington (Delaware) $ Usa 1,10 100.00% Pirelli Cavi e Sistemi Energia S.p.A.

Pirelli Power Cables and Systems USA LLC Energy Cables and System Wilmington (Delaware) $ Usa 10 100.00% Pirelli North America Inc. "B2"

Pirelli RNC Inc. Commercial Wilmington (Delaware) $ Usa 1 100.00% Pirelli Tyre Holding N.V.

Pirelli Tire LLC Tyre Wilmington (Delaware) $ Usa 1 100.00% Pirelli North America Inc. "A" CENTRAL/SOUTH AMERICA

ARGENTINA

Fipla S.A. Energy Cables and Systems Buenos Aires Arg. Peso 1 66.97% Pirelli Consultora Conductores e Instalaciones S.A.I.C.

Pirelli Argentina de Mandatos S.A. Services Buenos Aires Arg. Peso 500,000 100.00% Pirelli Société Générale S.A.

Pirelli Consultora Conductores e Instalaciones S.A.I.C. Energy Cables and Systems Buenos Aires Arg. Peso 2,227 99.996% Pirelli Cable Holding N.V. 0.004% Pirelli Energie Câbles et Systèmes France S.A.

Pirelli Energia Cables y Sistemas de Argentina S.A. Energy Cables and Systems Buenos Aires Arg. Peso 44,509,458 74.91% Pirelli Consultora Conductores e Instalaciones S.A.I.C. 24.69% Pirelli Cable Holding N.V.

Pirelli Neumaticos S.A.I.C. Tyre Buenos Aires Arg. Peso 19,016,500 99.02% Pirelli Tyre Holding N.V. 0.98% Pirelli Pneumatici Holding S.p.A.

Pirelli Telecomunicaciones Cables y Sistemas de Argentina S.A. Telecom Cables and System Buenos Aires Arg. Peso 12,000 100.00% Pirelli Telecomunicações Cabos e Sistemas do Brasil S.A.

Tel 3 S.A. Energy Cables and Systems Buenos Aires Arg. Peso 11,075,000 51.00% Pirelli Energia Cables y Sistemas de Argentina S.A.

BRAZIL

Cordas Metalicas do Brasil Ltda Tyre Sumarè Bra. Real 1,000 99.90% Pirelli Pneus S.A. 0.10% Muriaè Ltda

Muriaé Ltda Financial Santo Andrè Bra. Real 80,000,000 99.999% Pirelli Pneus S.A. 0.001% Pirelli S.A.

Novacorp Consultora e Serviços Corporativos Ltda Holding Santo Andrè Bra. Real 6,000 99.983% Pirelli S.A.

Pirelli & C. Real Estate Ltda Real Estate Santo Andrè Bra. Real 2,000,000 60.00% Pirelli & C. Real Estate S.p.A. 30.00% Pirelli S.A.

Pirelli Energia Cabos e Sistemas do Brasil S.A. Energy Cables and Systems Santo Andrè Bra. Real 106,824,993 87.202% 88.783% Pirelli Cavi e Sistemi Energia S.p.A. 12.211% 10.342% Pirelli S.A.

126 Company Business Headquarters Share Capital % ownership % of vote Held by

Pirelli Pneus Nordeste Ltda Tyre Feira de Santana Bra. Real 29,991,402 100.00% Pirelli Pneus S.A.

Pirelli Pneus S.A. Tyre Santo Andrè Bra. Real 300,617,484 54.826% 19.031% Pirelli Pneumatici S.p.A. 41.200% 79.719% Pirelli Tyre Holding N.V. 3.667% 0.776% Pirelli S.A.

Pirelli Produtos Especiais Ltda Energy Cables and System Cerquilho Bra. Real 43,143,421 100.00% Pirelli Energia Cabos e Sistemas do Brasil S.A.

Pirelli S.A. Financial Santo Andrè Bra. Real 45,848,684 100.00% Pirelli S.p.A.

Pirelli Telecomunicações Cabos e Sistemas do Brasil S.A. Telecom Cables and System Sorocaba Bra. Real 65,236,771 87.202% 88.782% Pirelli Cavi e Sistemi Telecom S.p.A. 12.211% 10.343% Pirelli S.A.

Pneuac Comercial e Importadora Ltda Tyre San Paolo Bra. Real 12,913,526 100.00% Pirelli Pneus S.A.

Solac-Laminadora de Cobre Ltda Energy Cables and System Jacarei Bra. Real 8,971,950 89.000% Pirelli Energia Cabos e Sistemas do Brasil S.A.

CHILE

Pirelli E y T S.A. Energy Cables and System Santiago Chile Peso/000 3,072,471 99.82% Pirelli Instalaciones Chile S.A.

Pirelli Instalaciones Chile S.A. Energy Cables and System Santiago Chile Peso/000 918,707 90.00% Pirelli Consultora Conductores e Instalaciones S.A.I.C. 10.00% Cite S.A.

Pirelli Neumaticos Chile Limitada Tyre Santiago $ Usa 1,918,451 99.98% Pirelli Pneus S.A. 0.02% Pneuac Comercial e Importadora Ltda

COLOMBIA

Pirelli de Colombia S.A. Tyre Santa Fe De Bogota Col. Peso/000 10,977,466 94.95% Pirelli Pneus S.A. 1.63% Pirelli de Venezuela C.A. 1.14% Muriaè Ltda 1.14% Pirelli Pneus Nordeste Ltda 1.14% Pneuac Comercial e Importadora Ltda

MEXICO

Pirelli Neumaticos de Mexico S.A. de C.V. Tyre Mexico City Mex. Peso 35,098,600 99.98% Pirelli Pneus S.A. 0.02% Pneuac Comercial e Importadora Ltda

URUGUAY

Cite S.A. Energy Cables and System Montevideo Urug. Peso 4,900,000 100.00% Pirelli Energia Cabos e Sistemas do Brasil S.A.

VENEZUELA

Pirelli de Venezuela C.A. Tyre Valencia Ven. Bolivar/000 13,062,679 96.22% Pirelli Tyre Holding N.V. AFRICA

COSTA D'AVORIO

SICABLE - Société Ivoirienne de Cables S.A. Energy Cables and System Abidjan Cfa Franc. 740,000,000 51.00% Pirelli Energie Câbles et Systèmes France S.A.

EGYPT

Alexandria Tire Company S.A.E. Tyre Alexandria Egy. Pound 393,000,000 80.563% Pirelli Pneumatici Holding S.p.A.

6.251% Pirelli Pneumatici S.p.A.

International Tire Company Ltd Tyre Alexandria Egy. Pound 50,000 96.00% Alexandria Tire Company S.A.E.

SUD AFRICA

Pirelli Cables & Syistems (Proprietary) Limited Commercial Woodmead, S.A. S.A. Rand 100 100.00% Pirelli Cavi e Sistemi Energia S.p.A.

Pirelli Tyre (Pty) Ltd (già Italian Tyre Pty Ltd) Tyre Sandton S.A. Rand 1 100.00% Lunares S.A.

127 Company Business Headquarters Share Capital % ownership % of vote Held by OCEANIA

AUSTRALIA

Pirelli Power Cables & Systems Australia PTY Limited Energy Cables and System Liverpool - N.S.W. Austr. $ 15,000,000 100.00% Pirelli Cavi e Sistemi Energia S.p.A.

Pirelli Telecom Cables & Systems Australia PTY Limited Telecom Cables and System Liverpool - N.S.W. Austr. $ 38,500,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A.

Pirelli Tyres Australia Pty Ltd Tyre Pymble - N.S.W. Austr. $ 150,000 100.00% Lunares S.A.

NEW ZELAND

Pirelli Power Cables & Systems New Zealand Limited Energy Cables and System Auckland Nz. $ 10,000 100.00% Pirelli Power Cables & Systems Australia PTY Limited

Pirelli Telecom Cables & Systems New Zealand Limited Telecom Cables and System Auckland Nz. $ 10,000 100.00% Pirelli Telecom Cables & Systems Australia PTY Limited

Pirelli Tyres (NZ) Ltd Tyre Wellington Nz. $ 100 100.00% Pirelli Tyres Australia Pty Ltd ASIA

CHINA

BICCGeneral Baosheng Cable Co. Ltd Energy Cables and System Jiangsu $ Usa 19,500,000 67.00% Pirelli Cables Asia-Pacific Pte Ltd

Invex Insulated Conductors (Baoying) Co. Ltd. Energy Cables and System Yangzhou Euro 6,000,000 100.00% ICEW (Insulated Conductors and Enameled Wires) N.V.

Pirelli Cables (Shanghai) Trading Co. Ltd Energy Cables and System Shanghai $ Usa 200,000 100,00% Pirelli Cables Asia-Pacific Pte Ltd

Pirelli Telecom Cables Co. Ltd Wuxi Telecom Cables and System Xuelang Town $ Usa 29,941,250 71.843% Pirelli Cable Overseas N.V.

Tianjin Top Power Cables Co. Ltd Energy Cables and System Tianjin Municipality $ Usa 13,100,000 67.00% Pirelli Cable Holding N.V.

JAPAN

P & A K.K. Tyre Tokyo Jap. Yen 2,700,000,000 69.148% Pirelli Tyre Holding N.V.

Pirelli K.K. Tyre Tokyo Jap. Yen 40,000,000 100.00% Lunares S.A.

INDIA

Pirelli Cables (India) Private Limited Energy Cables and System Nuova Delhi India Rupee 10,000,000 99.998% Pirelli Cable Holding N.V. 0.002% Pirelli Cavi e Sistemi Energia S.p.A.

INDONESIA

P.T. Pirelli Cables Indonesia Energy Cables and System Jakarta $ Usa 67,300,000 99.48% Pirelli Cable Holding N.V. 0.52% Pirelli Cavi e Sistemi Energia S.p.A.

MALAYSIA

BICC (Malaysia) Sdn Bhd Energy Cables and System Kuala Lumpur Mal. Ringgit 100,000 100.00% Pirelli Cables Asia-Pacific Pte Ltd

Submarine Cable Installation Sdn Bhd Energy Cables and System Kuala Lumpur Mal. Ringgit 10,000 100.00% Pirelli Cavi e Sistemi Energia S.p.A.

MAURITIUS

BICCGeneral Asia Pacific Holdings Energy Cables and System Port Louis $ Usa 2 100.00% Pirelli Cables Asia-Pacific Pte Ltd

SINGAPORE

Comergy Ltd Energy Cables and System Singapore British Pound 1,000,000 100.00% Pirelli Cable Holding N.V.

Pirelli Asia Pte Ltd Tyre Singapore Sing. $ 2 100.00% Lunares S.A.

Pirelli Cable Systems Pte Ltd Energy Cables and System Singapore Sing. $ 25,000 50.00% Pirelli General plc

50.00% Pirelli Cable Holding N.V.

Pirelli Cables Asia-Pacific Pte Ltd Energy Cables and System Singapore Sing. $ 213,324,290 100.00% Pirelli Cable Holding N.V.

Trans-Power Cables Pte Ltd Energy Cables and System Singapore Sing. $ 1,500,000 100.00% Pirelli Cable Holding N.V.

128 COMPANIES CONSOLIDATED USING THE PROPORTIONAL METHOD

Company Business Headquarters Share Capital % ownership % of vote Held by

EUROPE ITALY G6 Advisor Immobiliare Milan Euro 50,000 42.30% Pirelli & C. Real Estate Comercial Agency S.p.A. Progetto Bicocca Università S.r.l. Immobiliare Milan Euro 873,600 34.00% Pirelli & C. Real Estate S.p.A.

129 INVESTMENT ACCOUNTED FOR USING THE EQUITY METHOD

Company Business Headquarters Share Capital % ownership % of vote Held by

Jointly Controlled Company EUROPE ITALY

Olimpia S.p.A. Industrial holding comapny Milan Euro 1,562,596,150 60.00% Pirelli S.p.A.

Subsidiary company EUROPE GERMANY

Drahtcord Saar Geschaeftsfuehrungs GmbH Tyre Merzig Marchi T. 60,000 50.00% Pirelli Deutschland A.G.

Drahtcord Saar GmbH & Co. K.G. Tyre Merzig Marchi T. 30,000,000 50.00% Pirelli Deutschland A.G.

Kabeltrommel Gesellshaft mbH & Co K.G. Energy Cables and Systems Cologne Marchi T. 20,000,000 27.48% Pirelli Kabel und Systeme GmbH

ITALY

Altair Zander Italia S.r.l. Real Estate Milan Euro 10,330 50.00% Pirelli & C. Real Estate Facility Management S.p.A.

Auriga Immobiliare S.r.l. Real Estate Milan Euro 25,602,000 36.02% Pirelli & C. Real Estate S.p.A.

Bernini Immobiliare S.r.l. Real Estate Milan Euro 500,000 14.00% Pirelli & C. Real Estate S.p.A.

Beta S.r.l. Real Estate Milan Euro 26,000 49.00% Partecipazioni Real Estate S.p.A.

CFT Finanziaria S.p.A. Real Estate Florence Euro 23,660,000 46.98% Partecipazioni Real Estate S.p.A.

Delta S.p.A. Real Estate Milan Euro 153,000 47.50% Pirelli & C. Real Estate S.p.A.

Dixia S.r.l. Real Estate Milan Euro 2.,500,000 30.00% Pirelli & C. Real Estate S.p.A.

Domogest S.r.l. Real Estate Florence Euro 1,050,000 50.00% Centrale Immobiliare S.p.A.

Elle Nove Società Consortile a.r.l. Real Estate Milan Euro 100,000 34.90% Edilnord Gestioni S.p.A.

Eurostazioni S.p.A. Real Estate Rome Euro 60,000,000 31.67% Pirelli & C. A.p.A.

Idea Granda S. Consortile r.l. Environment Cuneo Euro 1,292,500 49.00% Pirelli & C. Ambiente S.p.A.

Immobiliare Prizia S.r.l. Real Estate Milan Euro 469,000 36.00% Pirelli & C. Real Estate S.p.A.

Induxia S.r.l. Real Estate Milan Euro 836,300 18.00% Pirelli & C. Real Estate S.p.A.

Iniziative Immobiliari S.r.l. Real Estate Milan Euro 4,312,591 38.45% Pirelli & C. Real Estate S.p.A.

Orione Immobiliare Prima S.p.A. Real Estate Milan Euro 104,000 29.00% Pirelli & C. Real Estate S.p.A.

Ortensia S.r.l. Real Estate Valdagno Euro 100,000 20.00% Pirelli & C. Real Estate S.p.A.

Progetto Bicocca la Piazza S.r.l. Real Estate Milan Euro 3,151,800 26.00% Pirelli & C. Real Estate S.p.A.

Progetto Corsico S.r.l. Real Estate Milan Euro 100,000 49.00% Pirelli & C. Real Estate S.p.A.

Progetto Fontana S.r.l. Real Estate Milan Euro 500,000 23.00% Pirelli & C. Real Estate S.p.A.

Progetto Gioberti S.r.l. Real Estate Milan Euro 100,000 50.00% Pirelli & C. Real Estate S.p.A.

Progetto Grande Bicocca Multisala S.r.l. Real Estate Milan Euro 1,530,000 33.00% Pirelli & C. Real Estate S.p.A.

Progetto Lainate S.r.l. Real Estate Milan Euro 25,500 25.00% Pirelli & C. Real Estate S.p.A.

Regus Business Centres Italia S.p.A. Real Estate Milan Euro 2,500,000 35.00% Pirelli & C. Real Estate S.p.A.

SMP Melfi S.r.l. Tyre Melito (NA) Euro 3,511,906 50.00% Pirelli Pneumatici Holding S.p.A.

Trixia S.r.l. Real Estate Milan Euro 1,209,700 36.00% Pirelli & C. Real Estate S.p.A.

130 Company Business Headquarters Share Capital % ownership % of vote Held by

Tintoretto S.r.l. Real Estate Milan Euro 10,000 100.00% Partecipazioni Real Estate S.p.A.

Verdi S.r.l. Real Estate Milan Euro 20,000 100.00% Pirelli & C. Real Estate S.p.A.

LUXEMBOURG

Inimm Due S.a.r.l. Real Estate Luxembourg Euro 240,950 25.00% Pirelli & C. Real Estate S.p.A.

IN Holdings I S.a.r.l. Real Estate Luxembourg Euro 3,768,500 25.00% Pirelli & C. Real Estate S.p.A.

M.S.M.C. Solferino S.a.r.l. Real Estate Luxembourg Euro 136,700 31.25% Pirelli & C. Real Estate S.p.A.

SPAIN

Optiwire S.L. Energy Cables and System Barcelona Euro 6,010 50.00% Pirelli Cables y Sistemas S.A.

THE NETHERLANDS

M.S.M.C. Italy Holding B.V. Real Estate Amsterdam Euro 18,151 25.00% Pirelli & C. Real Estate S.p.A.

Masseto 1 B.V. Real Estate Amsterdam Euro 19,000 33.00% Pirelli & C. Real Estate S.p.A.

Popoy Holding B.V. Financial Rotterdam Euro 26,550 25.05% Pirelli & C. Real Estate S.p.A.

Spazio Industriale B.V. Real Estate Amsterdam Euro 763,077 25.00% Pirelli & C. Real Estate S.p.A.

UNITED KINGDOM

Rodco Ltd Energy Cables and Systems Gravesend Lira Sterl. 5,000,000 40.00% Pirelli General plc CENTRAL/SOUTH AMERICA

ARGENTINA

Lineas de Transmision de Buenos Aires S.A. (in liquidazione) Energy Cables and System Buenos Aires Arg. Peso/000 12 20.00% Pirelli Argentina de Mandatos S.A.

BRAZIL

K.M.P. Cabos Especiais e Sistemas Ltda Energy Cables and System San Paolo Real 6,600,916 40.00% Pirelli Energia Cabos e Sistemas do Brasil S.A. ASIA

SAUDI ARABIA

Sicew-Saudi Italian Co. for Electrical Works Ltd Energy Cables and System Jeddah Saudi Rials/000 1,000,000 34.00% Pirelli Cable Holding N.V.

131 OTHER INVESTMENTS IN SUBSIDIARIES AND ASSOCIATED COMPANIES

Company Business Headquarters Share Capital % ownership % of vote Held by

EUROPE AUSTRIA

Pirelli Kabelwerke und Systeme GmbH (*) Energy Cables and Systems Vienna Euro 36,336 100.00% Pirelli Cavi e Sistemi Energia S.p.A.

GERMANY

Industriekraftwerk Breuberg GmbH Congeneration Breuberg/Odenwald Euro 1,533,876 26.00% Pirelli Deutschland AG

HUNGARY

Ipoly Kabeldob KFT. Energy Cables and System Szecseny Ung. Fiorino/000 36,350 25.172% MKM Magyar Kabel Muvek Rt.

ITALY

LSF Italian Finance Company S.p.A. (*) Financial Milan Euro 100,000 100.00% Partecipazioni Real Estate S.p.A.

Parcheggi Bicocca S.r.l. (*) Real Estate Milan Euro 25,500 75.00% Pirelli & C. Real Estate S.p.A.

SPAIN

Euro Driver Car S.L. Tyre Barcelona Euro 492,000 25.00% Pirelli Neumaticos S.A. 26.22% Proneus S.L.

Proneus S.L. (*) Tyre Barcelona Euro 3,005,06 51.00% Pirelli Neumaticos S.A.

UNITED KINGDOM

Pirelli & C. Real Estate Ltd. (*) Real Estate London Euro 100,000 100.00% Pirelli & C. Real Estate S.p.A. AFRICA

SOUTH AFRICA

AFCAB Holdings (Proprietary) Ltd (*) Energy Cables and System Sandton Rand Sudafr. 4,000 50.00% Pirelli Cable Holding N.V.

African Cables Ltd (*) Energy Cables and System Vereeniging Rand Sudafr. 9,886,098 100.00% AFCAB Holdings (Proprietary) Limited

ATC (Proprietary) Ltd Energy Cables and System Brits Rand Sudafr. 632,912 21.00% African Cables Limited

TUNISIA

Auto Cables Tunisie S.A. (*) Energy Cables and System Tunis Tun Dinar 4,450,000 51.00% Pirelli Energie Câbles et Systèmes France S.A.

Société Tunisienne des Industries de Pnéumatiques S.A. Tyre Tunis Tun Dinar 38,252,940 15.83% Pirelli Pneumatici S.p.A.

ZIMBABWE

BICC CAFCA Limited (*) Energy Cables and System Harare Zimbabwe $ 15,706,000 73.463% African Cables Limited

BICC (CENTRAL AFRICA) (Private) Limited (*) Energy Cables and System Harare Zimbabwe $ 200,000 100.00% BICC CAFCA Limited

Zimbabwe Cables (Pte) Limited (*) Energy Cables and System Harare Zimbabwe $ 2 100.00% BICC CAFCA Limited ASIA

Malaysia

Power Cables Malaysia Sdn Bhd Energy Cables and System Selangor Darul Ehsan Ringgit Mal. 8,000,000 40.00% Pirelli Cables Asia - Pacific Pte Ltd

(*) These investments have not been consolidated in that they are not material or the right of the parent company are subject to restriction or the holding were recently acquired.

132 OTHER INVESTMENTS CONSIDERED SIGNIFICANT AS PER CONSOB RESOLUTION N. 11971 OF MAY 14, 1999

Company Business Headquarters Share Capital % ownership % of vote Held by AUSTRALIA Optix Australia Ltd Telecom Cables and System Tottenham (Victoria) $ Austr. 4,000,000 15.00% Pirelli Telecom Cables & Systems Australia PTY Ltd BELGIUM Euroqube S.A. Services Bruxelles Euro 94,961,250 17.79% Pirelli & C. Luxembourg S.A. FRANCE Aliapur S.A. Tyre Vitry sur Seine Euro 262,500 14.286% Pirelli Pneumatici S.p.A.

ITALY Eurofly Service S.p.A. Service Caselle Torinese Euro 4,275,000 16.33% Pirelli S.p.A. Fin. Priv. S.r.l. Financial Milan Euro 20,000 7.14% Pirelli & C. A.p.A. 7.14% Pirelli S.p.A. F.C. Internazionale Milano S.p.A. Sport Milan Euro 53,465,000 19.485% Pirelli S.p.A. Servizio Titoli S.r.l. Services Turin Euro 105,000 12.381% Pirelli S.p.A. POLAND Centrum Utylizacji Opon Organizacja Odzysku S.A. Tyre Varsaw Pol. Zloty 1,008,000 14.00% Pirelli Polska Sp. Z.O.O SWITZERLAND Voltimum S.A. Energy Cables and System Meyrin Swiss Franc. 2,850,120 14.286% Pirelli Cavi e Sistemi Energia S.p.A. TURKEY Türk Sondel Enerji A.S. Congeneration Istanbul Turk. lira/mil. 900,000 13.98% Türk-Pirelli Lastikleri A.S. 4.99% Celikord A.S. THE NETHERLANDS MB Venture Capital Fund I Participating Company G N.V. Financial Amsterdam Euro 50,000 14.00% Pirelli Finance (Luxembourg) S.A. U.S.A. Alloptic Inc. Telecom Cables and Systems Pleasanton (CA) $ Usa 120,675,987 15.441% Pirelli Cavi e Sistemi Telecom S.p.A.

133 134 135 136 EXTRAORDINARY SESSION

137 138 INTRODUCTION

Dear Shareholders,

You have been called to the shareholders’ meeting today to vote on resolutions which will confer to Pirelli & C. A.p.A. (hereinafter “Pirelli & C.”, also after its transformation to a corporation), and to the group which it heads, a new, modern, rational and efficient structure, and, therefore, one that reflects the new tendencies in matters of corporate governance and market expectations.

The hope has been expressed on several occasions and by various parties to simplify the corporate structure of the group and the Directors – as soon as market conditions allowed it – which decided to submit a composite and detailed project for your evaluation in this regard. This project takes a series of important steps, all of which are related, in the desired direction.

A project is specifically being presented for your approval which is subdivided as follows: (i) the transformation of the group holding company from a limited partnership company, A.p.A., to a corporation, S.p.A., (the features of which will allow both greater participation in the decision-making process, especially with regard to the appointment of directors, and a potentially better contendability of control), as well as the adoption of a corporate business purpose which better defines the role of coordination assumed by Pirelli & C., (ii) a share capital increase offered in option to strengthen the balance sheet and financial structure of your company, and (iii) the merger by incorporation in Pirelli & C. of Pirelli & C. Luxembourg S.p.A. (after transfer of the registered office from Luxembourg to Italy, hereinafter “Pirelli & C. Luxembourg”) and of Pirelli S.p.A., after which your company will find itself in the position of directly controlling a series of operating companies and holding investments in others that are related to the Olivetti S.p.A. group.

The reports which follow describe the entire project as well as the individual resolutions and the reasons underlying each of them.

139 Transformation of the company from a limited partnership company (A.p.A.) to a corporation (S.p.A.) and modification of the corporate business purpose; consequent amendments to the present articles 1 (name of the company), 2 (corporate business purpose), 7 (convocation of shareholders’ meetings), 8 (constitution of shareholders’ meetings), 9 (chairmanship of shareholders’ meetings), 10 (management of the company), 11 (convocation of the Board of Directors and majorities), 12 (representation of the company), 13 (compensation to the directors), 14 (resignation of the directors) and 17 (distribution of profits) of the by-laws of Pirelli & C.. A new article will also be inserted between articles 10 and 11 relating to the powers of the Board of Directors and will be numbered article 11, with the consequent re-numbering of the subsequent articles.

* * *

Report drawn up by the Directors of Pirelli & C., pursuant to art. 72, paragraph 1, Consob Regulation No. 11971 dated May 14, 1999, as later amended.

Dear Shareholders,

The Directors, and, therefore, the managing partners, of Pirelli & C., are presenting a motion for the transformation of the company from a limited partnership company (A.p.A.) to a corporation (S.p.A.) with the contextual adoption of a new corporate business purpose.

1. Reason for the proposal 1.A Transformation of the company The first step of the project described in the introduction consists in the transformation of the company from a limited partnership company (A.p.A.) to a corporation (S.p.A.). The motion is directed towards allowing Pirelli & C. to assume a legal entity that is more easily recognizable by the market – and, in particular, by international investors – which provides, by eliminating the subdivision of general partners and limited partners, for a more significant participation by all the shareholders in the decision-making process. As known, in fact, the change to a new form of company would mean that the specific rule established by our civil code as regards the position of the general partners in the management of the company would no longer apply. This would include the circumstance by which the general partners, by right, are also directors of the company for an unlimited period of time, the rule which attributes a substantial right of veto to the directors in office as regards the appointment of new directors, as well as the necessity to obtain the unanimous consensus of the general partners in the event of amendments to the deed of incorporation. These prerogatives are not contemplated by the regulations governing the functioning of a corporation, wherein the above-mentioned decisions are taken by the majority of the shareholders in the shareholders’ meeting and the appointment of the Directors cannot be made for a period of more than three years (although the directors can be re-elected).

It is also important to mention that the eventual transformation of Pirelli & C. to a corporation will have no effect on the joint and several liability of your Directors for company obligations which arose prior to the date this resolution – if approved – will be inscribed in the Companies Registry, save for the consensus of the creditors according to the terms and procedures set forth in art. 2499 of the Italian Civil Code. As for the effects of the proposed amendments on the individual articles of the by-laws, the transformation of the type of legal corporate entity will particularly affect art. 1 (name of the company). However, since there will no longer be general partners (not contemplated for corporations), this will require amendments to articles 8 (constitution of shareholders’ meetings), 9 (chairmanship of shareholders’ meetings), 10 (management of the company), 11 (convocation of the Board of Directors and majorities), 12 (representation of the company), 13 (compensation to the directors), 14 (resignation of the directors) and

140 17 (distribution of profits). Additionally, art 7 (convocation of shareholders’ meetings) will also be amended and a new art. 11 (relating to the powers of the Board of Directors) will be introduced, with the consequent re-numbering of the subsequent articles.

1.B Change in the corporate business purpose The current definition of the corporate business purpose, as specified in art. 2 of the by-laws, presents, on one hand, elements that do not appear to correctly reflect the nature and the role currently assumed by Pirelli & C., which is that of an investment holding company with non-operating functions but with responsibility for coordination of the holdings, and, on the other hand, certain definitions which have been superceded by the evolution of the law.

With reference to the first element, the item stated under letter e) should be eliminated (the trading and leasing of real estate properties as well as the management of own properties, and the building works consequent thereto), insofar as, within the framework of the group, such business activities are now carried out by the subsidiary Pirelli & C. Real Estate S.p.A.. Although your company can continue to conduct such business activities, though not as its main business and on condition that the such business is functional to achieving the corporate business purpose, it would appear appropriate to eliminate an element of potential uncertainty concerning the specific mission of each of the companies in the Pirelli Group. Similar considerations also apply to the item stated under letter d) (leasing of real and movable property and the granting of loans to third parties).

As far as the second element is concerned, Law 1/1991 was entirely rescinded by Legislative Decree No. 58 dated February 24, 1998.

The paragraphs which follow indicate the effect of the changes described in paragraph 1.A and 1.B on the individual articles of the by-laws.

Art. 1 Name of the company The proposed amendment regards the cancellation of the names of the general partners and the re-naming of the company in Pirelli & C. Società per Azioni.

Art. 2 Corporate business purpose The proposed amendments are directed to giving a better definition of the role of coordination that will be conducted by your company as the group holding company and to eliminate any references to laws which have been superceded.

Art. 7 Convocation of shareholders’ meetings The proposed amendment consists in a reformulation, in terms that better respond to the nature of the company’s business as a holding company, of the right pursuant to art. 2364, paragraph 2, of the Italian Civil Code, to convene shareholders’ meetings called to approve the financial statements within six months of the end of the fiscal year.

Art. 8 Constitution of shareholders’ meetings The proposed amendment arises as a result of the fact that there will no longer be the figure of general partners and, therefore, their approval is needed to amend the deed of incorporation. Furthermore, for the appointment of the Directors, the relative majority of votes cast in favor by the shares represented at the shareholders’ meeting will be sufficient.

Art. 9 Chairmanship of shareholders’ meetings The proposed amendment arises as a result of the fact that there will no longer be the figure of general partners and the replacement of the Board of Managing Partners by the Board of Directors.

141 Art. 10 Management of the company The proposed amendment arises as a result of the fact that there will no longer be the figure of general partners, as well as the need to establish the number of members of the Board of Directors (indicating a maximum and minimum number), their period of office and the possibility of being re-elected. In order to follow a logical framework, the paragraphs relating to relations with the Board of Statutory Auditors and the delegation of powers were moved to art. 11.

A new article 11 was added relating to the powers of the Board of Directors. It was decided to add a separate article relating to the powers of the Board of Directors, relations with the Board of Statutory Auditors when there are significant transactions or a potential conflict of interest, the possibility of forming an Executive Committee and the appointing of Directors and Deputy Chairmen.

Art. 11 renumbered art. 12 – Convocation of the Board of Directors and majorities The proposed amendments are of two distinct types. The first, formal, regards the manner of convening the Board of Directors and the Executive Committee and follows from the replacement of the figure of general partner with that of the director. The second, substantial and consistent with the desire to give the Company a more open and dynamic corporate governance structure, regards the abolition of the need for votes to be cast in favor by all members of the Board for the appointment of the Chairman of the same Board, of the Deputy Chairmen, of the Managing Directors and, generally, the delegation of specific powers to one or more of its members. In order to avoid potential deadlock situations, in the case of a tie vote, a proposal is presented wherein the casting vote shall be that of the Chairman.

Art. 12 renumbered art. 13 – Representation of the company The proposed amendment arises as a result of the fact that there will no longer be the figure of general partners and, in particular, regards the attribution of the right to represent the Company before legal authorities by the Chairman of the Board of Directors and, if appointed, by the Deputy Chairmen and the Managing Directors, within the limits of the powers assigned to them by the Board. There is also the possibility of conferring the representation of the Company before third parties and in legal proceedings to Directors and, in general, to employees and eventually to third parties.

Art. 13 renumbered art. 14 – Compensation of the directors The proposed amendment arises as a result of the fact that there will no longer be the figure of general partners.

Art. 14 renumbered art. 15 – Resignation of the directors The proposed amendment, which consists in the replacement of the article as it now stands with a so-called simul stabunt simul cadent, arises as a result of the fact that there will no longer be the figure of general partners and the special prerogatives attributed to them by the civil code.

Art. 17 renumbered art. 18 – Distribution of profits The proposed amendment consists in the simple replacement of the words “Board of General Partners” with those of “Board of Directors”.

Since the proposed amendments alter the text of the deed of incorporation, their adoption must be approved not only by the prescribed majority at the extraordinary shareholders’ meeting but also by all the general partners, who have already manifested their consensus.

2. Presentation of the comparison of the articles of the by-laws where amendments are requested A comparison is presented of the current wording of the text of the articles of the by-laws with the proposed new wording which is submitted for your approval.

142 Current wording Proposed wording

Article 1 Article 1 A company is formed in “accomandita per A Corporation is hereby incorporated under the azioni”, in which the managing partners are name Pirelli & C. Società per Azioni. Carlo Buora, Carlo Alessandro Puri Negri, Luigi Orlando, Alberto Pirelli and Marco Tronchetti Provera, in the name of “PIRELLI & C. – ACCOMANDITA PER AZIONI”.

Article 2 Article 2 The purpose of the Company is the following: The purpose of the Company is the following: a) the acquisition of participating interests in other a) the acquisition of participating interests in other companies or corporations, both in Italy and companies or corporations, both in Italy and abroad; abroad; b) the financing, the technical and financial co- b) the financing, the technical and financial co- ordination of the companies or corporations in ordination of the companies or corporations in which it has interests; which it has interests; c) the sale, ownership, management of c) the sale, ownership, management or government and private securities; placement of both government and private d) leasing of real and movable property and the securities; granting of loans to third parties; The Company may carry out all transactions of e) the trading and leasing of real estate properties as any type whatsoever - excluding the collection well as the management of own properties, and of savings deposits from the public - connected the building works consequent thereto. to its corporate business purpose. All financial and deposit-taking activities connected with the public and those set forth in Law 1/1991 are however excluded. In order to achieve the corporate business purpose, the company can carry out all other related transactions, including the issue of real guarantees and personal guarantees, including endorsements to cover the obligations of third parties.

Article 7 Article 7 The convocation of the shareholders’ meeting, The convocation of the shareholders’ meeting, which which may take place anywhere in Italy including may take place anywhere in Italy including in a in a place other than the registered office, the right place other than the registered office, the right to to attend meetings and representation at same are attend meetings and representation at same are all all governed by law. governed by law. Whenever particular needs require it, the In view of the nature of the Company’s business ordinary shareholders’ meeting may be convened and the special requirements arising therefrom, within six months of the end of the financial the ordinary shareholders’ meeting may be period. convened within six months of the end of the financial period.

Article 8 Articolo 8 The due convocation of the meeting and the The due convocation of the meeting and the validity of its resolutions are governed by law. validity of its resolutions are governed by law.

143 For modification of the deed of incorporation, the The voting quorum for the appointment of approval of all the general partners is always Directors is established as a relative majority necessary. of the votes.

Articolo 9 Articolo 9 The meeting shall be presided over by the The meeting shall be presided over by the Chairman of the Board of Managing Partners, by a Chairman of the Board of Directors, by a Deputy Deputy Chairman or by a Managing Director, in Chairman or by a Managing Director, in that that order; whenever there are two or more Deputy order; whenever there are two or more Deputy Chairmen or Managing Directors, the chair shall Chairmen or Managing Directors, the chair shall be taken respectively by the senior in age. In the be taken respectively by the senior in age. In the event of the absence of all the managing partners, event of the absence of the above-indicated the chair shall be taken by another person chosen individuals, the chair shall be taken by another by the shareholders’ meeting among the person chosen by the shareholders’ meeting among shareholders present. the shareholders present. The Chairman is assisted by a Secretary appointed The Chairman of the shareholders’ meeting is by the meeting; there is no need to appoint a assisted by a Secretary appointed by the meeting; Secretary when the minutes of the meeting are there is no need to appoint a Secretary when the drawn up by a notary public. minutes of the meeting are drawn up by a notary It is the duty of the Chairman of the meeting to public. verify the right to attend the meeting, including by It is the duty of the Chairman of the meeting to means of proxy; to ascertain whether or not the verify the right to attend the meeting, including by meeting has been duly constituted and has means of proxy; to ascertain whether or not the achieved the quorum required in order to pass meeting has been duly constituted and has resolutions; to conduct and moderate the achieved the quorum required in order to pass discussion; to establish the order and manner of resolutions; to conduct and moderate the voting as well as announce the results thereof. discussion; to establish the order and manner of The resolutions of the meeting shall be recorded in voting as well as announce the results thereof. the minutes, which shall be signed by the The resolutions of the meeting shall be recorded in Chairman and the Secretary of the meeting or the the minutes, which shall be signed by the notary public. Chairman of the shareholders’ meeting and the The minutes of the extraordinary shareholders’ Secretary of the meeting or the notary public. meeting must be drawn up by a notary public The minutes of the extraordinary shareholders’ appointed by the Chairman. meeting must be drawn up by a notary public Any copies and extracts thereof, that have not been appointed by the Chairman of the shareholders’ drawn up by a notary public, shall be certified as meeting. true copies by the Chairman of the Board of Any copies and extracts thereof, that have not been Managing Partners. drawn up by a notary public, shall be certified as true copies by the Chairman of the Board of Directors.

Article 10 Article 10 The Company is managed by a Board of Managing The Company is managed by a Board of Partners invested with the fullest powers except Directors composed of between seven and those expressly reserved for the shareholders’ twenty-three members who shall remain in meeting by law. office for three years (unless the meeting fixes The Board of Managing Partners, also through a shorter term of office at the time of the delegated bodies, informs the Board of Statutory appointment) and may be re-elected.

144 Auditors on a timely basis about the activities A Chairman, and if necessary, one or more Deputy conducted and the most important economic, Chairmen shall be appointed from amongst the financial and equity transactions carried out by the members of the Board of Directors. Company and its subsidiaries; it specifically makes In the event of the Chairman being absent, the reference to transactions with potential conflicts of chair shall be taken by a Deputy Chairman or interest. The information is provided, at least a Managing Director, in that order; if there quarterly, at the board meetings or Executive should happen to be two or more Deputy Committee meetings or by written communication Chairmen or Managing Directors, the chair to the Board of Statutory Auditors. shall be taken respectively by the senior in The Board of General Partners appoints a age. Chairman and, eventually, one or more Deputy The Board shall appoint a Secretary, who is Chairmen and is authorized to delegate those not necessarily a member of the Board. powers it wishes to confer on one or more of its Unless otherwise decided by the shareholders’ members, eventually through the position of meeting, the Directors are not bound over by the Managing Director. prohibition mentioned under art. 2390 of the It may also appoint General Managers, Deputy Italian Civil Code. General Managers and persons with power of attorney for single acts or categories of acts, establishing powers and competence. These appointments, with the exception of those for General Managers and Deputy General Managers, can also be referred by the Board to the Managing Directors and the General Managers. The Board of Managing Partners shall appoint a Secretary, who is not necessarily a member of the Board. Unless otherwise decided by the shareholders’ meeting, the Directors are not bound over by the prohibition mentioned under art. 2390 of the Italian Civil Code.

New article Article 11 The Board of Directors is empowered with the management of the Company and, for this purpose, is invested with the fullest powers for administration, except those, which according to the by-laws or by law, are reserved for the shareholders’ meetings. The Board of Directors, also through delegated bodies, informs the Board of Statutory Auditors on a timely basis about the activities conducted and the most important economic, financial and equity transactions carried out by the Company and its subsidiaries; it specifically makes reference to transactions

145 with potential conflicts of interest. The information is provided, at least quarterly, at the board meetings or Executive Committee meetings or by written communication to the Board of Statutory Auditors. The Board is authorized to delegate those powers it wishes to confer on one or more of its members, eventually through the positions of Managing Directors, attributing single or collective signature powers as it deems to establish for the administration of the Company. It may also delegate its competence to an Executive Committee composed of some of its members, whose compensation shall be established by the shareholders’ meeting. It may also nominate one or more committees with consulting functions, also for purposes of updating the corporate governance structure to the recommendations issued from time to time by the competent authorities. Lastly, the Board may appoint General Managers, Deputy General Managers, Managers and Deputy Managers and persons with power of attorney for single acts or categories of acts, establishing powers and competence. The appointment of Managers, Deputy Managers and persons with power of attorney for individual acts or categories of acts, can also be referred by the Board to the Managing Directors and the General Managers.

Article 11 Article 12 (renumbered) The Board of Managing Partners shall meet at The Board of Directors shall meet at the the invitation of the Chairman or, if appointed, a invitation of the Chairman or whomsoever is Deputy Chairman or a Managing Director, at the acting on his behalf, at the registered office of registered office of the Company or in any other the Company or in any other place stated in place just as long as it is in Italy, or whenever a the letter of convocation, every time he meeting has been requested by two Managing considers it in the best interests of the Partners or by at least two standing statutory Company, or whenever a meeting has been auditors. requested by one of the Managing Directors or Board meetings shall be convened by means of a by at least two standing statutory auditors. letter, telegram, telex or fax sent to the address of However, the Board of Directors may validly each Managing Partner and each Standing pass resolutions, even failing any formal Statutory Auditor, at least five days before (or in convocation, if all the board members and all urgent cases at least six hours before) the day set the standing statutory auditors in office are for the meeting. present.

146 Meetings of the Board of Managing Partners may Board meetings shall be convened by means of a be held by teleconference or videoconference. letter, telegram, telex or fax sent to the address of In this case the following must be guaranteed: each Director and each Standing Statutory a) identification of all the participants at each Auditor, at least five days before (or in urgent point in the connection; cases at least six hours before) the day set for the b) the possibility for each participant to intervene, meeting. to orally put forward same’s own opinion, to Meetings of the Board and of the Executive view, receive and transmit all documentation, as Committee may be held by teleconference or well as the contextuality of considerations and videoconference. In this case the following must be resolutions. guaranteed: The Meeting of the Board of Managing Partners a) identification of all the participants at each shall be considered to be held in the place in which point in the connection; the Chairman and the Secretary must be b) the possibility for each participant to intervene, simultaneously. to orally put forward same’s own opinion, to The meetings of the Board are chaired by the view, receive and transmit all documentation, as Chairman and, in his absence, the chair shall be well as the contextuality of considerations and taken by the senior in age of the Deputy Chairmen. resolutions. The presence of at least half the members plus one Meetings of the Board of Directors and of the is necessary for the resolutions of the Board to be Executive Committee are considered to be held in deemed valid, and the favorable vote of the the place in which the Chairman and the Secretary majority of those present is required. However, for must be simultaneously. the appointment of the Chairman and one or more The presence of at least half the members plus one Deputy Chairmen as well as the attribution of the is necessary for the resolutions of the Board to be position of Managing Director and for the deemed valid, and the favorable vote of the delegation of specific powers by the Board of majority of those present is required. In the event Managing Partners to one or more of its members, of a tie in votes, the casting vote shall be that a favorable vote must be cast by all members in of the Chairman. office. The resolutions of the Board, even when passed by The resolutions of the Board, even when passed by meetings held by teleconference or by meetings held by teleconference or by videoconference, are recorded in a special book videoconference, are recorded in a special book signed by the Chairman and the Secretary. Any signed by the Chairman and the Secretary. copies and extracts thereof, that have not been drawn up by a notary public, shall be certified as true copies by the Chairman.

Article 12 Article 13 (renumbered) Legal representation of the Company vis-à-vis Legal representation of the Company vis-à-vis third parties and in court proceedings shall be the third parties and in court proceedings shall be the duty, with separate and several signatory powers, duty, with separate and several signatory powers, of the Chairman of the Board of Managing of the Chairman of the Board of Directors and, if Partners and, if appointed, of the Deputy appointed, of the Deputy Chairmen and Managing Chairmen and Managing Directors, within the Directors, within the limits of the powers granted limits of the powers granted. to them by the Board of Directors. Each one of the aforesaid shall in any case have Each one of the aforesaid shall in any case have full powers to take legal action and file appeals full powers to take legal action and file appeals before any judicial authority and any court of any before any judicial authority and any court of any degree, including in revocation or cassation degree, including in revocation or cassation

147 (supreme court) proceedings, to file statements (supreme court) proceedings, to file statements and prosecute in criminal cases, to sue on behalf of and prosecute in criminal cases, to sue on behalf of the Company in criminal proceedings, to begin the Company in criminal proceedings, to begin legal proceedings and file petitions before all legal proceedings and file petitions before all administrative jurisdictions, to intervene and administrative jurisdictions, to intervene and protect the Company's interests in case of protect the Company's interests in case of proceedings and claims against the Company, proceedings and claims against the Company, granting for this purpose all necessary mandates granting for this purpose all necessary mandates and powers of attorney ad litem. and powers of attorney ad litem. The Board of Directors and, within the limits of the powers granted to them by said Board, the Chairman of the Board and, if appointed, the Deputy Chairmen and the Managing Directors, are authorized to grant Managers and staff in general, and when necessary third parties, the power to represent the Company vis-à-vis third parties and in court proceedings.

Article 13 Article 14 (renumbered) The managing partners are entitled to annual The members of the Board of Directors are compensation established by the shareholders’ entitled to annual compensation established by the meeting and shall be reimbursed for all expenses shareholders’ meeting and shall be reimbursed for all incurred during the course of their duties. expenses incurred during the course of their duties. The compensation to managing partners invested The compensation to Directors invested with with special duties is established by art. 2389, special duties is established by art. 2389, paragraph 2, of the Italian Civil Code. paragraph 2, of the Italian Civil Code.

Article 14 Article 15 (renumbered) In the case of the resignation from office of all the If, due to resignation or any other cause, more general partners, the company is dissolved unless the than half the Directors should leave office, partners are replaced and if the replacements have then the entire Board of Directors is not accepted the posts within a six-month period. considered to have resigned with effect as from For this period, the Board of Statutory Auditors the time of its re-constitution. appoints a temporary director to fulfil all the acts of ordinary administration. The temporary director does not assume the position of the general partner.

Article 17 Article 18 (renumbered) The annual profits shall be distributed, less the The annual profits shall be distributed, less the appropriations to the reserves prescribed by law, as appropriations to the reserves prescribed by law, as follows: follows: a) savings shares shall be attributed an amount of a) savings shares shall be attributed an amount of up to seven percent of their par value; if, in any up to seven percent of their par value; if, in any financial period, a dividend of less than seven financial period, a dividend of less than seven percent of the par value has been distributed to percent of the par value has been distributed to the savings shares, the said difference is the savings shares, the said difference is calculated as an increase to be added to the calculated as an increase to be added to the

148 preference dividend during the following two preference dividend during the following two financial periods; any profits remaining after financial periods; any profits remaining after the aforesaid appropriations and provisions and the aforesaid appropriations and provisions and which the meeting resolves to distribute, shall which the meeting resolves to distribute, shall be distributed amongst all the shares in such a be distributed amongst all the shares in such a manner that the savings shares shall receive a manner that the savings shares shall receive a total dividend which is increased, compared to total dividend which is increased, compared to the dividend received by the ordinary shares, by the dividend received by the ordinary shares, by an amount equivalent to two percent of their an amount equivalent to two percent of their par value; par value; b) aside from what has been established above in b) aside from what has been established above in respect of the total higher dividends attributed respect of the total higher dividends attributed to the savings shares, the ordinary shares shall to the savings shares, the ordinary shares shall be attributed an amount up to five percent of be attributed an amount up to five percent of their par value. their par value. The profits remaining shall be distributed among The profits remaining shall be distributed among all the shares, in addition to the attribution all the shares, in addition to the attribution referred to in the preceding letters a) and b), referred to in the preceding letters a) and b), unless the shareholders’ meeting, based upon the unless the shareholders’ meeting, based upon the proposal of the managing partners, votes special proposal of the Board of Directors, votes special appropriations to the extraordinary reserves, or appropriations to the extraordinary reserves, or other destination or decides to appropriate a part other destination or decides to appropriate a part of such profits to retained earnings. of such profits to retained earnings. In the event of distribution of reserves, savings In the event of distribution of reserves, savings shares shall have the same rights as the other shares shall have the same rights as the other shares. shares. Interim dividends can be paid, in observance of the Interim dividends can be paid, in observance of the law. law.

3. Evaluation of the Board of Managing Partners on the eventual recourse to the right of withdrawal The transformation of the type of company and the change in the corporate business purpose give the Pirelli & C. ordinary and savings shareholders the right to withdrawal pursuant to art. 2437 of the Italian Civil Code.

4. Indication of the subjects that may exercise the right of withdrawal, the manner and the terms established for exercising the withdrawal and the payment of the relative consideration and the criteria used in determining this consideration The holders of Pirelli & C. ordinary shares absent or dissenting from the resolution on the transformation of the company and the change in the corporate business purpose (the “Resolution”) and the holders of Pirelli & C. savings shares will be entitled to withdraw, in both cases on condition that the withdrawing shareholder is the holder of the Pirelli & C. shares on which the right of withdrawal is exercised at a date before that on which the Resolution is passed and maintains ownership continuously up to obtaining the Certification (as defined in the following paragraph).

The withdrawal statement must be communicated to Pirelli & C., by registered letter, or through a official of the court or telegram, by the Pirelli & C. ordinary shareholders that attended the shareholders’ meeting and dissented from the resolution not more than three days from the date of the meeting and by both the ordinary and savings absent from the shareholders’ meeting not more than fifteen days from the date of

149 registration of the Resolution on the Companies Registry. By this last date (that is, fifteen days from the date of registration of the Resolution on the Companies Registry), the withdrawal statement must not simply be sent by the withdrawing shareholder but must reach the attention of Pirelli & C. The withdrawing shareholders must also attach to the communication – or, if this is not possible, arrive within the terms stated in the notice published in the press as stated in the following paragraph 5, on penalty of the inadmissibility of the statement of withdrawal – the specific certification issued by an agent authorized by the centralized management system of Monte Titoli S.p.A., attesting that: (i) the ownership of the shares, and therefore the quality of the shareholder, is recorded continuously from a date prior to the date on which the Resolution was passed, and (ii) the above stocks were transferred to a specific restricted account in anticipation of the payment of the withdrawal price on the part of Pirelli & C. (the “Certification”).

The payment of the withdrawal price will be made by the term that will be indicated in the notice published in the press as stated in the following paragraph 5.

The determination of the price to which the withdrawing shareholders are entitled will follow the procedure indicated below: (i) the price of the right of withdrawal for the ordinary shareholders will correspond to the simple arithmetic average of the official market prices of Pirelli & C. ordinary shares in the six calendar months prior to the date the Resolution was passed; (ii) the price of the right of withdrawal for the savings shareholders will correspond to the simple arithmetic average of the official market prices of Pirelli & C. savings shares in the six calendar months prior to the date the Resolution was passed;

The amounts to which the withdrawing shareholders are entitled constitute taxable income for the amount which exceeds the price paid for the subscription or purchase of the shares cancelled by the company.

The amount distributed to individual holders of a non-qualified investment is subject to a withholding equalization tax of 12.5%, within the limits of the reserves, other than capital reserves, attributed to them. For non-residents, other than savings shareholders, the equalization tax is equal to 27%, subject to a reduction in the rate under international double taxation avoidance agreements. In the event the resident shareholder individual is the holder of a qualified investment, or, although holding a non-qualified investment, renounces the equalization tax system mentioned above, the taxable income from withdrawal must be entered on the tax return, in the amount equal to the difference between the withdrawal price and the cost of subscription or purchase of the cancelled shares. Within the limits of the part of taxable income thus determined proportionally corresponding to the reserves, other than capital reserves, attributable to the same shareholder in relation to the shares cancelled, a dividend tax credit is recognized up to the limit of the taxes pursuant to art. 105, paragraph 1, letters a) and b) of D.P.R. No. 917 dated December 22, 1986.

The shareholders that have validly exercised the right of withdrawal are entitled to obtain the relative payment starting from the date the Resolution is passed, with the consequent right to interest established by law (currently equal to 3% on an annual basis) beginning from the above date up to the date the withdrawal price is paid.

The valid exercise of the right of withdrawal involves the contextual loss of status as a shareholder of the Company and therefore those that exercised the right will not have the right to: (i) take part in the capital increase in option as referred to in point 2 of the agenda of the extraordinary session of the shareholders’ meeting nor, consequently, have the right to transfer the relative option rights, and (ii) to

150 receive dividends relating to the year ended December 31, 2002, as referred to in point 1 of the agenda of the ordinary session of the shareholders’ meeting.

5. Procedure for communicating information not determinable prior to the shareholders’ meeting to those having the right to withdraw The information relating to the manner and the terms of exercising the right to withdrawal not determinable prior to the date of the shareholders’ meeting, including the effective date of the registration of the Resolution in the Companies Registry, will be rendered public by the Company through publication of a notice on a timely basis in at least one daily national newspaper subsequent to the registration of the Resolution in the Companies Registry.

* * *

In you are in agreement, we ask you to approve the following

RESOLUTION

“The extraordinary shareholders’ meeting: • having taken note of the Report of the Directors relating to the proposal to transform Pirelli & C. from a limited partnership company (A.p.A.) to a corporation (S.p.A.) and modify the corporate business purpose; • having taken note of the amendments to the by-laws proposed and described; • having taken note of the provisions of art. 2437 of the Italian Civil Code;

VOTES with immediate effect a) to transform Pirelli & C. from a limited partnership company (A.p.A.) to a corporation (S.p.A.), amending art. 1 of the by-laws as follows:

151 Current wording Proposed wording

Article 1 Article 1 A company is formed in “accomandita per A Corporation is hereby incorporated under the azioni”, in which the managing partners are name Pirelli & C. Società per Azioni. Carlo Buora, Carlo Alessandro Puri Negri, Luigi Orlando, Alberto Pirelli and Marco Tronchetti Provera, in the name of “PIRELLI & C. – ACCOMANDITA PER AZIONI”. b) to amend the corporate business purpose, changing art. 2 of the by-laws as follows:

Current wording Proposed wording

Article 2 Article 2 The purpose of the Company is the following: The purpose of the Company is the following: a) the acquisition of participating interests in other a) the acquisition of participating interests in other companies or corporations, both in Italy and companies or corporations, both in Italy and abroad; abroad; b) the financing, the technical and financial co- b) the financing, the technical and financial co- ordination of the companies or corporations in ordination of the companies or corporations in which it has interests; which it has interests; c) the sale, ownership, management of c) the sale, ownership, management or placement government and private securities; of both government and private securities; d) leasing of real and movable property and the The Company may carry out all transactions of granting of loans to third parties; any type whatsoever – excluding the collection e) the trading and leasing of real estate of savings deposits from the public – properties as well as the management of own connected to its corporate business purpose. properties, and the building works consequent thereto All financial and deposit-taking activities connected with the public and those set forth in law 1/1991 are however excluded. In order to achieve the corporate business purpose, the company can carry out all other related transactions, including the issue of real guarantees and personal guarantees, including endorsements to cover the obligations of third parties. c) to amend art. 7 of the by-laws (convocation of the shareholders’ meetings) as follows:

Current wording Proposed wording

Article 7 Article 7 The convocation of the shareholders’ meeting, The convocation of the shareholders’ meeting, which may take place anywhere in Italy including which may take place anywhere in Italy including in a place other than the registered office, the right in a place other than the registered office, the right to attend meetings and representation at same are to attend meetings and representation at same are all governed by law. all governed by law. Whenever particular needs require it, the ordinary In view of the nature of the Company’s

152 shareholders’ meeting may be convened within six business and the special requirements arising months of the end of the financial period. therefrom, the ordinary shareholders’ meeting may be convened within six months of the end of the financial period. d) to amend art. 8 of the by-laws (constitution of shareholders’ meetings) as follows: Current wording Proposed wording

Article 8 Article 8 The due convocation of the meeting and the validity The due convocation of the meeting and the of its resolutions are governed by law. validity of its resolutions are governed by law. For modification of the deed of incorporation, the The voting quorum for the appointment of approval of all the general partners is always Directors is established as a relative majority necessary. of the votes. e) to amend art. 9 of the by-laws (chairmanship of shareholders’ meetings) as follows: Current wording Proposed wording

Article 9 Article 9 The meeting shall be presided over by the The meeting shall be presided over by the Chairman of the Board of Managing Partners, by a Chairman of the Board of Directors, by a Deputy Deputy Chairman or by a Managing Director, in Chairman or by a Managing Director, in that that order; whenever there are two or more Deputy order; whenever there are two or more Deputy Chairmen or Managing Directors, the chair shall Chairmen or Managing Directors, the chair shall be taken respectively by the senior in age. In the be taken respectively by the senior in age. In the event of the absence of all the managing partners, event of the absence of the above-indicated the chair shall be taken by another person chosen individuals, the chair shall be taken by another by the shareholders’ meeting among the person chosen by the shareholders’ meeting among shareholders present. the shareholders present. The Chairman is assisted by a Secretary appointed The Chairman of the shareholders’ meeting is by the meeting; there is no need to appoint a assisted by a Secretary appointed by the meeting; Secretary when the minutes of the meeting are there is no need to appoint a Secretary when the drawn up by a notary public. minutes of the meeting are drawn up by a notary It is the duty of the Chairman of the meeting to public. verify the right to attend the meeting, including by It is the duty of the Chairman of the meeting to means of proxy; to ascertain whether or not the verify the right to attend the meeting, including by meeting has been duly constituted and has means of proxy; to ascertain whether or not the achieved the quorum required in order to pass meeting has been duly constituted and has resolutions; to conduct and moderate the achieved the quorum required in order to pass discussion; to establish the order and manner of resolutions; to conduct and moderate the voting as well as announce the results thereof. discussion; to establish the order and manner of The resolutions of the meeting shall be recorded in voting as well as announce the results thereof. the minutes, which shall be signed by the The resolutions of the meeting shall be recorded in Chairman and the Secretary of the meeting or the the minutes, which shall be signed by the notary public. Chairman of the shareholders’ meeting and the The minutes of the extraordinary shareholders’ Secretary of the meeting or the notary public. meeting must be drawn up by a notary public The minutes of the extraordinary shareholders’ appointed by the Chairman. meeting must be drawn up by a notary public

153 Any copies and extracts thereof, that have not been appointed by the Chairman of the shareholders’ drawn up by a notary public, shall be certified as meeting. true copies by the Chairman of the Board of Any copies and extracts thereof, that have not been Managing Partners. drawn up by a notary public, shall be certified as true copies by the Chairman of the Board of Directors. f) to amend art. 10 of the by-laws (management of the company) as follows: Current wording Proposed wording

Article 10 Article 10 The Company is managed by a Board of Managing The Company is managed by a Board of Partners invested with the fullest powers except Directors composed of between seven and those expressly reserved for the shareholders’ twenty-three members who shall remain in meeting by law. office for three years (unless the meeting fixes The Board of Managing Partners, also through a shorter term of office at the time of making delegated bodies, informs the Board of Statutory the appointment) and may be re-elected. Auditors on a timely basis about the activities A Chairman, and if necessary, one or more Deputy conducted and the most important economic, Chairmen shall be appointed from amongst the financial and equity transactions carried out by the members of the Board of Directors. Company and its subsidiaries; it specifically makes In the event of the Chairman being absent, the reference to transactions with potential conflicts of chair shall be taken by a Deputy Chairman or interest. The information is provided, at least a Managing Director, in that order; if there quarterly, at the board meetings or Executive should happen to be two or more Deputy Committee meetings or by written communication Chairmen or Managing Directors, the chair to the Board of Statutory Auditors. shall be taken respectively by the senior in age. The Board of General Partners appoints a The Board shall appoint a Secretary, who is Chairman and, eventually, one or more Deputy not necessarily a member of the Board. Chairmen and is authorized to delegate those Unless otherwise decided by the shareholders’ powers it wishes to confer on one or more of its meeting, the Directors are not bound over by the members, eventually through the position of prohibition mentioned under art. 2390 of the Managing Director. Italian Civil Code. It may also appoint General Managers, Deputy General Managers and persons with power of attorney for single acts or categories of acts, establishing powers and competence. These appointments, with the exception of those for General Managers and Deputy General Managers, can also be referred by the Board to the Managing Directors and the General Managers. The Board of Managing Partners shall appoint a Secretary, who is not necessarily a member of the Board. Unless otherwise decided by the shareholders’ meeting, the Directors are not bound over by the prohibition mentioned under art. 2390 of the Italian Civil Code.

154 g) to introduce, after art. 10, a new art. 11 (Powers of the Board of Directors) – with the consequent renumbering of the subsequent articles – with the following text: “Article 11 The Board of Directors is empowered with the management of the Company and, for this purpose, is invested with the fullest powers for administration, except those, which according to the by-laws or by law, are reserved for the shareholders’ meetings. The Board of Directors, also through delegated bodies, informs the Board of Statutory Auditors on a timely basis about the activities conducted and the most important economic, financial and equity transactions carried out by the Company and its subsidiaries; it specifically makes reference to transactions with potential conflicts of interest. The information is provided, at least quarterly, at the board meetings or Executive Committee meetings or by written communication to the Board of Statutory Auditors. The Board is authorized to delegate those powers it wishes to confer on one or more of its members, eventually through the positions of Managing Directors, attributing single or collective signature powers as it deems to establish for the administration of the Company. It may also delegate its competence to an Executive Committee composed of some of its members, whose compensation shall be established by the shareholders’ meeting. It may also nominate one or more committees with consulting functions, also for purposes of updating the corporate governance structure to the recommendations issued from time to time by the competent authorities. Lastly, the Board may appoint General Managers, Deputy General Managers, Managers and Deputy Managers and persons with power of attorney for single acts or categories of acts, establishing powers and competence. The appointment of Managers, Deputy Managers and persons with power of attorney for individual acts or categories of acts, can also be referred by the Board to the Managing Directors and the General Managers”; h) to amend art. 11 of the by-laws (convocation of the Board of directors and majorities) as follows, assigning the number 12:

Current wording Proposed wording

Article 11 Article 12 (renumbered) The Board of Managing Partners shall meet at the The Board of Directors shall meet at the invitation of the Chairman or, if appointed, a Deputy invitation of the Chairman or whomsoever is Chairman or a Managing Director, at the registered acting on his behalf, at the registered office of office of the Company or in any other place just as the Company or in any other place stated in long as it is in Italy, or whenever a meeting has been the letter of convocation, every time he requested by two Managing Partners or by at least considers it in the best interests of the two standing statutory auditors. Company, or whenever a meeting has been Board meetings shall be convened by means of a requested by one of the Managing Directors or letter, telegram, telex or fax sent to the address of by at least two standing statutory auditors. each Managing Partner and each Standing However, the Board of Directors may validly Statutory Auditor, at least five days before (or in pass resolutions, even failing any formal urgent cases at least six hours before) the day set convocation, if all the board members and all for the meeting. the standing statutory auditors in office are Meetings of the Board of Managing Partners may present. be held by teleconference or videoconference. Board meetings shall be convened by means of a In this case the following must be guaranteed: letter, telegram, telex or fax sent to the address of a) identification of all the participants at each each Director and each Standing Statutory point in the connection; Auditor, at least five days before (or in urgent

155 b) the possibility for each participant to intervene, cases at least six hours before) the day set for the to orally put forward same’s own opinion, to meeting. view, receive and transmit all documentation, as Meetings of the Board and of the Executive well as the contextuality of considerations and Committee may be held by teleconference or resolutions. videoconference. In this case the following must be The Meeting of the Board of Managing Partners guaranteed: shall be considered to be held in the place in which a) identification of all the participants at each the Chairman and the Secretary must be point in the connection; simultaneously. b) the possibility for each participant to intervene, The meetings of the Board are chaired by the to orally put forward same’s own opinion, to Chairman and, in his absence, the chair shall be view, receive and transmit all documentation, as taken by the senior in age of the Deputy Chairmen. well as the contextuality of considerations and The presence of at least half the members plus one resolutions. is necessary for the resolutions of the Board to be Meetings of the Board of Directors and of the deemed valid, and the favorable vote of the Executive Committee are considered to be held in majority of those present is required. However, for the place in which the Chairman and the Secretary the appointment of the Chairman and one or more must be simultaneously. Deputy Chairmen as well as the attribution of the The presence of at least half the members plus one position of Managing Director and for the is necessary for the resolutions of the Board to be delegation of specific powers by the Board of deemed valid, and the favorable vote of the Managing Partners to one or more of its members, majority of those present is required. In the event a favorable vote must be cast by all members in of a tie in votes, the casting vote shall be that office. of the Chairman. The resolutions of the Board, even when passed by The resolutions of the Board, even when passed by meetings held by teleconference or by meetings held by teleconference or by videoconference, are recorded in a special book videoconference, are recorded in a special book signed by the Chairman and the Secretary. signed by the Chairman and the Secretary. Any copies and extracts thereof, that have not been drawn up by a notary public, shall be certified as true copies by the Chairman. i) to amend art. 12 of the by-laws (representation of the company) as follows, assigning the number 13: Current wording Proposed wording

Article 12 Article 13 (renumbered) Legal representation of the Company vis-à-vis Legal representation of the Company vis-à-vis third third parties and in court proceedings shall be the parties and in court proceedings shall be the duty, duty, with separate and several signatory powers, with separate and several signatory powers, of the of the Chairman of the Board of Managing Chairman of the Board of Directors and, if Partners and, if appointed, of the Deputy appointed, of the Deputy Chairmen and Managing Chairmen and Managing Directors, within the Directors, within the limits of the powers granted limits of the powers granted. to them by the Board of Directors. Each one of the aforesaid shall in any case have Each one of the aforesaid shall in any case have full full powers to take legal action and file appeals powers to take legal action and file appeals before before any judicial authority and any court of any any judicial authority and any court of any degree, degree, including in revocation or cassation including in revocation or cassation (supreme court) (supreme court) proceedings, to file statements proceedings, to file statements and prosecute in and prosecute in criminal cases, to sue on behalf of criminal cases, to sue on behalf of the Company in

156 the Company in criminal proceedings, to begin criminal proceedings, to begin legal proceedings and legal proceedings and file petitions before all file petitions before all administrative jurisdictions, administrative jurisdictions, to intervene and to intervene and protect the Company’s interests in protect the Company’s interests in case of case of proceedings and claims against the proceedings and claims against the Company, Company, granting for this purpose all necessary granting for this purpose all necessary mandates mandates and powers of attorney ad litem. and powers of attorney ad litem. The Board of Directors and, within the limits of the powers granted to them by said Board, the Chairman of the Board and, if appointed, the Deputy Chairmen and the Managing Directors, are authorized to grant Managers and staff in general, and when necessary third parties, the power to represent the Company vis-à-vis third parties and in court proceedings. j) to amend art. 13 of the by-laws (compensation to the directors) as follows, assigning the number 14:

Current wording Proposed wording

Article 13 Article 14 (renumbered) The managing partners are entitled to annual The members of the Board of Directors are compensation established by the shareholders’ entitled to annual compensation established by the meeting and shall be reimbursed for all expenses shareholders’ meeting and shall be reimbursed for all incurred during the course of their duties. expenses incurred during the course of their duties. The compensation to managing partners invested The compensation to Directors invested with with special duties is established by art. 2389, special duties is established by art. 2389, paragraph 2, of the Italian Civil Code paragraph 2, of the Italian Civil Code. k) to amend art. 14 of the by-laws (resignation of the directors) as follows, assigning the number 15:

Current wording Proposed wording

Article 14 Article 15 (renumbered) In the case of the resignation from office of all the If, due to resignation or any other cause, more general partners, the company is dissolved unless the than half the Directors should leave office, partners are replaced and if the replacements have then the entire Board of Directors is not accepted the posts within a six-month period. considered to have resigned with effect as from For this period, the Board of Statutory Auditors the time of its re-constitution. appoints a temporary director to fulfil all the acts of ordinary administration. The temporary director does not assume the position of the general partner. l) to amend art. 17 of the by-laws (distribution of profits) as follows, assigning the number 18:

Current wording Proposed wording

Article 17 Article 18 (renumbered) The annual profits shall be distributed, less the The annual profits shall be distributed, less the appropriations to the reserves prescribed by law, as appropriations to the reserves prescribed by law, as follows: follows:

157 a) savings shares shall be attributed an amount of a) savings shares shall be attributed an amount of up to seven percent of their par value; if, in any up to seven percent of their par value; if, in any financial period, a dividend of less than seven financial period, a dividend of less than seven percent of the par value has been distributed to percent of the par value has been distributed to the savings shares, the said difference is the savings shares, the said difference is calculated as an increase to be added to the calculated as an increase to be added to the preference dividend during the following two preference dividend during the following two financial periods; any profits remaining after financial periods; any profits remaining after the aforesaid appropriations and provisions and the aforesaid appropriations and provisions and which the meeting resolves to distribute, shall which the meeting resolves to distribute, shall be distributed amongst all the shares in such a be distributed amongst all the shares in such a manner that the savings shares shall receive a manner that the savings shares shall receive a total dividend which is increased, compared to total dividend which is increased, compared to the dividend received by the ordinary shares, by the dividend received by the ordinary shares, by an amount equivalent to two percent of their an amount equivalent to two percent of their par value; par value; b) aside from what has been established above in b) aside from what has been established above, in respect of the total higher dividends attributed respect of the total higher dividends attributed to the savings shares, the ordinary shares shall to the savings shares, the ordinary shares shall be attributed an amount up to five percent of be attributed an amount up to five percent of their par value. their par value. The profits remaining shall be distributed among The profits remaining shall be distributed among all the shares, in addition to the attribution all the shares, in addition to the attribution referred to in the preceding letters a) and b), referred to in the preceding letters a) and b), unless the shareholders’ meeting, based upon the unless the shareholders’ meeting, based upon the proposal of the managing partners, votes special proposal of the Board of Directors, votes special appropriations to the extraordinary reserves, or appropriations to the extraordinary reserves, or other destination or decides to appropriate a part other destination or decides to appropriate a part of such profits to retained earnings. of such profits to retained earnings. In the event of distribution of reserves, savings In the event of distribution of reserves, savings shares shall have the same rights as the other shares. shares shall have the same rights as the other shares. Interim dividends can be paid, in observance of the Interim dividends can be paid, in observance of the law. law. m)to confer to the Board – and on its behalf to the Chairman, the Deputy Chairman and, if appointed, the Managing Directors, all separately, every power necessary to fulfil each formality required so that the resolutions passed can be registered in the Companies Registry, accepting and introducing in the resolutions, the modifications, additions or eliminations, formal and not substantial, eventually required by the pertinent authorities; n) to confer to the Board – and on its behalf to the Chairman, the Deputy Chairman and, if appointed, the Managing Directors, all separately, every power necessary to fulfil each and every formality connected with the eventual exercise of the right of withdrawal pursuant to art. 2437 of the Italian Civil Code.

158 A share capital increase by Pirelli & C., separable, against payment for a maximum of 1,950,355,809 ordinary shares, with free warrants attached, that can be traded separately one from the other, to be granted on option to the Pirelli & C. ordinary and savings shareholders, at the unit price equal to par value Euros 0.52 per share, in a ratio of 3 new ordinary shares cum warrants for every 1 share of any class of stock held. A consequent share capital increase, separable, against payment through the issue, at one or more times, of a maximum of 487,588,952 ordinary shares to be reserved exclusively and irrevocably for the exercise of the warrants (attached to the shares that will be issued for a maximum of 1,950,355,809 ordinary shares coming from the share capital increase in the preceding paragraph), at the unit price equal to par value Euros 0.52 per share. Consequent amendment to article 5 (share capital) of the by-laws. Approval of the “Warrants on Pirelli & C. ordinary shares 2003 - 2006” Regulations.

* * *

Report drawn up by the Directors of Pirelli & C. pursuant to art. 72, paragraph 1, Consob Regulation No. 11971 dated May 14, 1999, as subsequently amended.

Dear Shareholders,

The Directors of Pirelli & C. ask you to vote on the share capital increase that provides for:

(i) a share capital increase for a maximum of Euros 1,014,185,020.68 through the issue of a maximum of 1,950,355,809 ordinary shares, with free warrants attached, that can be traded separately one from the other, to be granted on option to the Pirelli & C. ordinary and savings shareholders, at the unit price equal to par value Euros 0.52 per share, in a ratio of 3 new shares cum warrants for every 1 share of any class of stock held, and (ii)a consequent share capital increase for a maximum of Euros 253,546,255.04 through the issue, at one or more times, of a maximum of 487,588,952 ordinary shares to be reserved exclusively for the exercise of the aforementioned warrants, at the unit price equal to par value Euros 0.52 per share.

1. Reasons and destination of the share capital increase Within the framework of the operation to simplify the controlling structure which links your Company to Pirelli S.p.A., the Board believes that the balance sheet and financial structure of Pirelli & C. should be strengthened through a capital increase, which, at this time, is the subject of the motion for a resolution, for a maximum of about Euros 1,014 million, destined to be increased to maximum of Euros 1,268 million in the event all the warrants are exercised. This increase will strengthen the balance sheet and financial structure of the industrial and financial activities of the group headed by Pirelli & C..

The following table illustrates the potential effects of the part of the present capital increase on the consolidated net financial position of Pirelli & C. calculated:

– assuming that the present capital increase is entirely subscribed to, equal to about Euros 1,014 million. The possible increase due to the future exercise of the warrants is not considered; – taking into account the purchase of 47,973,139 Pirelli S.p.A. ordinary shares from BZ Group Holding Limited for some Euros 43 million.

159 Effects on the net financial position

(in millions of euros) 12/31/2002 Proforma Effect 12/31/2002 Proforma

Short-term financial payables 1,042 (870) 172 Accrued interest expenses 50 (50) - Cash and banks (385) (385) Other short-term securities and investments (199) (199) Short-term financial receivables (228) (228) Accrued interest income (22) (22) Short-term net financial position 258 (920) (662) Medium/long-term financial payables 1,891 (51) 1,840 Medium/long-term financial receivables (93) (93) Other securities (6) (6) Medium/long-term net financial position 1,792 (51) 1,741 Total net financial position 2,050 (971) 1,079

Taking into account the above, the following resolutions are proposed: a) a share capital increase, separable, against payment for a maximum of Euros 1,014,185,020.68 through the issue of a maximum of 1,950,355,809 ordinary shares, all with a par value of Euros 0.52, with dividend rights from January 1, 2003, to be offered in option in a ratio of 3 new ordinary shares for every 1 share of any class of stock held, at a price equal to par value, for a total equivalent amount immediately of a maximum of Euros 1,014,185,020.68. Each 1 new share issued will also have 1 free warrant attached, that can be traded separately, valid for the subscription, at any time (except during the suspension period stated in the Regulations for the “Warrants on Pirelli & C. ordinary shares 2003 – 2006”, attached, - hereinafter “Warrant Regulations” from January 1, 2004 to June 30, 2006, presenting the request by June 20, 2006, of Pirelli & C. ordinary shares in a ratio of 1 new share for every 4 warrants held, at a price equal to the par value, in the manner and according to the terms indicated in the “Warrant Regulations”. The request for the listing of the warrants on the stock exchange will be made after the warrants are offered in option; b) a consequent share capital increase, separable, against payment for a maximum of Euros 253,546,255.04 through the issue, at one or more times, of a maximum of 487,588,952 ordinary shares, all of par value Euros 0.52, with normal dividend rights, to be reserved exclusively and irrevocably for the exercise of the warrants attached to the shares that will be issued as stated in the previous point a), for a further equivalent future amount of a maximum of Euros 253,546,255.04.

It should be remembered that – owing to the resolution passed to transform the legal status of the company and to change the corporate business purpose referred to in point 1 of the extraordinary session of the shareholders’ meeting – the absenting or dissenting shareholders have the right of withdrawal under art. 2437 of the Italian Civil Code, which can be exercised before the start of the option offer, taking into account what is specified in paragraphs 3, 4 and 5 of the Report on operations relating to the transformation of Pirelli & C. to a corporation and the change in the corporate business purpose. To this end, the following is stated:

(a) the valid exercise of the right of withdrawal involves the contextual loss of status as a shareholder of the Company and therefore those that exercise the right will not have the right to: (i) take part in

160 the capital increase in option nor, consequently, have the right to transfer the relative option rights, and (ii) to receive dividends relating to the year ended December 31, 2002; (b) since, at the date of this report, it is not possible to know the number of Pirelli & C. shares on which the right of withdrawal will be exercised, consequently, it is not possible to exactly determine the amount of the share capital increase. This amount will be communicated by the Company by means of a specific notice published in at lease one national newspaper before the start of the exercise period of the option rights.

Lastly, as a result of passing the resolution relating to the capital increase, art. 5 (share capital) of the by-laws will have to be amended to formally acknowledge the resolution described in this report. The same art. 5 will be further amended to take into account: (i) the updating of the amount of share capital and its composition at the date of this report, and (ii) the cancellation of the second, third and last paragraph, relating to the “Pirelli & C. 2.5% 1998 – 2003” convertible bonds, redeemed, with regard to the bonds still outstanding at that date, on January 1, 2003 (a comparison of the wording is presented in the resolutions reported below).

2. Potential existence of an underwriting syndicate Mediobanca – Banca di Credito Finanziario S.p.A. (hereinafter “Mediobanca”) stated its availability to promote the formation of an underwriting syndicate to guarantee the successful outcome of the transaction.

3. Criteria followed in arriving at the issue price and the anticipated option ratio The issue price of the new shares, as well as the price of the warrants, was determined by taking into account, among other things, the performance of the stock market price over the last three months, the structure and size of the transaction itself and the high degree of volatility and uncertainty that currently characterizes the financial markets.

4. Shareholders manifesting receptiveness in subscribing to the capital increase Cam Finanziaria S.p.A. has undertaken the commitment to exercise the option rights on the Pirelli & C. shares it owns, which, at the date of this transaction, are equal to 184,852,214 ordinary shares; the remaining participants in the Pirelli & C. voting trust have indicated their general receptiveness to subscribing prorata to the capital increase described in this report.

5. Period established for exercising the transaction As regards timing, the start of the share capital increase is expected to take place – subject to obtaining the necessary authorization and whenever the market conditions allow – in the first half of 2003, however, before perfecting the merger referred to in point 3 of the agenda of the extraordinary session of the shareholders’ meeting.

6. Date the dividend rights accrue to the new issue of shares The new issue of shares will have dividend rights from January 1, 2003.

7. Proforma income statement and balance sheet effects The condensed proforma income statement and proforma reclassified balance sheet for the year ended December 31, 2002 is presented below and has been prepared on the basis of the consolidated financial statements of Pirelli & C. at December 31, 2002. The objective of presenting proforma data is to show the income statement and the balance sheet data of the group as if the capital increase and the purchase of Pirelli S.p.A. shares from the BZ Group Holding

161 Limited had already taken place, for purposes of the income statement, at the start of the period of presentation and, for purposes of the balance sheet, at the balance sheet date.

The proforma data include: – the entire immediate subscription of the share capital increase, equal to a maximum of Euros 1,014 million. The eventual future exercise of the warrants is not taken into account; – the purchase of 47,973,139 Pirelli S.p.A. shares from BZ Group Holding Limited for a total of approx. Euros 43 million

Proforma adjustments Consolidated Share capital Purchase Total Proforma financial increase of shares adjustments consolidated Pirelli & C. from BZ pro-forma Pirelli & C. 12/31/2002 12/31/2002 pro-forma Condensed income statement

Net sales 6.718 - 6.718

Operating profit 118 - 118

Share of earnings (losses) of equity investments (175) - - (175)

Operating profit including share of earnings (losses) of equity investments (57) - (57)

Financial income (expenses) (178) 33 (1) 32 (146)

Extraordinary income (expenses) (83) - (83)

Tax expenses (87) (12) (12) (99)

Net income (loss) (405) 21 (1) 20 (385)

Net income (loss) attributable to Pirelli & C. (58) 21 (1) 20 (38)

Reclassified balance sheet

Fixed assets 6.596 - 6.596

Working capital 991 - 991

Total net invested capital 7.587 - 7.587

Shareholders’ equity 4.626 1.014 (43) 971 5.597

Provisions 911 - 911

Net financial (liquidity) debt position 2.050 (1.014) 43 (971) 1.079

Proforma income statement The “Share capital increase” column includes interest income (or lower interest expenses) as a result of utilizing the capital raised by the capital increase calculated at a rate of 3.3% and the corresponding tax effect. The “Purchase of shares from BZ” column includes interest expenses deriving from the purchase of Pirelli S.p.A. shares from BZ Group Holding Limited calculated at a rate of 3.3%.

162 Pro-forma balance sheet The “Share capital increase” column represents the effect of the share capital increase: increase in shareholders’ equity with a corresponding improvement in the net financial position.

8. Eventual share dilution The transaction for the share capital increase cum warrants described above provides the shareholder with a pre-emptive right, which, beginning from the starting date of the offer, can be traded separately from the shares ex-rights.

Since this is a capital increase in option, there are no diluting effects in terms of the percentage ownership of capital by the Pirelli & C. shareholders which decide to exercise the option.

* * *

If in agreement with our proposal, we ask you to pass the following

RESOLUTION

“The extraordinary shareholders’ meeting:

– having taken note of the report of the Directors on the proposal to increase share capital against payment;

– having taken note of the statement by the Board of Statutory Auditors that the current share capital of Euros 339,422,773.56 represented by 618,317,846 ordinary shares and 34,418,257 savings shares, all with a par value of Euros 0.52, is entirely subscribed to and paid in;

– that the Company holds 2,617,500 ordinary treasury shares not entitled to option rights, having taken into account, in determining the option ratio, the relative increment.

VOTES

1) a share capital increase, separable, against payment for a maximum of Euros 1,014,185,020.68 through the issue of a maximum of 1,950,355,809 ordinary shares, of par value Euros 0.52, with dividend rights from January 1, 2003, to be offered in option to the shareholders in a ratio of 3 new ordinary shares for every 1 share of any class of stock held;

2) to attach 1 warrant to every share referred to in the preceding point 1, that can be traded separately, valid for the subscription, at any time from January 1, 2004 to June 30, 2006, presenting the request by June 20, 2006, – on the conditions and according to the terms indicated in the Warrant Regulations – 1 new Pirelli & C. ordinary share, with normal dividend rights and a par value of Euros 0.52, every 4 warrants held, at a unit price equal to par value.

3) to consequently increase share capital, separable, against payment of a maximum par value of Euros 253,546,255.04, through the issue, at one or more times, of a maximum of 487,588,952 ordinary shares, of par value Euros 0.52 per share each, with normal dividend rights, to be reserved exclusively and irrevocably for the exercise of a maximum of 1,950,355,809 warrants in the preceding point 2;

163 4) to approve the text of the Regulations for the “Warrants on Pirelli & C. ordinary shares 2003 - 2006”, attached to the minutes of this shareholders’ meeting, taking it to be an integral part of this resolution;

5) to establish that the resolutions in the preceding points 2) and 3) are irrevocable up to the last date fixed, as set forth in the Warrant Regulations at the preceding point 4), for exercising the same warrants;

6) to amend to article 5 of the by-laws as follows:

Current wording Proposed wording

Article 5 Article 5 The share capital is Euros 339,399,636.16 divided The share capital is Euros 339,422,773.56 divided into 652,691,608 shares with a par value of Euros into 652,736,103 shares with a par value of Euros 0.52 each consisting of 618,273,351 ordinary 0.52 each consisting of 618,317,846 ordinary shares and 34,418,257 savings shares. shares and 34,418,257 savings shares. The shareholders’ meeting of May 22, 1998 voted By resolution passed by the extraordinary to increase share capital for a maximum amount of shareholders’ meeting held on December 22, 1998, Euros 33,270,858.40, represented by a maximum the Directors were granted the power to increase of 63,982,420 ordinary shares to be issued the share capital, at one or more times, by a exclusively for exercising the conversion rights maximum amount of Euros 103,291,379.81 and reserved for the holders of Pirelli & C. 2.5% 1998- for a maximum time period of five years from the 2003 bonds. date of said resolution. At the date of April 15, 2002, against the The share capital increase may be carried out by conversion of the bonds in the preceding issuing, also with a premium, both ordinary and paragraph, 54,712,354 ordinary shares were savings shares, and must be reserved for subscribed to for a total par value of Euros shareholders and/or holders of convertible bonds. 28,450,424.08. The value of share capital in the By resolution passed by the extraordinary preceding first paragraph takes account of this shareholders’ meeting held on December 22, 1998, fact. the Directors were granted the power to issue By resolution passed by the extraordinary bonds, at one or more times, including bonds that shareholders’ meeting held on December 22, 1998, are convertible both into ordinary shares or into the Directors were granted the power to increase savings shares, or bonds with warrants valid for the share capital, at one or more times, by a the subscription of said shares, for a maximum par maximum amount of Euros 103,291,379.81 and value amount of Euros 206,582,759.63 and for a for a maximum time period of five years from the maximum time period of five years from the date date of said resolution. of said resolution, with the consequent possible The share capital increase may be carried out by increase of the share capital to serve the bond issuing, also with a premium, both ordinary and conversion. savings shares, and must be reserved for The extraordinary shareholders’ meeting of shareholders and/or holders of convertible bonds. May 6, 2003, voted the following: By resolution passed by the extraordinary a) to increase share capital, against payment, shareholders’ meeting held on December 22, 1998, separable, by and no later than December the Directors were granted the power to issue 31, 2003, of a maximum of Euros bonds, at one or more times, including bonds that 1,014,185,020.68, through the issue of a are convertible both into ordinary shares or into maximum of 1,950,355,809 ordinary shares savings shares, or bonds with warrants valid for of par value Euros 0.52 each, with dividend

164 the subscription of said shares, for a maximum par rights from January 1, 2003, to be offered on value amount of Euros 206,582,759.63 and for a option to the shareholders, at a unit price maximum time period of five years from the date equal to par value, in a ratio of 3 new of said resolution, with the consequent possible ordinary shares for every 1 share of increase of the share capital to serve the bond whatsoever class of stock owned; conversion. b) to attach to each share referred to in point The amount of share capital represented by a) a free warrant, that can be traded ordinary shares will be determined in relation to separately, valid to subscribe, at any time the exercise of the right of conversion on bonds from January 1, 2004 to June 30, 2006, in a convertible to ordinary shares to which the holders ratio of 1 Pirelli & C. ordinary share, with of convertible bonds are entitled. regular dividend rights and a par value of Euros 0.52 for every 4 warrants held, at a unit price equal to par value; c) to consequently increase share capital against payment, separable, by and not later than June 30, 2006, of a maximum par value of Euros 253,546,255.04 through the issue, at one or more times, of a maximum of 487,588,952 ordinary shares, of par value Euros 0.52 each, with regular dividend rights, to be reserved exclusively and irrevocably for the exercise of a maximum of 1,950,355,809 warrants attached to the shares referred to in the preceding point b).

7) to request Borsa Italiana S.p.A. to list the warrants officially on the Mercato Telematico Azionario, authorizing the Board of Directors – and, on its behalf, the Chairman, Deputy Chairman and, where appointed, the Managing Directors, all separately – to take every act useful or necessary for obtaining the listing;

8) to grant the Board of Directors – and, on its behalf, the Chairman, Deputy Chairman and, where appointed, the Managing Directors, all separately – every and all powers to execute the resolutions to increase share capital, to be subscribed to according to art. 2439, paragraph 2, of the Italian Civil Code, by and not after December 31, 2003 with regard to the increase referred in point 1), and by and not after June 30, 2006 with regard to the increase referred to in point 3), with all the powers necessary to fulfil every act necessary and pertinent to the execution of the resolutions and in particular to: – determine the number of shares to be issued and therefore the amount of the capital increase, respecting the maximum limit voted by today’s shareholders’ meeting; – to establish the term for exercising the option rights and the offer of the unexercised rights on the stock exchange as set forth in art. 2441, paragraph 3 of the Italian Civil Code, as well as place, also with third parties, the Pirelli & C. ordinary shares with warrants that are not subscribed on the stock exchange as referred to above; – to approve every single change or addition to the Warrant Regulations referred to in the preceding point 4) which would be necessary and/or pertinent, including the determination of the number of warrants to be issued, before the same warrants are issued;

165 – to draw up and present every document required to execute the transaction voted, including the prospectus for the option offer and the prospectus for the listing of the warrants;

9) to establish that, if the capital increases have been fully subscribed to by the dates indicated in the previous point, the share capital shall be considered as increased by an amount equal to the subscriptions received;

10) to authorize the Chairman, Deputy Chairman of the Board of Directors and, where appointed, the Managing Directors, also separately, to file and publish, in accordance with the law, occasionally, the text of art. 5 of the by-laws updated with the changes relating to the issue of the shares referred to in points 1) and 3) and/or at the expiration of the dates referred in point 8);

11) to authorize the Chairman, Deputy Chairman of the Board of Directors and, where appointed, the Managing Directors, also separately, to carry out everything that is necessary or pertinent so that these resolutions can be registered in the Companies’ Registry, accepting and introducing in the resolutions, any modifications and/or additions, formal and not substantial, necessary at the time of registration and eventually required by the pertinent authorities.

166 Approval of the plan for the merger by incorporation in Pirelli & C. of Pirelli & C. Luxembourg S.p.A. (a wholly-owned subsidiary) and Pirelli S.p.A., involving among other things: (i) assignment of a maximum of 1,398,203,116 new ordinary shares and a maximum of 113,580,020 new savings shares of Pirelli & C. – with dividend rights from January 1 of the year in which the merger becomes effective with third parties – respectively to Pirelli & S.p.A. ordinary and savings shareholders in a ratio of 4 new Pirelli & C. ordinary shares for every 3 Pirelli S.p.A. ordinary shares and 10 new Pirelli & C. savings shares for every 7 Pirelli S.p.A. savings shares; (ii) Pirelli & C. share capital increase through the issue of a maximum of 1,398,203,116 ordinary shares and a maximum of 113,580,020 Pirelli & C. savings shares to service the merger with the consequent amendment to article 5 (share capital) of the by-laws; (iii) delegation to the Directors, according to article 2443 of the Italian Civil Code, of the right to increase, at one or more times, for a maximum amount of par value Euros 52,000,000.00, the share capital through the issue of ordinary shares to be granted to the managers and cadres of Pirelli & C. and its subsidiaries and the subsidiaries of the latter, in Italy and abroad, pursuant to articles 2441 and/or 2349 of the Italian Civil Code, also for purposes of maintaining the stock incentive plans of the company being merged, Pirelli S.p.A.. Consequent further amendment to art. 5 (share capital) of the by-laws; (iv) further amendment of art. 17 (distribution of profits) renumbered article 18 – of the by-laws.

* * *

Report drawn up by the Directors of Pirelli & C. pursuant to art. 2501 quater of the Italian Civil Code and art. 70, paragraph 2, Consob Regulation No. 11971 dated May 14, 1999, as subsequently amended.

Dear Shareholders,

The Directors of Pirelli & C. propose to pass a resolution on the merger by incorporation in Pirelli & C. of Pirelli & C. Luxembourg (a wholly-owned subsidiary of Pirelli & C.) and Pirelli S.p.A. (the “Merger”) on the basis of the plan of merger which you are called to approve.

You are also asked to invest the Directors with the right to increase share capital through the issue of ordinary shares to service the incentive plans approved by the Board of Directors of Pirelli S.p.A. on November 5, 2001 – in execution of which 46,829,692 options were assigned to the managers and cadres of said company and its subsidiaries and/or parent companies – and eventual new plans destined for the managers and cadres of your company and/or its subsidiaries and/or subsidiaries of the latter.

1. Description and reasons for the Merger The Merger The Merger is being proposed in order to simplify the corporate structure of the group headed by your company, by concentrating the role of holding company in the latter. In fact, Pirelli & C., after the merger of Pirelli & C. Luxembourg and Pirelli S.p.A., will find itself directly holding all the controlling investments in the various companies which form the Sectors in which the Group operates (Pirelli Cavi e Sistemi Energia S.p.A. for the Energy Cables Sector, Pirelli Cavi e Sistemi Telecom S.p.A. for the Telecommunications Cables Sector, Pirelli Tyre Holding N.V. for the Tyres Sector, in addition to Pirelli & C. Real Estate S.p.A. in

167 the real estate area) and other important investments which at the moment link Pirelli S.p.A. to Olivetti S.p.A. and therefore to the telecommunications sector.

The charts that follow depict the structure of the group headed by Pirelli & C. as of the date of this report and the structure as it will be after the Merger. The charts also indicate the percentage of ownership of ordinary share capital.

PIRELLI & C. A.P.A.

100%

PIRELLI & C. 14,2% 61,2% LUXEMBOURG S.A.

27,5%

PIRELLI & C. PIRELLI S.P.A. REAL ESTATE S.P.A.

OLIMPIA S.P.A.* 60% 100%

PIRELLI CAVI E SISTEMI PIRELLI CAVI E SISTEMI PIRELLI TYRE ENERGIA S.P.A. TELECOM S.P.A. HOLDING N.V.

* The investment holding will be reduced to 50.4% after the merger of Holy S.r.l. in Olimpia S.p.A., which will in all likelihood take place in May 2003.

POST-MERGER

PIRELLI & C. PIRELLI & C. S.P.A. 61,2% REAL ESTATE S.P.A.

OLIMPIA S.P.A.* 50,4% 100%

PIRELLI CAVI E SISTEMI PIRELLI CAVI E SISTEMI PIRELLI TYRE ENERGIA S.P.A. TELECOM S.P.A. HOLDING N.V.

168 The objectives which are meant to be pursued by the merger described above are as follows: – to maximize the market capitalization of the Group, on the one hand, eliminating investors’ uncertainty about the stock in which to invest (with positive consequences on volatility/arbitrage) and, on the other hand, offering you the possibility of exchanging your shares for shares in a larger-size company, with a broader asset portfolio, a much larger shareholder base and better features of liquidity and contendability of the underlying security; - to help focus management on the creation of value for a single shareholder group instead of two different ones; - to increase the unitariness of strategic and operational guidelines, reinforcing the internal control function across the board; - to speed up the times in the decision-making process, raising the group’s capacity to interact with the market, with strategic partners and with institutions; - to create the basis for a more flexible development and management of the assets in portfolio; - to optimize economic and financial flows within the group and with shareholders; - to simplify administrative activities, eliminating those connected with the management of a listed subholding company with its own consolidated financial statements and shareholders.

From a legal standpoint, the Merger will mean that Pirelli & C. will universally take the place of Pirelli & C. Luxembourg and Pirelli S.p.A., as a result of which your company will take over all the assets, and rights and obligations of the companies to be merged, and therefore, as an example only, all the relative property, plant and equipment and intangible assets, accounts receivable and payables accrued or due, the contract positions of the companies to be merged and, in general, the entire equity of the same companies without exclusion or limitations whatsoever.

Moreover, Pirelli & C. will replace: (i) Pirelli & C. Luxembourg as the issuer of the “Pirelli & C. Luxembourg S.A. – 5.125% Guaranteed Notes due 2009” of Euros 150,000,000 (ii) Pirelli S.p.A. as the issuer of “Pirelli S.p.A.– 4.875% Notes due 2008” of Euros 500,000,000 and (iii) Pirelli S.p.A. as the guarantor of the “Pirelli Finance (Luxembourg) S.A.– 6.50% Guaranteed Notes due 2007” of Euros 500,000,000.

Delegation of powers ex art. 2443

By virtue of the above, Pirelli & C. will universally replace, among other things, all the working relations currently existing between Pirelli S.p.A. and its employees, some of whom are beneficiaries of stock incentive plans approved by the Board of Directors of the same company on November 5, 2001. Your Directors, on one hand, wish to allow such beneficiaries to retain the rights granted and, on the other hand – also in view of the role that will be undertaken by Pirelli & C. after the Merger – to have the opportunity to study new plans for sharing in the risk capital of Pirelli & C., the features of which take into account the applicable tax legislation and tend to favor the loyalty of the employees by further developing the sense of belonging to the Pirelli Group also after the extraordinary transactions that are described in this report.

With the approval of the Merger, you are asked to invest the Directors with the right to increase, at one or more times, for a maximum par value of Euros 52,000,000.00, the share capital through the issue of a maximum of 100,000,000 ordinary shares. The authorization, if approved, will be valid up to April 30, 2008.

169 The issue price of Pirelli & C. ordinary shares to be issued under the above-mentioned authorization will be set by the Directors at the time the authorization is eventually used; in the case of shares issued against payment, the issue price will be set between the par value of the shares (equal to Euros 0.52) and the price established when the options to subscribe to the shares are granted.

Should the authorization be used completely, the shares thus issued would represent about 2.5 percent of Pirelli & C. ordinary share capital, calculated assuming the entire subscription at the present date of the capital increase referred to in point 2 of the agenda of the extraordinary session of the shareholders’ meeting and the capital increase to service the Merger.

2. Values attributed to Pirelli & C. and Pirelli S.p.A. for purposes of determining the exchange ratio Since Pirelli S.p.A., unlike Pirelli & C. Luxembourg, has other shareholders besides Pirelli & C., the Merger requires the determination of the exchange ratio of Pirelli S.p.A. shares, which will be cancelled as a result of the Merger, with Pirelli & C. shares to be assigned in substitution.

Pirelli & C. appointed Mediobanca to prepare a valuation document identifying the possible exchange ratio of Pirelli & C. shares with those of Pirelli S.p.A.. In order to ensure full transparency of the valuation activity, Pirelli & C. also availed itself of the services of Prof. Marco Reboa who verified the work performed by Mediobanca, examining the criteria and the methodologies used by Mediobanca in assigning the values.

From an economic standpoint, the relative values of Pirelli & C. and Pirelli S.p.A. were arrived at on the basis of the balance sheet data of the companies at December 31, 2002, which coincides with their respective year-ends, taking into account the following significant events subsequent to that date: (i) the purchase by Pirelli & C. of 47,973,139 Pirelli S.p.A. ordinary shares (equal to 2.5 percent of ordinary share capital) from BZ Group Holding Limited for a total price of about Euros 43.1 million; (ii) the merger of Holy S.r.l. in Olimpia S.p.A. on the basis of the agreements signed between the shareholders of Olimpia S.p.A., Olimpia S.p.A. and Hopa S.p.A. and announced to the market on December 19, 2002 (published in accordance with the law), after which Pirelli S.p.A.’s investment in Olimpia S.p.A. will be reduced from 60 percent to 50.4 percent; (iii) the proposed pay out of dividends from 2002 profits by both Pirelli & C. (Euros 0.08 per ordinary share and Euros 0.0904 per savings share, for a total of about Euros 52 million) and Pirelli S.p.A. (Euros 0.0364 per savings share for a total of about Euros 3 million), submitted to the approval of the respective shareholders’ meetings; (iv) the capital increase cum warrants offered on option to the shareholders of Pirelli & C. referred to in point 2 of the agenda for the extraordinary session of the shareholders’ meeting.

The valuation methods adopted In a merger between companies, the objective of the valuation is to determine the exchange ratio, that is, the proportion between the number of shares of the companies to be merged, destined to be withdrawn from circulation, and the number of shares that the merging company will assign to the shareholders of the company to be merged. The principal purpose of the valuations of the companies involved in the merger, therefore, is not so much the estimate of the absolute values of economic capital of the companies concerned, but rather the availability of significantly relative comparable values for purposes of determining the merger ratio.

170 The objective of the comparability of the values can also be pursued by choosing a plurality of valuation methods which make it possible to effectively express the value of the companies involved in the merger, while keeping well in mind the fact that diverse situations can be characterized by different value components according to the origin and that they therefore require a proper interpretation.

The essential features of the methods used in the valuation and the results which were obtained are presented in the following paragraph.

The Market Valuation Method The Market Valuation Method falls in the category of the so-called “direct” valuation methods, that is, methods which refer, in identifying the value of listed companies, to the effective prices expressed by the market in transactions where the subject is a portion of the capital of the company being valued. Such methods, although not unconditionally adoptable for the calculation of the absolute value of economic capitals, nevertheless constitute basic values of reference for expressing the relationship existing between the economic capitals of two listed companies. The results of the market valuation method emerge from a logical process that is different from those arrived at by analytical type valuation method based upon the explicit assumptions of the one doing the valuation. As known, if the markets were perfect, the indications of market price would eliminate the valuation processes. Therefore, in the case such as the one under examination in which the stocks of the companies in the valuation are traded on sufficiently mature markets, the prices in terms of the size of the capital outstanding and the effective volume of exchanges are significant, as well as being comparable for a sufficiently long enough period of time, then the market prices represent an essential indication in the valuation process. For the determination of the relative values of the Companies, the weighted average exchange ratios expressed by the stock market prices over one, three and six months prior to March 7, 2003 were assumed for reference. March 7, 2003 was the date after which the stocks of the Companies were temporarily suspended from trading.

The Sum of the Parts Method or Net Asset Value For purposes of the valuation of holding companies, doctrine and professional practice identify mainly two alternative procedures: – the estimate of the value of the group as a whole on a consolidated basis; – the separate valuation of the parent company and its investment holdings.

The first involves the use of the consolidated financial statements of the group and the second, instead, through the use of the so-called cascading method, involves the separate analysis of the value of the parent company and the individual holdings on the basis of their respective financial statements. The procedure based upon the consolidated financial statements makes it possible to eliminate duplications in the income statement and balance sheet values as a result of intercompany transactions and to disregard the corporate structure of the group.

Nevertheless, in the case of holding companies which hold dissimilar activities, with profiles and dynamics that are differentiated and scarcely integrated, the use of consolidated financial statements does not make it possible to appreciate the diversities existing between the various business sectors through the application of different valuation methods and parameters. Therefore, where holding companies carry out diversified operating activities, the application of valuations methods on a consolidated basis could lead to incorrect results. To obviate such inconvenience, the most frequently adopted solutions consist of the utilization of sub-consolidated financial statements for similar activities, using valuation criteria appropriate for each of the activities carried out.

171 In this particular case, taking into account the different features of the companies, such method was applied with different approaches, using the breakdown by business segment taken from the consolidated financial statements of Pirelli S.p.A. (industrial holding company) and the statutory financial statements for Pirelli & C. (investment holding company).

In particular, for Pirelli S.p.A., which because of the ample number of direct and indirect investments it represents a holding company active in various industrial sectors, the sum of the parts method was applied on the basis of sub-consolidated financial statements by similar segment of business (energy cables, telecom cables, tyres and the “holding area”). Under this procedure, suitably differentiated valuation methods and parameters were applied to the various sectors/companies in order to grasp the operating features. In particular, the three industrial sectors were valued on the basis of the respective market multiples of similarly listed companies. For the tyres business, which benefits from distinctive technologies and selective market shares, the value thus obtained was adjusted to take into account a 20% bonus. For the activities in the energy and telecom cables sectors, taking into account the negative economic conditions in the respective markets, it was decided that the results expressed by the methodology of market multiples was consistent with the market value of these activities by Pirelli S.p.A. and therefore did not require the application of a bonus.

The “holding area” was valued on the basis of the contribution made to overall consolidated shareholders’ equity, adjusted to take into account the costs which structurally accompany the operating activity of the area as well as the current value of the unconsolidated investments. As for the latter, Olimpia S.p.A. was valued on the basis of the estimate of the economic value attributed to Olivetti S.p.A. shares and convertible bonds in portfolio, increased by a 20% bonus to take into account the strategic value of the stock held by Olimpia S.p.A. in Olivetti S.p.A.. The value of the economic capital of Olivetti S.p.A. was estimated on the basis of a valuation at Net Asset Value, valuing Telecom Italia S.p.A., which constitutes the main activity of the company, using the sum of the parts method. In particular, the Wireline Telephone Division (managed directly) and TIM S.p.A. (a 56.3%-owned subsidiary), were valued on the basis of the market multiples of similarly listed companies, Telecom Italia S.p.A.’s holding in Seat Pagine Gialle S.p.A. (56.2%) was valued on the basis of the average market price for the three months preceding March 7, 2003. This valuation using the sum of the parts method resulted to be in line with the target price reported in the research reports published by the numerous financial analysts who follow the Telecom Italia S.p.A. stock. In addition to the overall value attributed to the telecommunications sector, account was also taken of the Pirelli S.p.A.’s potential liability relating to a put exercisable by shareholder financial institutions equal to 16.8 percent of Olimpia S.p.A.’s capital. This effect was quantified on the basis of the differential value between the exercise price of the put relating to the Olimpia S.p.A.’s shares and their current value, determined on the basis of the estimate just described.

The minority holdings of the Pirelli S.p.A. group in listed companies were valued at market value on the basis of the average market prices for the three months preceding March 7, 2003, the other investments in unconsolidated holdings that were not consolidated line-by-line were valued using the equity method and minor investments were valued at the balance sheet value.

For Pirelli & C., which represents an investment holding company, the assets of which consist of the holdings held in Pirelli S.p.A. (41.7 percent of ordinary share capital and 9.7 percent of savings share capital), Pirelli & C. Luxembourg (100%) and Pirelli & C. Real Estate S.p.A. (61.2%), the Net Asset Value was applied on the basis of the statutory proforma financial statements of Pirelli & C. + Pirelli & C. Luxembourg.

172 In particular, the value of the economic capital of Pirelli & C. was calculated by valuing the investment in Pirelli S.p.A. on the basis of the relative Net Asset Value, according to the methodology just described. Pirelli & C. Real Estate S.p.A., in turn, was valued, also taking into account market prices, on the basis of the relative Net Asset Value, valuing the real estate assets on the basis of an appraisal drawn up by the appraiser CB Richard Ellis, with reference to the situation at December 31, 2002, and the service activities (Service Providing and Asset Management) on the basis of the market multiples of similarly listed companies.

The minority holdings in listed companies were valued at market value on the basis of the average market prices for the three months preceding March 7, 2003, the other investments were valued using the equity method or the balance sheet value. The overall value obtained was adjusted to take into account the operating costs which structurally accompany investment holding operations.

With reference to the manner of applying the sum of the parts method, both for Pirelli & C. and Pirelli S.p.A., it should be noted that, in consideration of the strategic nature of the principal investment holdings, and therefore, under the assumption that these same investments will continue to be held, no tax effect has been applied to the unrealized gains arising from the economic valuation of the subsidiaries and the listed companies in which Pirelli & C. and its subsidiaries participate in voting trusts.

The valuation methods applied to the various sectors/companies of Pirelli & C. and Pirelli S.p.A. are therefore summarized in the following table.

Company/principal assets Valuation method Pirelli & C. 40.3% Pirelli S.p.A. NAV (compare infra) 61.2% Pirelli & C. Real Estate S.p.A. NAV Real estate properties CB Richard Ellis appraisal Services market multiples Minority holdings in listed companies average market prices Unlisted holdings equity method /cost Pirelli S.p.A. 100% Pirelli Tyre Holding N.V. market multiples + bonus 100% Pirelli Cavi e Sistemi Energia S.p.A. market multiples 100% Pirelli Cavi e Sistemi Telecom S.p.A. market multiples 50.4% Olimpia S.p.A. NAV 28.5% Olivetti S.p.A. NAV + bonus 54.9% Telecom Italia S.p.A. NAV - Wireline telephone market multiples - TIM S.p.A. market multiples - Seat Pagine Gialle S.p.A. average market prices Holding area Pirelli S.p.A. group Adjusted shareholders’ equity Minority holdings in listed companies average market prices Other unconsolidated investments equity method/cost

173 As for the assets valued using the market multiples method, the analysis consists of applying, to the company assets being valued, a series of ratios – “multiples” – between the market value of similarly listed companies (active in the same business segment) and certain income statement and balance sheet parameters related to them. In this way, a rough approximation is obtained of the value that the stock market would attribute to the company being valued, if the company were listed. The analysis of the multiples are divided into the following stages: – determination of the sample of listed companies; – determination of the timing interval of reference for the market prices (average over an interval or price at a certain date); – identification of the multiples considered most significant in the case under examination; – normalization, as far as possible, of the income statement and balance sheet data of the company being valued and the companies selected for the sample.

In this particular case, the multiples considered the most appropriate were used for the individual assets subject to valuation and in line with the most prevalently used valuation practices employed by the financial analysts of the sector.

Results The following table summarizes the values per share for Pirelli & C. and Pirelli S.p.A. obtained by applying the described methods and the relative exchange ratios, taking into account the Pirelli & C. capital increase on option and the dividends paid out of 2002 profits by Pirelli & C. and Pirelli S.p.A., expressed in terms of the number of Pirelli & C. shares for every Pirelli S.p.A. share:

Net Asset Market Valuation Method Value 1-month average 3-month average 6-month average Values per ordinary share Pirelli & C. (Euros) 0,68 0,63 0,65 0,66 Pirelli S.p.A. (Euros) 0,90 0,82 0,87 0,92 Exchange 1,32 1,30 1,34 1,38 Value per n.c. savings share Pirelli & C. (Euros) 0,62 0,58 0,59 0,55 Pirelli S.p.A. (Euros) 0,88 0,83 0,85 0,94 Exchange 1,43 1,43 1,44 1,71

3. Exchange ratio established and criteria followed in arriving at such determination For purposes of determining the exchange ratios between the Pirelli & C. and Pirelli S.p.A. stocks, your Directors have thoroughly examined the work carried out by Mediobanca and Prof. Macro Reboa and agree with the methodological approach, the criteria adopted and the conclusions. In particular, your Directors have taken into account, also as established by art. 2501 quater of the Italian Civil Code, the peculiarities and difficulties in valuing group holding companies that have industrial holdings in diverse areas and the consequent opportunity to use valuations that, although respecting the principles of uniformity and comparability of valuation criteria, made it possible to grasp the distinctive traits of each asset being valued. In light of the limited intervals identified and the basic homogeneity of the results obtained in applying the two methods under consideration, your Directors have decided to adopt the exchange ratios proposed, namely:

174 • 4 Pirelli & C. newly issued ordinary shares for every 3 Pirelli S.p.A. ordinary shares; • 10 Pirelli & C. newly issued savings shares for every 7 Pirelli S.p.A. savings shares. No cash differential is anticipated. These exchange ratios have received the consent of the directors of Pirelli S.p.A.

The newly issued Pirelli & C. shares to be used in the exchange do not carry the right to receive dividends relating to the year ended December 31, 2002 nor participate in the Pirelli & C. capital increase described at point 2 on the agenda of the extraordinary session of the shareholders’ meeting.

Fairness opinion The report on the fairness of the exchange ratio was drawn up, in the case of Pirelli & C., by PricewaterhouseCoopers S.p.A., the firm charged with the audit of the financial statements of both Pirelli & C. and Pirelli S.p.A..

Inasmuch as, pursuant to art. 158, fourth paragraph of Legislative Decree No. 58 dated February 24, 1998, the company charged with the audit of more than one of the companies in the merger can draw up the report on the fairness of the exchange ratio for only one of the merging companies, Pirelli S.p.A. will petition the President of the Milan Courts to appoint an expert as set forth in art. 2501 quinquies of the Italian Civil Code.

4. Manner of assigning Pirelli & C. shares and the date the dividend rights accrue to these shares Pirelli & C. will execute the Merger by:

– cancellation, without exchange, of the shares representing the entire share capital of Pirelli & C. Luxembourg; – cancellation, without exchange, of the Pirelli S.p.A. ordinary and savings shares that, at the date the Merger becomes effective, are owned by Pirelli & C. or Pirelli & C. Luxembourg; – cancellation, without exchange, of the shares of the company to be merged, Pirelli S.p.A., which, at the date the Merger becomes effective, are owned by the same company to be merged; – increase of its share capital for a maximum par value of Euros 786,127,230.72 through the issue of a maximum number of 1,398,203,116 ordinary shares and a maximum number of 113,580,020 non- convertible savings shares of par value Euros 0.52 each with dividend rights from January 1 of the year in which the Merger comes into effect with third parties, to be reserved for the shareholders of Pirelli S.p.A. (other than Pirelli & C. and Pirelli & C. Luxembourg) on the basis of the exchange ratios indicated in the preceding paragraph 3.

As a result, art. 5 (share capital) of the by-laws of the merging company will be amended.

The amount of the capital increase to service the exchange represents the maximum theoretical amount based upon the structure of the shareholder base as of the date of this report, assuming: (i) full exercise of the 46,154,000 “Mediocredito Lombardo Warrants – Pirelli S.p.A. ordinary shares 1998-2003”, held by a single party, valid for the subscription, in the period July 1 – July 31, 2003, of 1 Pirelli S.p.A. ordinary share for each 1 warrant held at the price of approx. Euros 3.24 per share, and (ii) full exercise of the options granted by Pirelli S.p.A. under the existing incentive plans giving the beneficiaries the right to subscribe to 46,829,692 Pirelli S.p.A. ordinary shares.

175 In order for the Pirelli S.p.A. shares, that are to be exchanged for the exchange ratio to be exactly divisible, up to a maximum of 2 ordinary shares and up to a maximum of 6 savings shares of Pirelli S.p.A. will be cancelled and made available to a shareholder. The exact amount of the shares to be cancelled will be determined at the time of signing the deed of merger, taking into account the number of Pirelli S.p.A. ordinary and savings shares held by Pirelli & C., Pirelli & C. Luxembourg and the same Pirelli S.p.A. at that date, as well as the eventual exercise of “Mediocredito Lombardo Warrants – Pirelli S.p.A. ordinary shares 1998-2003” and the eventual exercise of the options granted by Pirelli S.p.A. to the beneficiaries of the existing incentive plans.

The Pirelli & C. shares issued under the exchange ratios referred to in the preceding point 3 will be made available to those entitled, under conditions of dematerialization, through the respective authorized depositary agents registered with Monte Titoli S.p.A. beginning from the date the Merger becomes effective, if the stock market is open for trading or from the first trading day thereafter.

Where necessary, Pirelli S.p.A. will ensure, through a broker charged especially for the purpose, that shareholders can purchase or sell the minimum number of Pirelli S.p.A. shares in order to have a whole number of Pirelli & C. shares without any additional expenses, revenues stamps and commissions. This information will be announced on a timely basis through a specific notice published in at least one national newspaper.

Pirelli & C. and Pirelli S.p.A. will advise those concerned of the necessary procedures to be followed to exchange the shares after the Merger has been executed through publication of a specific notice in at least one national newspaper.

As from the date the Merger becomes effective, if the stock market is open for trading, or from the first trading day thereafter, the Pirelli S.p.A. shares of all classes of stock will be delisted from the Mercato Telematico Azionario organized and operated by Borsa Italiana S.p.A..

Pirelli & C. shares, including the new shares issued to service the exchange ratio, will continue to be listed on the Mercato Telematico Azionario organized and operated by Borsa Italiana S.p.A..

Proposal to modify the features of the Pirelli & C. savings shares The approval of the Merger on the part of the shareholders of the companies participating in the merger will entail a modification of the privileges offered by the Pirelli & C. savings shares as regards the distribution of profits. In fact, the by-laws of Pirelli & C. and Pirelli S.p.A. (and, in particular, art. 17 – which will be renumbered art. 18 following the resolutions described at point 1 of the agenda of the extraordinary session of the shareholders’ meeting – of Pirelli & C. and art. 23 of Pirelli S.p.A.) establishes a preference dividend equal to, respectively, 5 percent and 7 percent of the par value of the savings shares (Euros 0.52 for both companies) to be paid from the annual earnings calculated net of the portion to appropriate to the legal reserve. In view of the fact that the Directors believe it more advisable to choose, between the two alternatives, the one that is more advantageous to the holders of savings shares, with the approval of the Merger the shareholders are asked to amend art. 17 (renumbered art. 18) of the by-laws of your company as indicated above and as better described in paragraph 10. Therefore, beginning from the date the Merger comes into effect with third parties, the Pirelli & C. non-convertible savings shares and, therefore, also those that will be issued to service the exchange ratio, will have the same rights and the same features as the Pirelli S.p.A. non-convertible savings shares outstanding prior to the date that the Merger takes effect.

Date dividend rights accrue to shares servicing the exchange ratio The Pirelli & C. ordinary and non-convertible savings shares granted in the exchange will have dividend rights from January 1 of the year in which the Merger comes into effect with third parties.

176 5. Effective date of the Merger The deed of merger will establish the date from which the Merger will be in effect ex art. 2504 bis of the Italian Civil Code. The date could also be subsequent to the date in which the final registrations required by art. 2504 of the Italian Civil Code have been completed.

In accordance with the combined provision of articles 2504 bis, paragraph 3, and 2501 bis, paragraph 6 of the Italian Civil Code, the transactions of Pirelli & C. Luxembourg and Pirelli S.p.A. will be taken up by Pirelli & C. in its financial statements beginning from January 1 of the year in which the Merger comes into effect with third parties, and this is also the date on which the merger becomes effective for tax purposes, pursuant to art. 123, paragraph 7, of D.P.R. No. 917 of December 22, 1986 (the “Tuir”).

6. Tax impact of the Merger on the companies concerned The merger transactions are governed, from a tax standpoint, by art. 123 Tuir and Legislative Decree 358/97.

In general terms, the provisions provide for a neutral tax effect on the transaction since it does not give rise to the assumption of either the realization or the distribution of gains of the merged company.

As a result, it follows that the values fiscally recognized for the assets of the companies that are to be merged will be maintained by the merging company.

Differences upon merger The merger, since it involves the unification of the net assets of the companies participating in the transaction, can give rise to the need to make specific entries to maintain the accounting equilibrium between the values of the assets and liabilities: the surplus or deficit on merger.

From a fiscal standpoint, the merger surplus (represented by the exchange ratio and/or cancellation of the investment in the companies that were merged) is not taxable for the merging company. The merger surplus will become part of shareholders’ equity of the merging company, maintaining proportionally the same tax nature (of profits or capital) of the shareholders’ equity of the companies being merged prior to the merger.

As regards, instead, the merger deficit, under civil law, it can be used to the increase the value of the assets of the companies being merged. To this end, Legislative Decree 358/97 states that this higher value can be recognized fiscally if subjected to an equalization tax of 19 percent.

Furthermore, fiscal recognition of the merger deficit alone from the cancellation of the investment is allowed, even without paying the equalization tax, if and to the extent that the cancelled investments had given rise to gains subjected to taxes by the previous owners.

If the merger deficit is recorded in the income statement, it does not form part of the taxable income of the merging company and, therefore, should be considered non-deductible for Irpeg purposes.

Reserves in abeyance of taxation The reserves in abeyance of taxes recorded in the last financial statements of the merged companies will form part of the income of the merging company if and to the extent in which they have not been re- established in its financial statements.

177 This does not apply to reserves which are taxable only in the event of distribution (for example, the monetary revaluation reserves), which must be re-established in the equity of the merging company only if there is a merger surplus or a capital increase for a amount that is higher than the total capital of the companies participating in the merger, net of the portion of share capital of each of them already owned by the same or by the others. In this case, the reserves form part of the income of the company resulting from the merger or of the merging company in the case of the successive distribution of the surplus or the reduction of capital due to an excess.

The reserves already allocated to the capital of the merged companies shall be intended as transferred to the capital of the merging company and form part of the income in the case of the reduction of capital due to an excess.

Loss carryforwards The tax losses of the companies participating in the merger, including the merging company, can be carried forward by the merging company for the portion of their amount which does not exceed the amount of the respective shareholders’ equity, as shown in the most recent financial statements or, if lower, as shown in the balance sheet data pursuant to art. 2502 of the Italian Civil Code without taking into account the contributions and payments against capital increases made in the last twenty-four months prior to the date of the same balance sheet data.

The tax losses can, however, be carried forward on further condition that in the income statement of the company to which the losses refer, relating to the year prior to the one in which the merger was decided, the amount of revenues and the amount of expenses for personnel costs and related social security costs are 40 percent higher than those resulting from the average of the two previous years.

The losses can not, in any case, be carried forward up to the total amount of the writedowns of the shares of the merged companies deducted by the merging company or by the company which sold the shares to the merging company after the year to which the losses refer and before the deed of merger.

Effective date for tax purposes The law allows a merger to be effective for tax and accounting purposes on a date prior to that established by civil law.

Such date can not, however, be prior to the closing date of the last year of the merged companies or, if closer, the merging company.

Registration tax A fixed registration tax is applied to mergers.

Effects on the shareholders of the merged companies The exchange of the investments held by the shareholders of the merged companies with shares of the merging company is irrelevant for tax purposes since there is neither the realization or distribution of gains nor the attainment of revenues.

As regards the Merger transaction in question, the following can be said: – in view of the year-end closing date of the merged companies, the Merger will be effective for tax purposes from January 1 of the year in which the Merger itself comes into effect with third parties; – the difference on merger arising from the cancellation of the Pirelli S.p.A. shares held by the merging

178 company and the exchange of Pirelli S.p.A. shares held by third parties will be recorded for statutory purposes in the balance sheet of the merging company; – the reserves in abeyance of taxes recorded by the merged companies, which amount to Euros 45,824,199, will be recorded by the merging company by booking the merger surplus, whereas the reserve in abeyance of taxes already recorded in the capital of the merged companies, for a total of Euros 27,076,810, will be transferred to the capital of the merging company (in any case, taking into account the effects represented by the eventual withdrawal of the shareholders that has already taken place); – a fixed registration tax of Euros 129.11 will be applied to the merger, to be paid at the time of registering the deed of merger. 7. Forecast of the relevant shareholder composition and the controlling structure of Pirelli & C. after the Merger The shareholder base of Pirelli & C. as of the date of this report is as follows (information is provided on investments higher than two percent of subscribed share capital, represented by shares with voting rights, as shown in the shareholders’ register, in official information received or in other available information); also presented are the investments held by the participants of the Pirelli & C. Accomandita per Azioni Voting Trust and the Pirelli & C. treasury shares, even if less than the 2 percent threshold):

Shareholder / Declaring Party No. of Pirelli % of ordinary % of share & C. shares share capital capital Camfin S.p.A.* 184.854.284 (1) 29,90 28,32 Serfis S.p.A. 59.269.815 (2) 9,59 9,08 Assicurazioni Generali S.p.A.* 38.423.166 ( 6,21 5,89 Holding di Partecipazioni Industriali S.p.A.* 36.731.056 ( 5,94 5,63 Fondiaria – Sai S.p.A.* 34.735.046 (3) 5,62 5,32 Edizione Holding S.p.A.* 32.673.670 (4) 5,28 5,01 Mediobanca S.p.A.* 31.378.375 ( 5,07 4,81 R.A.S. S.p.A.* 31.377.170 (5) 5,07 4,81 E.Biscom S.p.A. 29.645.680 (6) 4,79 4,54 S.M.I. S.p.A.* 12.228.540 ( 1,98 1,87 Massimo Moratti* 8.120.616 (7) 1,31 1,24 Sinpar Holding S.A.* 6.115.487 ( 0,99 0,94 Pirelli & C. – treasury shares 2.617.500 ( 0,42 0,40 Other 110.147.441 ( 17,83 16,87 Total 618.317.846 ( 100,00 94,73 Savings shareholders 34.418.257 ( – 5,27 Grand Total 652.736.103 ( 100,00 100,00

Note: 1. Sum of the investment held by Camfin S.p.A. (184,852,214 shares) and by the controlling party Marco Tronchetti Provera ( 2,070 shares). 2. Of which 29,528,225 held through Serfig S.r.l.. 3. Controlling party: Premafin HP S.p.A.. 4. Controlling party: Ragione di G. Benetton & C. S.a.p.a.. 5. Controlling party: Allianz Aktiengellschaft. 6. Controlling party: Silvio Scaglia. 7. Of which 6,792,046 shares held through CMC S.p.A.. * Participants of the Pirelli & C. Accomandita per Azioni Voting Trust. The percentage of ordinary shares covered by the Voting Trust is currently equal to 56.48 percent.

179 The shareholder base of Pirelli S.p.A. as of the date of this report is as follows (information is provided on investments higher than two percent of subscribed share capital, represented by shares with voting rights, as shown in the shareholders’ register, in official information received or in other available information):

Shareholder / Declaring party No. of Pirelli S.p.A. % of ordinary % of share shares share capital capital Pirelli & C 800.191.375 (1) 41,70 39,87 Landesbank Baden Wuerttemberg 106.576.882 ( 5,55 5,31 Pirelli S.p.A. – treasury shares 163.263.699 (2) 8,51 8,13 Other (*) 849.091.765 ( 44,24 42,31 Total 1.919.123.721 ( 100,00 95,62 Savings shareholders (**) 88.006.016 ( – 4,38 Grand total 2.007.129.737 ( 100,00 100,00

Note: 1. Sum of the investment held directly (272,378,274 shares) and indirectly through Pirelli & C. Luxembourg (527,813,101 shares). 2. Of which 46,154,000 treasury shares available for eventual exercise of the “Mediocredito Lombardo Warrants – Pirelli S.p.A. ordinary shares 1998-2003”. * Camfin S.p.A. holds 37,361,855 ordinary shares (1.95 percent of ordinary share capital). ** Pirelli & C. holds 8,500,000 savings shares.

– The following table shows the anticipated composition of the Pirelli & C. shareholder base after the effective date of the Merger, calculated by assuming that: – the current shareholders of Pirelli & C. will not exercise the right of withdrawal to which they are entitled as a result of the resolutions referred to in point 1 of the agenda of the extraordinary session of the shareholders’ meeting; – the current shareholders of Pirelli & C. will participate proportionally in Pirelli & C.’s capital increase cum warrants, more fully referred to in the preceding paragraph 1 (therefore subscribing to their share of the stock and exercising the free warrants attached to the shares); – the “Mediocredito Lombardo Warrants – Pirelli S.p.A. ordinary shares 1998-2003” will not be exercised; – the options granted by Pirelli S.p.A. under the existing incentive plans which give the beneficiaries the right to subscribe to 46,829,692 Pirelli S.p.A. ordinary shares will not be exercised.

180 Shareholder / Declaring party % of ordinary % of ordinary shares shares post-capital increase post-capital and post-Merger increase / post-exercise of warrants and post-Merger Camfin S.p.A.* 20,54 21,43 (1) Serfis S.p.A. 6,17 6,50 (2) Assicurazioni Generali S.p.A.* 4,00 4,21 Holding di Partecipazioni Industriali S.p.A.* 3,82 4,03 Fondiaria – Sai S.p.A.* 3,62 3,81 (3) Edizione Holding S.p.A.* 3,40 3,58 (4) Mediobanca S.p.A.* 3,27 3,44 R.A.S. S.p.A.* 3,27 3,44 (5) Landesbank Baden Wuerttemberg 3,70 3,28 E.Biscom S.p.A. 3,09 3,25 (6) S.M.I. S.p.A.* 1,27 1,34 Massimo Moratti* 0,85 0,89 (7) Sinpar Holding S.A.* 0,64 0,67 Pirelli & C. – treasury shares 0,07 0,06 Other 42,29 40,07 Total 100,00 100,00

Note: 1. Controlling party: Marco Tronchetti Provera. 2. Also through the subsidiary Serfig S.r.l.. 3. Controlling party: Premafin HP S.p.A.. 4. Controlling party: Ragione di G. Benetton & C. S.a.p.a. 5. Controlling party: Allianz Aktiengellschaft. 6. Controlling party: Silvio Scaglia. 7. Also through CMC S.p.A.. * Participants in the Azioni Pirelli & C. Accomandita per Azioni Voting Trust.

Pirelli & C. is not aware of the existence of individuals and/or legal entities which, after the Merger, could exercise control over same.

After the Merger, and assuming the full subscription to the Pirelli & C. capital increase on option prior to the Merger (as well as the full exercise of the warrants), with no change in what was assumed above, the percentage of the total investment contributed to the Pirelli & C. Accomandita per Azioni Voting Trust (calculated on the ordinary share capital) will decrease from the current 56.48 percent to about 38.32 percent.

8. Effects of the Merger on relevant Shareholder Agreements pursuant to art. 122 of Legislative Decree No. 58 of February 24, 1998

181 Pirelli & C.

Pirelli & C. Accomandita per Azioni Voting Trust As a result of the capital increase earmarked to service the exchange ratio, and also taking into account the diluting effect of the Pirelli & C. capital increase cum warrants as referred to in point 2 of the agenda of the extraordinary session of the shareholders’ meeting, consequent to the offer of ordinary shares made also to savings shareholders, the percentage of the total investment contributed to the Voting Trust (calculated on ordinary share capital) will decrease from the current 56.48 percent to about 38.32 percent.

No other significant effects on the aforementioned voting trust are anticipated.

Pirelli S.p.A.

Agreement between Pirelli S.p.A. and Intesa Mediocredito S.p.A. and between Pirelli S.p.A. and Fondazione Cariplo Iniziative Patrimoniali S.p.A. No significant effects are expected on the above agreements, whose date of expiry (August 1, 2003) is presumably before the date that the Merger becomes effective.

Agreements between: (i) Pirelli S.p.A. and Edizione Holding S.p.A. – Edizione Finance International S.A., (ii) Pirelli S.p.A., UniCredito Italiano S.p.A. and Intesa S.p.A., and (iii) Pirelli S.p.A. Edizione Holding S.p.A. – Edizione Finance International S.A., UniCredito Italiano S.p.A., Intesa S.p.A., Olimpia S.p.A. and Hopa S.p.A. The above agreements are finalized to regulate the control and governing of the common quality of shareholders in Olimpia S.p.A., the company which holds an investment in Olivetti S.p.A.. In executing the agreement signed between Pirelli S.p.A., Edizione Holding S.p.A. - Edizione Finance International S.A., UniCredito Italiano S.p.A., Intesa S.p.A., Olimpia S.p.A. and Hopa S.p.A., the Olimpia S.p.A. shareholders’ meeting passed a resolution, on March 3, 2003, for the merger of Holy S.r.l., the wholly-owned subsidiary of Hopa S.p.A., in Olimpia S.p.A.. After this merger, 50.4 percent of Olimpia S.p.A.’s share capital will be held by Pirelli S.p.A., 16.8 percent by Edizione Finance International S.A., 16 percent by Hopa S.p.A. and 8.4 percent by UniCredito Italiano S.p.A. and Intesa S.p.A..

The Merger is not expected have any significant effects on the above agreements, except that Pirelli & C. will consequently take over the rights and obligations of Pirelli S.p.A..

Pirelli & C. Luxembourg

There are no shareholder agreements covering Pirelli & C. Luxembourg shares.

Extracts of the agreements cited in this paragraph 8, published in accordance with the law, are presented as an attachment to this report.

9. Evaluation of the Board of Directors on the eventual recourse to the right of withdrawal pursuant to art. 2437 of the Italian Civil Code The Directors of Pirelli & C. do not believe that the Merger gives rise to the right of withdrawal for the shareholders of Pirelli & C. and Pirelli S.p.A. pursuant to art. 2437 of the Italian Civil Code.

182 10. Amendments to by-laws Due to the effect of the Merger, art. 5 of the by-laws of Pirelli & C. will be amended to include the new amount of share capital and the relative number of ordinary and savings shares consequent to the assignment of the shares to service the exchange.

Art. 5 of the by-laws will be further amended to reflect the powers attributed, pursuant to ex art. 2443 of the Italian Civil Code, to the Directors, referred to the preceding paragraph 1.

A comparison of the text of art. 5 of the by-laws (as it will amended – after your approval – by the resolutions referred to in point 2 of the agenda of the extraordinary session of the shareholders’ meeting) with the text reflecting the proposal contained in this report is presented below.

Text after the eventual approval of the resolutions Text with the amendments proposed in this referred in point 2 of the agenda of the report extraordinary session of the shareholders’ meeting

The share capital is Euros 339,422,773.56 divided The share capital is Euros 339,422,773.56 divided into 652,736,103 shares with a par value of Euros into 652,736,103 shares with a par value of Euros 0.52 each consisting of 618,317,846 ordinary 0.52 each consisting of 618,317,846 ordinary shares and 34,418,257 savings shares. shares and 34,418,257 savings shares. By resolution passed by the extraordinary By resolution passed by the extraordinary shareholders’ meeting held on December 22, 1998, shareholders’ meeting held on December 22, 1998, the Directors were granted the power to increase the Directors were granted the power to increase the share capital, at one or more times, by a the share capital, at one or more times, by a maximum amount of Euros 103,291,379.81 and maximum amount of Euros 103,291,379.81 and for a maximum time period of five years from the for a maximum time period of five years from the date of said resolution. The share capital increase date of said resolution. The share capital increase may be carried out by issuing, also with a may be carried out by issuing, also with a premium, both ordinary and savings shares, and premium, both ordinary and savings shares, and must be reserved for shareholders and/or holders must be reserved for shareholders and/or holders of convertible bonds. of convertible bonds. By resolution passed by the extraordinary By resolution passed by the extraordinary shareholders’ meeting held on December 22, 1998, shareholders’ meeting held on December 22, 1998, the Directors were granted the power to issue the Directors were granted the power to issue bonds, at one or more times, including bonds that bonds, at one or more times, including bonds that are convertible both into ordinary shares or into are convertible both into ordinary shares or into savings shares, or bonds with warrants valid for savings shares, or bonds with warrants valid for the subscription of said shares, for a maximum par the subscription of said shares, for a maximum par value amount of Euros 206,582,759.63 and for a value amount of Euros 206,582,759.63 and for a maximum time period of five years from the date maximum time period of five years from the date of said resolution, with the consequent possible of said resolution, with the consequent possible increase of the share capital to serve the bond increase of the share capital to serve the bond conversion. conversion. The extraordinary shareholders’ meeting of >May The extraordinary shareholders’ meeting of May 7, 7, 2003, voted the following: 2003, voted the following: a) to increase share capital, against payment, a) to increase share capital, against payment, separable, by and no later than December 31, separable, by and no later than December 31, 2003, of a maximum of Euros 1,014,185,020.68, 2003, of a maximum of Euros 1,014,185,020.68,

183 through the issue of a maximum of through the issue of a maximum of 1,950,355,809 ordinary shares of par value 1,950,355,809 ordinary shares of par value Euros 0.52 each, with dividend rights from Euros 0.52 each, with dividend rights from January 1, 2003, to be offered on option to the January 1, 2003, to be offered on option to the shareholders, at a unit price equal to par value, in shareholders, at a unit price equal to par value, in a ratio of 3 new ordinary shares for every 1 share a ratio of 3 new ordinary shares for every 1 share of whatsoever class of stock owned; of whatsoever class of stock owned; b) to attach to each share referred to in point a) a b) to attach to each share referred to in point a) free warrant, that can be traded separately, valid a free warrant, that can be traded separately, to subscribe, at any time from January 1, 2004 valid to subscribe, at any time from January to June 30, 2006, in a ratio of 1 Pirelli & C. 1, 2004 to June 30, 2006, in a ratio of 1 ordinary share, with regular dividend rights and Pirelli & C. ordinary share, with regular a par value of Euros 0.52 for every 4 warrants dividend rights and a par value of Euros 0.52 held, at a unit price equal to par value; for every 4 warrants held, at a unit price c) to consequently increase share capital against equal to par value; payment, separable, by and not later than c) to consequently increase share capital against June 30, 2006, of a maximum par value of payment, separable, by and not later than Euros 253,546,255.04 through the issue, at June 30, 2006, of a maximum par value of one or more times, of a maximum of Euros 253,546,255.04 through the issue, at 487,588,952 ordinary shares, of par value one or more times, of a maximum of Euros 0.52 each, with regular dividend rights, 487,588,952 ordinary shares, of par value to be reserved exclusively and irrevocably for Euros 0.52 each, with regular dividend rights, the exercise of a maximum of 1,950,355,809 to be reserved exclusively and irrevocably for warrants attached to the shares referred to in the exercise of a maximum of 1,950,355,809 the preceding point b). warrants attached to the shares referred to in the preceding point b). The extraordinary shareholders’ meeting of which approved the merger by incorporation in Pirelli & C. S.p.A. of Pirelli & C. Luxembourg S.p.A. and Pirelli S.p.A. voted to increase share capital to service the exchange ratio by a maximum par value of Euros 786,127,230.72 through the issue of a maximum of 1,398,203,116 ordinary shares and a maximum of 113,580,020 savings shares of par value Euros 0.52 each with dividend rights from January 1 of the year in which the merger comes into effect with third parties, to be reserved for the shareholders of Pirelli S.p.A., other than Pirelli & C. S.p.A. and Pirelli & C. Luxembourg S.p.A., on the basis of the exchange ratio of: (i) 4 new Pirelli & C. ordinary shares for every 3 Pirelli S.p.A. ordinary shares and (ii) 10 new Pirelli & C. non-convertible savings shares for every 7 Pirelli S.p.A. non-convertible savings shares. By resolution voted by the extraordinary shareholders’ meeting of May 7, 2003, the

184 Directors were granted the power to issue, at one or more times, up to a maximum of 100,000,000 ordinary shares, by April 30, 2008, to be granted to the managers and cadres of the Company and its subsidiaries and the subsidiaries of the latter, in Italy and abroad, pursuant to articles 2441 and/or 2349 of the Italian Civil Code.

Furthermore, art. 17 (renumbered art. 18) of the by-laws of Pirelli & C. will be amended in accordance with the previous sub paragraph 4 Proposal to modify the features of the Pirelli & C. savings shares to increase the preference dividend from the current 5 percent to 7 percent of the par value of the savings to be paid from the annual earnings calculated net of the portion to appropriate to the legal reserve.

A comparison of the text of art. 18 of the by-laws (as it will amended – after your approval – by the resolutions referred to in point 1 of the agenda of the extraordinary session of the shareholders’ meeting) with the text reflecting the considerations contained in previous paragraph is presented below.

Text after the eventual approval of the resolutions Text with the amendments proposed in this referred in point 1 of the agenda of the report extraordinary session of the shareholders’ meeting

Article 18 Article 18 The annual profits shall be distributed, less the After all the appropriations to the reserves appropriations to the reserves prescribed by law, as prescribed by law have been carried out, the follows: annual profits shall be distributed as follows: a) savings shares shall be attributed an amount of a) savings shares shall be attributed an amount of up to five percent of their par value; when, in up to seven percent of their par value; if, in any any financial period, a dividend of less than five financial period, a dividend of less than seven percent of the par value has been distributed to percent of the par value has been distributed to the savings shares, the said difference is the savings shares, the said difference is calculated as an increase to be added to the calculated as an increase to be added to the preference dividend during the following two preference dividend during the following two financial periods; any profits remaining after financial periods; any profits remaining after the aforesaid appropriations and provisions and the aforesaid appropriations and provisions and which the meeting resolves to distribute, shall which the meeting resolves to distribute, shall be distributed amongst all the shares in such a be distributed amongst all the shares in such a manner that the savings shares shall receive a manner that the savings shares shall receive a total dividend which is increased, compared to total dividend which is increased, compared to the dividend received by the ordinary shares, by the dividend received by the ordinary shares, by an amount equivalent to two percent of the par an amount equivalent to two percent of their value; par value; b) aside from what has been established above in b) aside from what has been established above in respect of the total higher dividends attributed respect of the total higher dividends attributed to the savings shares, the ordinary shares shall to the savings shares, the ordinary shares shall be attributed an amount up to five percent of be attributed an amount up to five percent of their par value. their par value. The profits remaining shall be distributed among The profits remaining shall be distributed among

185 all the shares, in addition to the attribution all the shares, in addition to the attribution referred to in the preceding letters a) and b), referred to in the preceding letters a) and b), unless the shareholders’ meeting, based upon the unless the shareholders’ meeting, based upon the proposal of the Board of Directors, votes special proposal of the Board of Directors, votes special appropriations to the extraordinary reserves, or appropriations to the extraordinary reserves, or other destination or decides to appropriate a part other destination or decides to appropriate a part of such profits to retained earnings. of such profits to retained earnings. In the event of distribution of reserves, savings shares In the event of distribution of reserves, savings shares shall have the same rights as the other shares. shall have the same rights as the other shares. Interim dividends can be paid, in observance of the Interim dividends can be paid, in observance of the law. law. The above changes will become effective on the date the Merger comes into force, pursuant to art. 2504 bis of the Italian Civil Code and in accordance with that established in the plan of merger.

Attached are the plan of merger and the text of the by-laws of Pirelli & C. to be submitted to the approval of the shareholders’ meeting.

* * *

If in agreement with our proposal, we ask you to pass the following

RESOLUTION

“The extraordinary shareholders’ meeting: • having examined the plan of merger drawn up in accordance with article 2501 bis of the Italian Civil Code and the relative report of the Directors; • having taken note of the balance sheet data of the company at December 31, 2002; • having taken note of the balance sheet data of Pirelli & C. Luxembourg at December 31, 2002; • having taken note of the balance sheet data of Pirelli & C. at December 31, 2002; • having taken note of the registration of the plan of merger on the Milan Companies Registry, in accordance with art. 2501 bis of the Italian Civil Code, under date of April 3, 2003 for Pirelli & C., Pirelli & C. Luxembourg and Pirelli S.p.A., and the documentation filed as required by the provisions of art. 2501 sexies and art. 2504 quinquies of the Italian Civil Code within the terms of the law; • having taken note of the statement by the Board of Statutory Auditors which attests that the current share capital of Pirelli & C. of Euros 339,422,773.56, represented by 618,317,846 ordinary shares and 34,418,257 savings shares, all with a par value of Euros 0.52, is entirely subscribed and paid-in; • having taken note that Pirelli & C. owns 270,000 Pirelli & C. Luxembourg shares of par value Euros 680.00 each, representing the entire share capital of said company; • having taken note of the opinion of the experts, ex art. 158, paragraph 4, Legislative Decree No. 58/98, on the fairness of the exchange ratio of the shares relating to the merger by incorporation of Pirelli & C. Luxembourg and Pirelli S.p.A. in Pirelli & C. issued, pursuant to art. 2501 quinquies of the Italian Civil Code, for Pirelli & C. by PricewaterhouseCoopers S.p.A. and for Pirelli S.p.A. by Mediolanum Società Lombarda di Revisioni S.R.L. following the decree for nomination by the President of the Milan Courts; • having taken note that it would be opportune to maintain the incentive plan on behalf of the managers and cadres of the group, also after the merger and that, in the meantime, it would be opportune to confer to the Directors the possibility of studying new plans for sharing in the risk capital;

186 votes to approve the plan of merger by incorporation in Pirelli & C. of Pirelli & C. Luxembourg and Pirelli S.p.A. (attached to these minutes) as registered in the Milan Companies Registry, according to the provisions of art. 2501 bis of the Italian Civil Code, and thus, for the purpose, with no changes to any other provisions of the same plan: a) to merge by incorporation in Pirelli & C., with registered office in Milan, Via G. Negri 10, now with share capital of Euros 339,422,773.56, Pirelli & C. Luxembourg with registered office in Milan, Via G. Negri 10, with share capital of Euros 183,600,000 (a wholly-owned subsidiary of Pirelli & C.) and Pirelli S.p.A. with registered office in Milan, Viale Sarca 222, now with share capital of Euros 1,043,707,463.24, on the basis of the respective balance sheet data at December 31, 2002, with (i) cancellation without substitution of all the Pirelli & C. Luxembourg shares and without a capital increase on the part of Pirelli & C., since the latter owns the entire share capital of the merged company, (ii) cancellation without substitution of the Pirelli S.p.A. ordinary and savings shares that will be owned, at the date the merger becomes effective, by the merging company, by Pirelli & C. Luxembourg and by Pirelli S.p.A., and (iii) the increase of the capital of Pirelli & C. for a maximum par value of Euros 786,127,230.72 through the issue of a maximum of 1,398,203,116 ordinary shares and a maximum of 113,580,020 savings shares, all of par value Euros 0.52 each, with dividend rights from January 1 of the year in which the merger comes into effect with third parties, to be assigned to the third-party holders of Pirelli S.p.A. ordinary and savings shares in a ratio of 4 new Pirelli & C. ordinary shares for every 3 Pirelli S.p.A. ordinary shares and 10 new Pirelli & C. non-convertible savings shares for every 7 Pirelli S.p.A. non-convertible savings shares; b) to amend, with immediate effect, art. 5 of the by-laws, adding a new paragraph of the following nature: “the extraordinary shareholders’ meeting of May 7, 2003 which approved the merger by incorporation in Pirelli & C. of Pirelli & C. Luxembourg S.p.A. and Pirelli S.p.A. voted to increase share capital to service the exchange ratio by a maximum par value of Euros 786,127,230.72 through the issue of a maximum of 1,398,203,116 ordinary shares and a maximum of 113,580,020 savings shares of par value Euros 0.52 each with dividend rights from January 1 of the year in which the merger comes into effect with third parties, to be reserved for the shareholders of Pirelli S.p.A., other than Pirelli & C., Pirelli & C. Luxembourg and Pirelli S.p.A., on the basis of the exchange ratio of: (i) 4 new Pirelli & C. ordinary shares for every 3 Pirelli S.p.A. ordinary shares and (ii) 10 new Pirelli & C. non-convertible savings shares for every 7 Pirelli S.p.A. non-convertible savings shares”; c) to authorize, as from the date the merger becomes effective, the Directors, according to art. 2443 of the Italian Civil Code, to issue, at one or more times, up to a maximum of 100,000,000 ordinary shares, by April 30, 2008, to be granted to the managers and cadres of the Company and its subsidiaries and the subsidiaries of the latter, in Italy and abroad, pursuant to articles 2441 and/or 2349 of the Italian Civil Code, in observance of the laws existing in the countries of the beneficiaries; in the case of the bonus issue of shares, their equivalent amount should be drawn from the profits, eventually including retained earnings, resulting in the latest financial statements approved by the company; in the case of the assignment of shares against payment, their unit price shall be between the par value of the shares and the price established at the time of granting the employee the options for the subscription of the shares of the company. Consequently, art. 5 of the by-laws should further be amended by adding the following last paragraph: “By resolution voted by the extraordinary shareholders’ meeting of May 7, 2003, the Directors were granted the power to issue, at one or more times, up to a maximum of 100,000,000 ordinary shares, by April 30, 2008, to be granted to the managers and cadres of the Company and its subsidiaries and the subsidiaries of the latter, in Italy and abroad, pursuant to articles 2441 and/or 2349 of the Italian Civil Code” d) to amend, as from the date the merger becomes effective, referred to at letter a) above, art. 18 of the by- laws as follows:

187 “After all the appropriations to the reserves prescribed by law have been carried out, the annual profits shall be distributed as follows: (a) savings shares shall be attributed an amount of up to seven percent of their par value; if, in any financial period, a dividend of less than seven percent of the par value has been distributed to the savings shares, the said difference is calculated as an increase to be added to the preference dividend during the following two financial periods; any profits remaining after the aforesaid appropriations and provisions and which the meeting resolves to distribute, shall be distributed amongst all the shares in such a manner that the savings shares shall receive a total dividend which is increased, compared to the dividend received by the ordinary shares, by an amount equivalent to two percent of their par value; (b) aside from what has been established above in respect of the total higher dividends attributed to the savings shares, the ordinary shares shall be attributed an amount up to five percent of their par value. The profits remaining shall be distributed among all the shares, in addition to the attribution referred to in the preceding letters a) and b), unless the shareholders’ meeting, based upon the proposal of the Board of Directors, votes special appropriations to the extraordinary reserves, or other destination or decides to appropriate a part of such profits to retained earnings. In the event of distribution of reserves, savings shares shall have the same rights as the other shares. Interim dividends can be paid, in observance of the law.” e) to delegate to the Chairman, Deputy Chairman and, where appointed, the Managing Directors pro tempore in office, any and all powers, so that each of them, separately, and also through those holding special power of attorney, can execute the preceding resolutions, with the right to make changes in form and not substance, that might be required for purposes of registration in the Companies Registry, determining every single formality for the individual transactions according to the dictates of the plan of merger, reaching an agreement for the stipulation of the deed of merger (once the capital increase referred to in point 2 of the agenda of the extraordinary session of today’s shareholders’ meeting is carried out) and any other act inherent to and consequent thereof, agreeing, in accordance with the indications contained in the plan of merger, the terms and manner, proceeding – always in accordance with the above terms – to the issue of the new shares to execute the share capital increase to service the exchange as well as the substitution and the cancellation of the shares of the merged companies, allowing transfers, transcriptions and notes in the public registers and exonerating the Land and Property Registrar and any other Public Office from whatsoever responsibility and fulfilling all that is essential for the complete execution of the aforementioned resolutions, with all the necessary and appropriate power for this purpose, none excluded or excepted.”

The Board of Managing Partners

Milan March 11, 2003

188 Appointment of the Directors – as a result of the fact that there will no longer be the figure of general partners consequent to the transformation of the legal entity to a corporation – after establishing their number; determination of the compensation due to the directors.

As a result of the transformation of the company from a limited partnership company to a corporation, a Board of Directors will have to be appointed after determining the number of its members. To this end, the by-laws submitted for the approval of the extraordinary shareholders’ meeting established the number between seven and twenty-three members who shall remain in office for three years (unless the shareholders’ meeting fixes a shorter term of office at the time of making the appointment) and may be re- elected.

The shareholders’ meeting will also establish the compensation due to the directors.

189 Appointment of the Board of Statutory Auditors and its Chairman, establishing the compensation for the standing statutory auditors. The by-laws (article 15, renumbered 16, reported below) call for the appointment of a Board of Statutory Auditors using the mechanism of the voting list, so that the so-called minority shareholders can elect a standing statutory auditor and an alternate statutory auditor. The same provision is provided in the contents of art. 21 of the by-laws of the company being merged, Pirelli S.p.A.. The rights entailed by this provision were availed of by certain investment funds, shareholders of the company being merged, Pirelli S.p.A., representing more than 2 percent of the voting rights, which at the time of the ordinary shareholders’ meeting of May 9, 2002 presented its own list and, consequently, nominated – among the standing statutory auditors – a so-called “minority interest” statutory auditor. Conversely, no shareholder of Pirelli & C. took advantage of this right when a new Board of Statutory Auditors was elected on May 13, 2002. In view of the resolutions passed by the Board of Managing Partners on March 11, 2003 as regards the merger by incorporation of Pirelli S.p.A. and Pirelli & C. Luxembourg S.p.A. in Pirelli & C., and taking into account the above, for the sole purpose of allowing that the shareholders’ meeting of the merging company proceed to appoint a new Board of Statutory Auditors, with the consequent opportunity for the minority shareholders to present its lists, the entire Board of Statutory Auditors of Pirelli & C. decided to resign from office as from the date the merger becomes effective with third parties. Accordingly, the shareholders’ meeting is asked to proceed to appoint a new Board of Statutory Auditors.

Article 15 of the by-laws (renumbered art. 16) – Board of Statutory Auditors The Board of Statutory Auditors is composed of three standing statutory auditors and two alternate statutory auditors who must hold the requisites required by existing laws and regulations; to this end, account will be taken that the matters and sectors of business strictly inherent to those of the Company are those indicated in the corporate business purpose* with particular reference to companies or entities operating in the industrial, banking, insurance, real estate and services sectors in general. The ordinary shareholders’ meeting shall elect the Board of Statutory Auditors and determine its compensation. The minority shareholders shall appoint one standing statutory auditor and one alternate statutory auditor. With the exception of the provisions of the second last paragraph of the present article, the appointment of the Board of Statutory Auditors shall be made on the grounds of lists put forward by the shareholders in which candidates are listed under progressive numbers. Each list shall contain a number of candidates which does not exceed the number of members to be appointed. All shareholders who, alone or together with other shareholders, represent at least 2 percent of the shares with voting rights in the ordinary shareholders’ meeting, have the right to put forward a list. The lists of candidates, undersigned by the parties presenting them, must be filed at the Company’s registered office at least ten days before the day fixed for the meeting in first call. A description of the professional résumé of the individuals standing for election must be enclosed with the lists together with statements whereby the single candidates accept the nomination and attest, under their own personal responsibility, that no circumstances exist for ineligibility or incompatibility, and that they comply with requirements prescribed by law or by the articles for the position Any lists put forward which do not comply with the aforesaid provisions shall be considered not to have been put forward. Each candidate may be included on only one list, under penalty of ineligibility. Likewise, any individuals who are not in possession of the requisites established by the applicable rules and regulations or who already hold the position of statutory auditor in more than five companies with stocks listed on regulated Italian markets, with the exception of the subsidiaries of Pirelli & C. may not be appointed as statutory auditors. Each individual with voting rights may vote for only one list.

190 The election of the members of the Board of Statutory Auditors is performed as follows: two standing statutory members and one alternate member are taken from the list which has obtained the highest number of votes, in the progressive order in which they are listed thereon; the remaining standing statutory member and the other alternate member are taken from the list which has obtained the highest number of votes from the meeting after the first list, again in the progressive order in which same are listed thereon; in the event of several lists obtaining the same number of votes, a new run-off vote between the said lists will be cast by all the shareholders present at the meeting, and the candidates on the list which obtains the simple majority of the votes will be appointed. The Chairman of the Board of Statutory Auditors shall be the statutory member indicated as the first candidate on the list which obtained the highest number of votes. In case of death, waiver or resignation of a Statutory Auditor, the alternate belonging to the same list as the resigned statutory auditor shall replace him. In the event of replacement of the Chairman the Board of Statutory Auditors, the chair shall be taken by the other statutory member on the list to which the resigning chairman belonged; if it is not possible to perform substitutions and replacements as set out hereinabove, then a meeting shall be convened to integrate and complete the Board of Statutory Auditors and which shall pass resolutions with a relative majority. When the meeting has to make provisions, pursuant to the terms of the aforegoing paragraph or to the terms of law, for the appointment of statutory auditors and/or alternates needed to complete the Board of Statutory Auditors, it shall proceed as follows: if statutory auditors appointed from the majority list have to be replaced, then the appointment is made with a relative majority vote without being tied to any list; if, on the other hand, statutory auditors appointed by the minority shareholders have to be replaced, the meeting shall replace them with a relative majority vote choosing names where possible from amongst the candidates indicated on the list on which the statutory auditor to be replaced appeared. If only one single list has been put forward, then the meeting shall cast its vote in relation to that list; if the list obtains a relative majority, then the first three candidates on the list in progressive order shall be appointed as the standing statutory auditors, and the fourth and fifth candidate shall be appointed as alternate statutory auditors; Chairman of the Board of Statutory Auditors shall be the person indicated at the top of the list put forward; in case of death, waiver or resignation of a statutory auditor, and in the event of substitution of the Chairman of the Board of Statutory Auditors, they shall be replaced respectively by an alternate statutory auditor and a standing statutory auditor in the order arising from the progressive numbering of the said list. Failing any lists, the Board of Statutory Auditors and its Chairman shall be appointed by the shareholders’ meeting with the majorities prescribed by law. Resigning statutory auditors may be re-elected.

* Article 2 of the by-laws, after the amendments referred to in point 1 of the agenda of the extraordinary session of the shareholders’ meeting, states that the company will have the following corporate business purpose: a) the acquisition of participating interests in other companies or corporations, both in Italy and abroad; b) the financing, the technical and financial co-ordination of the companies or corporations in which it has interests; c) the sale, ownership, management or placement of both government and private securities.

191 REGULATIONS OF THE “WARRANTS ON PIRELLI & C. ORDINARY SHARES 2003 - 2006”

Art. 1 – Warrants on Pirelli & C. ordinary shares 2003 - 2006 The extraordinary shareholders’ meeting of Pirelli & C. S.p.A. (formerly “Pirelli & C.” accomandita per azioni), which met [o], voted, among other things, to increase the share capital against payment, separable, by a maximum par value of Euros 253,546,255.041 through the issue, at one or more times, of a maximum of 487,588,9521 ordinary shares of par value Euros 0.52 each, to be reserved exclusively and irrevocably for the exercise of the right of subscription by the holders of a maximum of 1,950,355,8091 “Warrants on Pirelli & C. ordinary shares 2003 - 2006” (the “Warrants”) attached free to a maximum of 1,950,355,809 Pirelli & C. shares, which issue was voted by the same extraordinary shareholders’ meeting.

On the basis of such resolution, the holders of Warrants will have the right to subscribe – in the manner and according to the terms indicated in these regulations – 1 Pirelli & C. ordinary share, with normal dividend rights, every 4 Warrants held, at a price equal to the par value of Euros 0.52 per share, except as provided in the following art. 3.

The Warrants are admitted to the centralized administration system of Monte Titoli S.p.A., under conditions of dematerialization, pursuant to Legislative Decree No. 213 dated June 24, 1998. The Warrants can be traded separately from the shares to which they are attached beginning from the date of issue and are freely transferable.

Art. 2 – Procedures for exercising Warrants I) the holders of Warrants can ask to subscribe at any time, except as stated in the following point V - beginning from January 1, 2004 to June 20, 2006 – Pirelli & C. ordinary shares, in a ratio of 1 new ordinary share of par value Euros 0.52 for every 4 warrants presented to be exercised, at a price equal to the par value of Euros 0.52, except as stated in the following art. 3; II) the subscription requests should be presented to the agent registered with Monte Titoli S.p.A., where the Warrants are deposited. The exercise of the Warrants will also have effect for the purposes indicated in the following point III), the tenth trading day of the stock market in the month following the presentation of the request, except for those presented between June 1 and June 20, 2006 which will have effect from June 30, 2006. On the date the exercise of the Warrants becomes effective, Pirelli & C. will proceed to issue the subscribed shares, placing the shares at the disposition of those entitled to them through Monte Titoli S.p.A.; III) the shares subscribed to by exercising the Warrants will have normal dividend rights equal to those on the Pirelli & C. ordinary shares traded on the stock market at the date the exercise of the Warrants is effective; IV) the subscription price of the shares should be entirely paid when the request to exercise the Warrants is presented, without any addition of commissions and expenses to be borne by the one making the request; V) the exercise of the Warrants will be suspended from the date the Board of Directors of Pirelli & C. calls the meeting of the Pirelli & C. ordinary shareholders up to the day (inclusive) on which the shareholders’ meeting takes place – also when convened after the first call – and, however, up to the day (inclusive) of paying the dividends eventually voted by the same shareholders’ meetings;

1 The exact amount of the capital increase and, consequently, the warrants attached to the newly issued Pirelli & C. ordinary shares, will be established once the number of Pirelli & C. shares on which the right of withdrawal was exercised is known, deriving from point 1 of the agenda of the extraordinary session of the shareholders’ meeting of May 7, 2003. The text of the present regulations will be changed accordingly.

192 VI) the Warrants which are not presented to be exercised by June 20, 2006 will be forfeit of every right and lose validity for all effects; VII) when the subscription request is presented, in addition to providing the necessary and customary information, the holder of the Warrants: (i) must take note that the shares subscribed to by exercising the Warrants are not registered under the Securities Act of 1933 and later amendments, existing in the United States of America; (ii) must declare that he/she is not a U.S. person as defined by “Regulations S”. No share subscribed by exercising the Warrants will be granted to the holders of the Warrants unless they meet the above-described conditions.

Art. 3 – Rights of holders of Warrants in the event of transactions involving the share capital of Pirelli & C. If, by June 30, 2006, Pirelli & C. executes: I) share capital increases against payment, through the issue of new shares in option, also to service the warrants valid for their subscription, or convertible bonds – direct or indirect – or with warrants, the number of shares subscribable for each warrant and the subscription price of the shares will not be changed. The holder of the Warrants, in that case, will have the right to exercise the relative subscription right before the date of convening the shareholders’ meeting called to pass the relative resolutions or before the date the right is exercised, under the assumption that the transactions will be voted by the Board of Directors; II) bonus capital increases by assigning new shares, the number of shares subscribable for each Warrant and the subscription price of each of them will not be changed. When the Warrants are exercised, as many bonus shares will be assigned as would have been assigned to the shares subscribed to by exercising the Warrants before the bonus capital increase; III) increases in the par value of the shares or decreases in the par value of the shares due to losses, neither the number of shares subscribable for each Warrant nor the subscription price of the shares indicated in the preceding art. 2 will be changed; IV) stock splits or reverse stock splits, the number of shares subscribable for each Warrant and the subscription price of the shares indicated in the preceding art. 2, consequently, will be changed;

V) changes in the provisions of its deed of incorporation concerning the distribution of profits or the incorporation of another company, neither the number of shares subscribable for each Warrant nor the subscription price of the shares indicated in the preceding art. 2 will be changed; VI) share capital increases through the issue of shares without option rights pursuant to art. 2441, paragraphs 4, 5, 6 and 8 of the Italian Civil Code, neither the number of shares subscribable for each Warrant nor the subscription price of the shares indicated in the preceding art. 2 will be changed. Should another transaction be executed, other than the ones considered in the previous points and capable of causing the same effects, the number of the shares subscribable and/or, if necessary, the price to exercise the Warrants according to generally acceptable methods will be changed.

In cases in which, as a result of the provisions of this article, the holder is not entitled to a whole number of shares at the time of exercising the Warrants, the holder will have the right to subscribe to shares up to the whole number and will have no right to the fractional part. In no case can the price for the subscription of the shares by the exercising the Warrants be lower than their par value.

193 Art. 4 – Authorized agents The transactions for exercising the Warrants will take place with authorized depositary agents registered with centralized management system of Monte Titoli S.p.A..

Art. 5 – Terms The right to exercise the Warrants must be exercised, under penalty of forfeit, by presenting the request by June 20, 2006.

Art. 6 – Tax system The gains from the sale against payment of the warrants for the subscription of investments in companies resident in Italy with stock traded on regulated markets, if not resulting from exercising arts and professions or business activity, constitutes sundry financial income subject to the substitute equalization tax. The substitute equalization tax is applied as follows:

– 27% for the sale of warrants made also with different subjects over a period of 12 months, even if falling in different tax periods, which make it possible to acquire a qualified investment as defined by art. 81, paragraph 1, letter c) of D.P.R. 917/1986 (T.U.I.R.), taking into account for this purpose the direct sales of investments and other rights made during the same 12-month period.

– 12.5% for the sale of warrants, which, always made over a period of 12 months, even with different subjects, does not make it possible to acquire a qualified investment, even together with the direct sale of investments and other rights.

Gains realized by non-resident subjects in Italy, if relating to non-qualified investments, or the sale of warrants traded on regulated Italian or foreign stock markets, are not subject to the aforementioned substitute equalization tax. Gains realized on qualified investments by the same subjects are, in any case, subject to the 27% substitute equalization tax, except for the application of more favorable treatment under double taxation avoidance agreements between Italy and the countries of resident of the payee. For additional information and details on the tax rules concerning the above-mentioned income and any relative interference with the separate rules for capital gains, reference should be made to Legislative Decree No. 461 dated November 21, 1997, as later amended, and the Tax Code (T.U.I.R.), as well as other legal and administrative rulings.

Art. 7 - Listing Borsa Italiana S.p.A. will be asked to admit the Warrants for listing on the stock exchange.

Art. 8 - Sundry All the communications between Pirelli & C. and the holders of Warrants will be made, where not otherwise provided by law, through a notice published in at least one national newspaper. The possession of the Warrants implies the full acceptance of all the conditions established in these regulations. For any controversy relating to the Warrants and the provisions of these regulations the legal jurisdiction will exclusively be the courts of Milan.

194 PIRELLI & C. ACCOMANDITA PER AZIONI VOTING TRUST AGREEMENT

1. Type of agreement and purpose The purpose of the Pirelli & C. voting trust agreement is to ensure a stable shareholder base and a uniform strategy in the management of the company.

2. Parties to the agreement and Pirelli & C. shares transferred to the voting trust:

Number of shares % of total % of total transferred shares transferred ordinary to trust to trust shares issued

CAMFIN S.p.A. 126.090.714 36,10% 20,39%

HOLDING DI PARTEC. INDUST. S.p.A. 36.583.598 10,47% 5,92%

FONDIARIA – SAI S.p.A. 34.685.046 9,93% 5,61%

MEDIOBANCA S.p.A. 31.378.375 8,98% 5,07%

EDIZIONE HOLDING S.p.A. 31.377.170 8,98% 5,07%

R.A.S. S.p.A. 31.377.170 8,98% 5,07%

ASSICURAZIONI GENERALI S.p.A. 31.377.170 8,98% 5,07%

S.M.I. S.p.A. 12.228.540 3,50% 1,98%

Massimo MORATTI (*) 8.120.616 2,33% 1,31%

SINPAR HOLDING S.A. 6.115.487 1,75% 0,99%

Total 349.333.886 100% 56,48%

(*) of which 6,792,046 shares through CMC S.p.A.

3. The party, if any, which, through the agreement, can exercise control over the company There is no party which, through the agreement, can exercise control over Pirelli & C..

4. Restrictions on the sale of the shares transferred and on the subscription and the purchase of new shares The sale of the shares to third parties (and option rights in the event of a capital increase against payment) is prohibited. Shares can be sold freely and pre-emptively to subsidiaries, according to article 2359, paragraph 1, point 1 of the Italian Civil Code, and to the parent companies as well as other participants of the voting trust. Each participant may buy or sell additional shares for an amount not in excess of the higher of 20% of the shares already transferred and 2% of the ordinary share capital issued; purchases of greater amounts are permitted only with the intent of reaching a holding equal to 5% of the ordinary share capital issued, on condition that the amount in excess of the above limits came under the voting trust. CAMFIN S.p.A. is authorized to freely purchase additional Pirelli & C. shares; it can transfer shares to the voting trust, but to the extent that, at any one time, the shares do not exceed 40% of total shares transferred by all the participants in the voting trust. This has been decided so that a stable predominate position is not assumed in the voting trust or a stable veto power is not exercised over common decisions.

5. Disposition of the shares The shares transferred shall remain at the disposition of the participants in the voting trust.

195 6. Bodies governing the agreement, criteria and manner of composition, cases when meetings are called and powers delegated The Body governing the agreement is the management of the voting trust. Management of the voting trust shall consist of a president and vice-president designated by Pirelli & C. from among its directors and by a member representing each participant unless a participant has deposited more than 10% of ordinary share capital, in which case another member may be designated: for this purpose, in the event the voting trust is composed of several companies related by a controlling relationship or belonging to the same parent company, their aggregate shall be considered for this purpose as one sole participant in the voting trust. The management of the voting trust shall be convened to evaluate the proposals to be submitted to the Shareholders’ Meetings, for the possible earlier termination of the agreement and for the admission of new participants. The Shareholders’ Meeting shall also meet at least twice a year to examine, with the directors of Pirelli & C., the semiannual performance, the annual results, the general guidelines for the company’s development, the investment policy and proposed significant divestitures. and more in general, all the relevant matters of discussion by both the ordinary and extraordinary sessions of the Shareholders’ Meetings. The agreement shall be terminated when the majority of the directors of Pirelli & C. do not share the guidelines decided by the management of the voting trust.

7. Matters covered by the agreement Those contemplated in points 4 and 6.

8. Majority vote required for decisions relating to matters in the agreement The management of the voting trust passes resolutions by casting votes in favor by the members representing at least three-fifths of the shares transferred; management of the voting trust can designate trustees to represent the shares in the voting trust at the Shareholders’ Meetings in order for voting to take place according to the instructions of the management of the voting trust. Whenever the decisions of the management of the voting trust are not voted unanimously, the dissenting participant shall have the right to freely exercise his/hers/its vote in the Shareholders’ Meeting.

9. Term, renewal and cancellation of the agreement The agreement shall be valid until April 15, 2004 and shall be tacitly renewed for a period of three years except for withdrawal, which can be exercised between December 15 and January 15 prior to the expiration date. In case of withdrawal, the shares transferred by the withdrawing party shall be automatically offered pro-quota to the other participants. The agreement shall remain in force, whenever it is possible, at every expiration date, to renew the agreement for a percentage of Pirelli & C.’s subscribed ordinary share capital of not less than 33%.

10. Penalties for breach of the commitments contained in the agreement They are not envisaged by the agreement.

11. Registration of the agreement at the Company Registry The agreement is registered at the office of the Milan Companies Registry.

Milan, December 31, 2002

196 NOTICE PURSUANT TO ART. 10, PARAGRAPH 4, LAW NO. 149 OF FEBRUARY 18, 1992 AND CONSOB RESOLUTION NO. 7835 OF MARCH 8, 1994 Pirelli S.p.A. reached an agreement for a loan of about Lire 290 billion coming from the issue of “Mediocredito Lombardo S.p.A. 1998/2003 2.2% special series bonds cum warrants for Pirelli S.p.A. ordinary shares” (the “Loan”) issued by Mediocredito Lombardo S.p.A. (“Mediocredito”) and subscribed to by Fondazione Cariplo Iniziative Patrimoniali S.p.A. (“Fondazione”). Each bond carries a “Mediocredito Lombardo Warrant - Pirelli S.p.A. ordinary shares 98-03” (the “Warrants”) to acquire at pre-fixed prices, over the next five years, up to a maximum of 46,154,000 Pirelli S.p.A. ordinary shares (the “Shares”). The Shares shall be made available by the same Pirelli S.p.A. which will draw them from the treasury shares. The Loan contains the so-called cash equivalent clause whereby Pirelli S.p.A. has the right, should Mediocredito declare that the holder of the Warrants intends to exercise them, to choose between delivering the shares or paying the difference, if positive, between the market price of the shares, in reference to the arithmetic average of the last three official prices available at the time the warrants are exercised, and the price of exercising the Warrants.

Agreement between Pirelli S.p.A. and Mediocredito Lombardo S.p.A. 1. Type of agreement and purpose Compendium agreement having the purpose of guaranteeing the issuer Mediocredito the amount of Pirelli S.p.A. ordinary shares or money needed to allow the same Mediocredito to fulfill its obligations to the carriers of Warrants at the time they are eventually exercised.

2. Parties to the agreement The parties to the agreement are Mediocredito and Pirelli S.p.A..

3. Financial instruments covered by the agreement The Pirelli S.p.A. ordinary shares covered by the agreement are a maximum of No. 46,154,000. They represent 2.44% of the ordinary share capital of Pirelli S.p.A. as of today’s date.

4. The party, if any, which, through the agreement, can exercise control over the company There is no party which, through the agreement, can exercise control over Pirelli S.p.A..

5. Restrictions on the sale of the shares There are no restrictions whatsoever on the Shares or destined in any way whatsoever to limit their disposition.

6. Disposition of the shares The Shares shall remain at the disposition of Pirelli S.p.A..

7. Bodies governing the agreement They are not envisaged by the agreement.

8. Matters covered by the agreement. Those covered in paragraph 1.

197 9. Term, renewal and cancellation of the agreement The agreement runs until the expiration date for the exercise of the Warrants (July 31, 2003) and it is not renewable nor is it subject to cancellation or withdrawal.

10. Penalties for breach of the commitments contained in the agreement They are not envisaged by the agreement.

Agreements between Pirelli S.p.A. and Fondazione Cariplo Iniziative Patrimoniali S.p.A. 1. Type of agreement and purpose Pre-emptive agreement having the purpose of guaranteeing Pirelli S.p.A., or parties indicated by it, the pre- emptive right to acquire the Warrants (or the rights to the Warrants) assigned, at issue, to the Loan.

2. Parties to the agreement The parties to the agreement are Fondazione and Pirelli S.p.A..

3. Financial instruments covered by the agreement Warrants covered by the agreement are a maximum of No. 46,154,000. In the event the Warrants are exercised, they give the right to acquire Shares representing 2.44% of the ordinary share capital of Pirelli S.p.A. as of today’s date.

4. The party, if any, which, through the agreement, can exercise control over the company There is no party which, through the agreement, can exercise control over Pirelli S.p.A..

5. Restrictions on the sale of the warrants. There are no restrictions whatsoever on the Warrants or destined in any way whatsoever to limit their disposition. The sale of the Warrants, or the rights to them, to subsidiaries as set forth by art. 2359, paragraph 1, point l, of the Italian Civil Code and to the parent companies of the Fondazione, is freely permitted; to third parties it is allowed by pre-emption; to commercial competitors of Pirelli S.p.A. it is permitted with approval.

6. Disposition of the warrants The Warrants remain at the disposition of the holders.

7. Bodies governing the agreement They are not envisaged by the agreement.

8. Matters covered by the agreement. Those covered in paragraphs 1 and 5.

9. Term, renewal and cancellation of the agreement The agreement runs until August 1, 2003; it is not renewable nor is it subject to cancellation or withdrawal.

198 10. Penalties for breach of the commitments contained in the agreement They are not envisaged by the agreement.

Milan, December 15, 1998

Notice pursuant to art. 122 of Legislative Decree No. 58 of February 24, 1998 and the regulation for its introduction adopted with Consob resolution No. 11971 of May 14, 1999 (and subsequent amendments) Agreement between Pirelli S.p.A. and Fondazione Cariplo Iniziative Patrimoniali S.p.A. (the extract of which was published in the Press on December 15, 1998)

Be it communicated, that in accordance with above provisions, that the agreement between Pirelli S.p.A. and Fondazione Cariplo Iniziative Patrimoniali S.p.A., has been renewed, in accordance with the original wish of the contracting parties, up to August 2003. At this time, be it furthermore communicated, that also the agreement between Pirelli S.p.A. and Mediocredito Lombardo S.p.A. (which was taken over, in the meantime, by IntesaBci Mediocredito S.p.A.) will be binding up to August 2003. The above agreements have been filed with the Milan Companies Registry.

Milan, December 22, 2001

199 AGREEMENT BETWEEN PIRELLI S.P.A. AND EDIZIONE HOLDING S.P.A. – EDIZIONE FINANCE INTERNATIONAL S.A.

Notice published according to article 122 of Legislative Decree No. 58 dated February 24, 1998 and to the regulation for its introduction adopted with Consob’s resolution No. 11971 of May 14, 1999 (and subsequent changes)

Provided that: • Registry under tax code and VAT No. 00886890151 hereafter referred to as “Pirelli”), and Edizione Holding S.p.A. (with registered offices in Treviso, at Calmaggiore 23, registered in the Treviso Companies Registry under tax code No. and VAT No. 00778430264 hereafter referred to as “Edizione”) executed on August 7, 2001 an agreement in order to govern as shareholders a vehicle company designated specifically for the acquisition from BELL S.A. and other parties of No. 1,552,662,120 ordinary shares (the “Shares”) and No. 68,409,125 “warrants ordinary shares Olivetti 2001-2002”(“Warrants” and together with the Shares, the “Investment”) of Olivetti S.p.A. (hereafter “Olivetti”); • On August 9, 2001, Edizione and Pirelli transferred to Olimpia S.p.A. (with registered offices in Milan, at Viale Sarca 222 “Newco” or “Olimpia”) respectively No. 134,322,250 and No. 130,980,000 Olivetti ordinary shares, equal, respectively, to 1.84% and to 1.80% of Olivetti share capital with voting rights; • On August 9, 2001, an additional No. 147,337,880 of Olivetti ordinary shares were transferred to Newco that Pirelli purchased, through a subsidiary, from Bell S.A. and from another party on July 30, 2001 (equal to 2.02% of Olivetti share capital with voting rights); • Effective August 7, 2001, Edizione Finance International S.A. (a subsidiary of Edizione) took over the rights and obligations of Edizione under the Agreement as defined below; • Pirelli, Edizione and Edizione Finance International S.A. (the “Parties” and individually the “Party”) on September 14, 2001 signed an amendment, publicly announced on September 22, 2001, in accordance with existing laws. Moreover: • the Parties, on February 13, 2002, stipulated a second amendment to the Agreement, which is underlined in bold later in the report in the paragraph “Further commitments of the parties”, so that the Parties may purchase (and eventually convert) convertible bonds into Olivetti shares (hereafter referred to as the “Bonds”). The entire agreement is summarized below, specifying that Olimpia’s investment in the share capital of Olivetti is equal to approximately 28.7%.

1 Content of the agreement Purpose and content of the agreemen The Parties have reached an agreement (the “Agreement”) as to the criteria governing the shareholders of a specifically identified vehicle company (Olimpia) for the acquisition of the Investment from BELL S.A. and/or other parties designated by it. Transfer of Olivetti shares to Newco The Investment shall be transferred to Newco. Share capital of Newco Newco’s share capital is 80% held by Pirelli and 20% by Edizione. Pirelli will have the right, with prior consent from Edizione, to sell up to 20% of the share capital of Newco to one or more parties.

200 Shareholders’ Meeting, Board of Directors and Board of Statutory Auditors of Newco The By-laws of Newco state that the Extraordinary Shareholders’ Meeting shall pass resolutions with 81% of the share capital casting a vote in favor both in first and second call. The Board of Directors of Newco shall be formed by ten members nominated by voting list. Edizione will have the right to nominate two directors. Pirelli agrees to do everything in its power so that, within the limits of law, no decision shall be made by the Board of Directors of Newco without a vote cast in favor by at least one of the board members appointed by Edizione (if present) on certain key issues such as: • an indication of the vote to be expressed in the Ordinary and Extraordinary Shareholders’ Meetings of Olivetti; • the purchase, sale or acts to dispose in any manner of investments with a total value greater than Euros 100,000,000 per single transaction. The Parties hereby agree to do everything in their power so that one acting statutory auditor and one alternate statutory auditor of Newco shall be named by Edizione. Corporate boards of Olivetti and its listed subsidiaries, resolutions passed by the Board of Directors of Olivetti and its listed subsidiaries The Parties agree to do everything in their power, within the limits of law, so that, as regards the directors of Olivetti S.p.A., Telecom Italia S.p.A., TIM – Telecom Italia Mobile S.p.A. and Seat Pagine Gialle S.p.A. (hereinafter “Listed Companies”), Edizione may designate one-fifth of the available members of the Boards of Directors for nomination (net of the directors nominated by the market and government entities) and the Deputy President with vice-representation in the aforementioned companies. • For the entire term of this Agreement, Edizione agrees not to present opposition to the fact that the members of the Board of Directors of Listed Companies and the subsidiaries not named by Edizione, the market, or government agencies, shall be named by Pirelli. • The parties agree to do everything in their power so that no decision shall be made by the Board of Directors of Olivetti and Listed Companies without a vote cast in favor by at least one of the board members named by Edizione on the following points of business: – individual investments greater than Euros 250 million; – purchase, sale and acts to dispose for any reason whatsoever of subsidiary or affiliate investments with a unit value of greater than Euros 250 million; – acts to dispose for any reason whatsoever of companies or business segments individually greater than Euros 250 million; – proposals to call the Extraordinary Shareholders’ Meeting; – infragroup transactions between the Olivetti group and the Pirelli group for amounts individually greater than Euros 50 million; – related party transactions.

Penalty The breach of the provisions of this Agreement shall cause the breaching party to pay to the complying party a penalty equal to 10% of the principal amount invested by the complying party, including the right to higher damages. Term This Agreement shall run for three years and shall be deemed to be tacitly renewed on each expiration date unless notice of withdrawal has been given by Edizione 6 (six) months in advance. Further commitments of the Parties The Agreement provides that the Parties and/or their subsidiaries or parent companies pursuant to article 2359, paragraph 1 of the Italian Civil Code may not purchase further shares or bonds which may be

201 converted into Olivetti shares. Nevertheless, the Parties may, with prior notice to the other party, purchase bonds; the Party which holds the bonds may exercise the conversion right, with prior notice of 60 days to the other party, only to the extent that the amount of the Olivetti shares coming from the conversion (eventually increased by the numbers of Olivetti shares owned at the same date, coming from prior conversion), does not exceed after conversion, the percentage of the Olivetti share capital corresponding to the difference between 28.74% and the percentage of Olimpia’s investment in the share capital with voting rights in Olivetti at the time of conversion. Such limit may be exceeded with the consent of the other Party within the applicable threshold for Takeover Bids (OPA). In this case, the Party which has exercised the conversion right shall have the obligation to sell to the other Party, if requested, shares of the same nature and typology of those coming from the exercise of the conversion of the Bonds, to the extent that such shares shall be divided between the Parties in relation to the original proportion of the Investment by the Parties in the share capital of Olimpia: Pirelli 80% and Edizione 20%. In the event that third parties should make a Takeover Bid (OPA) for Olivetti, Edizione hereby agrees, when so requested by Pirelli, not to oppose Newco’s acceptance of the OPA. In the event of non-renewal of the Agreement upon expiration by Pirelli, Edizione shall have the right to sell to Pirelli, which shall have the corresponding obligation to buy, all of its Newco shares. The Agreement in addition provides for the terms and conditions to overcome a deadlock situation in Newco or in the Board of Directors of the Listed Companies which are resolved as follows: (i) Edizione shall have the right to sell to Pirelli, which shall have the corresponding obligation to purchase all the Newco shares; ii) Pirelli shall have the right to purchase from Edizione, which shall have the corresponding obligation to sell all the Newco shares. The by-laws of Newco shall provide for a pre-emptive right in case of acts for disposal which will cause a direct or indirect transfer of Newco’s shares and, in accordance with the pre-emptive right, a co-sale right in favor of the minority shareholder/s/ where Newco’s shares are offered to third parties by the majority shareholder (50.01%). Whenever, during the term of this Agreement, following one or several acts inter vivos carried out for whatsoever reason, there occurs, with reference to the situation that existed at the time the agreement was signed, a material change in the controlling structure of Edizione or Pirelli (including Pirelli & C Accomandita per Azioni for these purposes), meaning that parties other than those currently having the power may nominate the majority of the members of the governing body with a subsequent possible change in the strategic guidelines, this will constitute a “Key Event”. In the presence of a Key Event concerning one Party, the other Party shall have the right to transfer all of its Newco shares to the party which caused the Key Event to occur.

2 Registration at the office of the Companies Registry The Agreement is registered at the office of the Milan and Turin/Ivrea Companies Registry.

February 21, 2002

202 AGREEMENT BETWEEN PIRELLI S.P.A., UNICREDITO ITALIANO S.P.A. AND INTESABCI S.P.A

Notice published according to article 122 of Legislative Decree No. 58 dated February 24, 1998 and to the regulation for its introduction adopted with Consob’s resolution No. 11971 of May 14, 1999 (and subsequent changes)

Considering that: Pirelli S.p.A., IntesaBCI S.p.A. and Unicredito Italiano S.p.A. on October 24, 2001 have agreed to amend this Agreement, underlined in bold in paragraph 11, Further Commitments points 11.1 and 11.2 such as to allow the Parties to subscribe to bonds convertible into Olivetti shares and/or warrants with rights to acquire shares and/or bonds convertible into Olivetti shares, the entire agreement is summarized below, which has been updated, and reports the data relating to the investment held by Olimpia in Olivetti (paragraph 1, Purpose and content of the agreement) and the equity interest of the shareholders in Olimpia (paragraph 2, Olimpia’s share capital).

1. Purpose and content of the Agreement The Parties as defined herein, have reached an agreement (the “Agreement”) regarding the entry of Unicredito Italiano S.p.A. (”UCI”) and IntesaBCI S.p.A. (“BCI”, BCI and UCI together “the New Shareholders”, each of the New Shareholders individually the “New Shareholder” and the New shareholders jointly with Pirelli “the Parties”) in Olimpia’s S.p.A. share capital (“Olimpia” or “Company”) and the criteria of the management and rules concerning their quality as Olimpia’s shareholders. Olimpia currently owns overall No. 2,019,302,250 Olivetti S.p.A. ordinary shares (“Olivetti”), equal to approximately to 27.7% of Olivetti share capital and No. 68,409,125 warrants Olivetti ordinary shares 2001-2002.

2. Olimpia’s share capital Olimpia’s share capital is divided as follows: 60% Pirelli, 20% Edizione Finance International S.A. 10% UCI (“Olimpia UCI Investment”) and 10% BCI (“Olimpia BCI Investment”).

3. Olimpia’s Board of Directors 3.1 It is understood that, within the limits allowed by law and for the entire term of this Agreement: (i) the Board of Directors of the Company will be made up of 10 (ten) members; (ii) 1 (one) director out of 10 (ten) shall be appointed at the request and upon indication of UCI; (iii) 1 (one) director out of 10 (ten) shall be appointed at the request and upon indication of BCI; (iv) should an Executive Committee be instituted, UCI and BCI will have, respectively, the right to request at any time the inclusion of the directors designated by them in said committee. 3.2 It is understood that the power of UCI and BCI to designate, each, a member of the Board of Directors of the Company will remain valid even after the first expiration of this Agreement, if it is extended pursuant to Art. 8.1 (a), provided UCI and BCI hold, jointly, a percentage of the company’s share capital above 10%. However, if the joint holding of BCI and UCI in the company’s share capital is 10% or less, then BCI and UCI may designate, jointly, only one director.

4. Composition of the Board of Directors in Olivetti, Telecom Italia S.p.A. (“Telecom”), Seat- Pagine Gialle S.p.A. (“Seat”) and Telecom Italia Mobile S.p.A. (“TIM”) 4.1 It is understood that, within the limits allowed by law and for the entire term of this Agreement, in the Board of Directors of Olivetti, Telecom, Seat and TIM (the “Olivetti Companies”), one director must be appointed at the request and upon designation of UCI and another director at the request and upon designation of BCI.

203 4.2 It is understood that the power of UCI and BCI to designate, each, a member of the Board of Directors of the Olivetti Companies will remain valid even after the first expiration of this Agreement, if it is extended pursuant to Art. 8.1, provided UCI and BCI hold, jointly, a percentage of the company capital above 10%. However, if the joint holding of BCI and UCI in the company capital is 10% or less, then BCI and UCI may designate, jointly, only one director.

5. Key Issues Pursuant to Art. 6 below, the following shall be deemed Key Issues: a) the decisions of the Extraordinary Shareholders’ Meeting and those of the Board of Directors of the Company, the latter referring to the following: – indication as to how to vote in Olivetti’s Ordinary Shareholders’ Meeting on Key Issues, for the purposes of the application of Articles 104 or 107 T.U. No. 58 of February 24, 1998, and in matters of acquisition of treasury shares, as well as voting in Olivetti’s Extraordinary Shareholders’ Meeting; – acquisition, sale and acts of disposal under any status (i) of treasury shares in any amount and (ii) holdings (including shares and financial instruments of any type issued by Olivetti and/or the Olivetti Companies) at a value, by individual transaction, greater than Euros 100 million; – determination of the ratio between equity and debt of the Company and methods, terms and conditions for resorting to outside financing sources; – draft proposals to be submitted to the Company’s Extraordinary Shareholders’ Meeting; b) resolutions of the Board of Directors of Olivetti and Telecom, referring to: – individual investments greater than Euros 300 million; – acquisition, sale and acts of disposal under any status (i) of treasury shares in any amount and (ii) affiliate and subsidiary holdings (including shares and other financial instruments issued by the Company or the Olivetti Companies) at a value, by individual operation, greater than Euros 300 million; – acts of disposal under any status of companies or business segments thereof, with an individual value greater than Euros 300 million; – proposals to call the Extraordinary Shareholders’ Meeting for resolutions in matters of modification of the corporate purpose, transactions involving share capital of any nature, merger, spin-off, transformation and dissolution; – transactions between Olivetti, Telecom and the Pirelli Group, with an individual value greater than Euros 50 million; – related party transactions.

6. Provisions on Deadlock 6.1 Obligation to Consult Pirelli and the New Shareholders, the latter jointly between them, pledge to consult each other previously whenever a decision on one of the Key Issues, identified in paragraph 5, must be discussed or decided upon. 6.2 Manifestation of Will Whenever, in the previous consultation referred to in paragraphs 6.1 above, Pirelli and the New Shareholders did not reach an agreement concerning the issues under consultation, the dissenting New Shareholders, separately or jointly, will have, or the single dissenting New Shareholder will have, the right to send to Pirelli, by telegram or registered letter, pursuant to paragraph 12.02, a “Notice of Deadlock” within 15 (fifteen) days of the end of the consultation referred to in paragraph 6.1.

204 6.3 Rights of the New Shareholders. (a) Whenever UCI and/or BCI send a Notice of Deadlock, the New Shareholder which sent the Notice of Deadlock will have the right to sell to Pirelli, which will have the corresponding obligation to buy from the respective New Shareholder, respectively, all but not part of the Olimpia UCI Investment and/or all but not part of the Olimpia BCI Investment at a price determined pursuant to the provisions in item (b) below. (b) For the purposes of item (a) above, the Parties agree, including in an aleatory manner, that the object of the decision must be: (x) the price of the Olimpia BCI Investment and/or Olimpia UCI Investment, corresponding proportionately to the value of the Company’s economic capital (“Price of the Olimpia UCI Investment” and/or “Price of the Olimpia BCI Investment”), as well as (y) an increase expressing the proportion of the increase premium, as if the Olimpia BCI Investment and/or Olimpia UCI Investment were the expression of Olivetti’s control, assuming that the latter controls Telecom and the companies controlled by the latter (“Premium”). (c) the price owed by Pirelli will not be lower than the amounts paid by the New Shareholder for the acquisition and subscribing of shares in the Company, less any dividends received (“Floor”), nor higher than an amount which implies, in connection to the same amounts, less any dividends received, an annual IRR, including taxes, equal to 15% (“Cap”).

7. Penalty In the event of breach of one or several commitments made pursuant to the provisions of this Agreement, the breaching Party, at the simple written request of the Parties or of the other Party, and without prejudice to any other of its/their rights (including the right to higher damages), will be obligated to pay, as penalty, to the complying Party or complying Parties, a single and total amount equal, for each breach, to 5% (five percent) of the amounts paid by the breaching Party for the acquisitions and subscriptions of shares made in the Company as of that date.

8. Term 8.1 This agreement will have a term of three years from October 5, 2001 (Effective Date) and will be deemed tacitly renewed from time to time on expiration for the following two years, in the absence of an opt-out notice from one of the Parties, without prejudice to the provisions of point 9. below. 8.2. Except in the cases required by law, each of the Parties may opt out of this Agreement before every expiration, with notice sent 6 (six) months in advance.

9. Absence of Renewal (a) If, before the first expiration of this Agreement or successive ones, Pirelli should send to the New Shareholders, jointly or separately, the opt-out notice referred to in point 8.2 above, UCI and BCI will individually have the right to send to Pirelli which, upon simple request, will have the corresponding obligation to acquire, respectively, all but not part of the Olimpia UCI Investment and Olimpia BCI Investment held by the New Shareholders which exercised the option right set forth herein, under terms and conditions determined, mutatis mutandis, pursuant to paragraph 6.3 (b) above (and the provisions mentioned therein), giving notice to Pirelli within 30 (thirty) Business Days, notwithstanding paragraph 6.3(c). The above price will be paid in cash. (b) If, on the first expiration date of this Agreement, both or one of the New Shareholders should, jointly or separately, send to Pirelli, the opt-out notice in the terms set forth in paragraph 8.2 above, Pirelli will have the right to acquire from both New Shareholders opting out, or from the single New Shareholder opting out, which, upon simple request, will have the corresponding obligation to sell, respectively, all but not part of the Olimpia UCI Investment and Olimpia BCI Investment held by the New Shareholders

205 which exercised the opt out right set forth herein, under terms and conditions determined, mutatis mutandis, pursuant to paragraph 6.3(b)above (and the provisions mentioned therein), less the Premium, giving notice to the New Shareholders which sent the opt-out notice, within 30 (thirty) Business Days. (c) If, both or one of the New Shareholders should send to Pirelli, at the expiration of the first renewal for the following two years, the opt-out notice referred to in paragraph 8.1, and therefore, on the expiration of the fifth year after the effective Date of this Agreement, or on the successive additional expiration dates, both New Shareholders opting out, jointly or separately, or the single New Shareholder opting out, will have the right to sell to Pirelli, which, upon simple request, will have the corresponding obligation to acquire, respectively, all but not part of the Olimpia UCI Investment and/or all but not part of the Olimpia BCI Investment held by the New Shareholders which exercised the opt out right set forth herein, under terms and conditions determined, mutatis mutandis, pursuant to paragraph 6.3 (b) above (and the provisions mentioned therein), giving notice to the New Shareholders that sent the opt- out notice, within 30 (thirty) Business Days notwithstanding paragraph 6.3(c).

10. Changes in shareholder base 10.1 For the purposes of this paragraph, “Change of Control” means a substantial modification in the direct and indirect shareholder control base of Pirelli, which means the stoppage of the control of Pirelli & C. Accomandita per Azioni over Pirelli S.p.A., as exercised today. 10.2 If the Change of Control occurs, each of the New Shareholders will have the right to transfer, respectively, all but not part of the Olimpia UCI Investment and/or all but not part of the Olimpia BCI Investment owned by Pirelli which, upon simple request, will have the obligation to acquire, under terms and conditions determined, mutatis mutandis, pursuant to paragraph 6.3 (b) above (and the provisions mentioned therein), giving notice to Pirelli within 30 (thirty) Business Days of the date the New Shareholders, separately or jointly, declared in writing that they have learned about the Change of Control, or received written communication about this circumstance. It is, however, agreed, including in an aleatory manner, that the price owed by Pirelli will not be lower than the amounts paid by the New Shareholder for the acquisitions and subscriptions of shares in the Company, less any dividends received (“Floor”), nor higher than an amount which implies, in connection to the same amounts, less any dividends received, an annual IRR, including taxes, equal to 15% (“Cap”). 10.3 If Pirelli intends to divest, in any form, part of its investment in the Company, so that Pirelli would hold less than a majority of the capital thereof, Pirelli may not sign any agreement in this sense, being first obligated to give prior timely notice to both the New Shareholders about the planned transfer, fully indicating the terms and conditions of the transfer operation and any possible outside agreements (of blockage and vote) with the buyers. 10.4 Within 30 (thirty) Business Days of receipt of the aforementioned communication, UCI and/or BCI will, individually, have the right to sell to Pirelli, which, upon simple request, will have the corresponding obligation to acquire, respectively, all but not part of the Olimpia UCI Investment and/or all but not part of the Olimpia BCI Investment held by the New Shareholders that exercised the Option Right set forth herein, under terms and conditions determined, mutatis mutandis, pursuant to paragraph 6.3 (b) above, with the understanding, including in an aleatory manner, that the price owed by Pirelli will not be lower than the amounts paid by the New Shareholder for the acquisitions and subscriptions of shares in the Company, less any dividends received (“Floor”).

11. Further commitments 11.1 For the entire term of the Agreement, the Parties agree, also through their subsidiaries and/or parent companies according to article 2359, paragraph 1, of the Italian Civil Code, that they shall neither acquire nor hold Olivetti ordinary shares (including those deriving from the conversion of

206 convertible bonds and/or the exercise of the Warrants). Nonetheless UCI and BCI are allowed to acquire and to hold such securities within the maximum limit of 0.40% of the Olivetti’s capital for each of them. 11.2 The Company, save for different agreements among the Parties, may not acquire Olivetti ordinary shares (neither exercise the conversion rights, nor acquire or subscribe Olivetti ordinary shares as per paragraph 11.1) in such a measure as to exceed the takeover threshold currently at 30% (thirty percent) and also taking into account, for this purpose, the impact of the securities described in paragraph 11.1 held by BCI and UCI and the treasury shares owned directly and indirectly by Olivetti, according to the provisions of the law and regulations in force, including the rules issued by Consob.

12. Disputes Any dispute arising from this Agreement will be submitted to the unappealable judgement of an Arbitration Board.

13. Registration of the agreement at the Companies Registry The agreement is registered at the office of the Milan and Turin/Ivrea Companies Registry.

Milan, November 3, 2001

207 AGREEMENT BETWEEN PIRELLI S.P.A. - EDIZIONE FINANCE INTERNATIONAL S.A – EDIZIONE HOLDING S.P.A. - BANCA INTESA S.P.A. - UNICREDITO ITALIANO S.P.A. - OLIMPIA S.P.A. - HOPA S.P.A. NOTICE ACCORDING TO ARTICLE 122 OF LEGISLATIVE DECREE NO. 58/98 AND ARTICLES 127 AND 129 OF THE REGULATIONS ADOPTED BY CONSOB WITH RESOLUTION NO. 11971/99 According to article 122 of Legislative Decree 58/98 and articles 127 of the Regulations adopted by CONSOB with resolution No. 11971 of May 14, 1999 (as subsequently modified with resolutions No. 12475 of April 6, 2000, No. 13086 of April 18, 2001, No. 13106 of May 3, 2001, No. 13130 of May 22, 2001, No. 13605 of June 5, 2002 and No. 13616 of June 12, 2002), Pirelli S.p.A., with registered offices in Milan, at Viale Sarca 222, registered in the Milan Companies Registry under tax code and VAT No. 0088689015, (“Pirelli”) states that it has stipulated on February 21, 2003 the agreement (“Agreement”) with Edizione Finance International S.A., with registered offices at Place d’Armes 1, L- 1136, registered with the Luxembourg Chamber of Commerce under number B77504, (“Edizione Finance”); Banca Intesa S.p.A. (formerly Intesa BCI S.p.A.), with registered offices in Milan, at Piazza Paolo Ferrari 10, Administrative Offices at Via Monte de Pietà 8, registered in the Milan Companies Registry under tax code No. 00799960158 and VAT No. 108107000152 (“Intesa”); Unicredito Italiano S.p.A., with registered offices in Genoa, at Via Dante 1, Central Administration in Milan, Piazza Cordusio, registered in the Genoa Companies Registry under tax code No. and VAT No. 00348170101 (“Unicredito”); Olimpia S.p.A., with registered offices in Milan, at Viale Sarca 222, registered in the Milan Companies Registry under tax code No. and VAT No. 03232190961 (“Olimpia”); Hopa S.p.A., with registered offices in Brescia, at Corso Zanardelli 32, registered in the Brescia Companies Registry under tax code No. and VAT No. 03051180176 (“Hopa”) and Edizione Holding S.p.A., with registered offices in Treviso, at Calmaggiore 23, registered in the Treviso Companies Registry under number 13945, tax code No. and VAT No. 00778430264 (as the guarantor of the Edizione Finance bonds “Edizione”) including, inter alia, the following clauses of the shareholders’ agreement which - by wish of the contracting parties - is published herein in its entirety: OMISSIS Article I Definitions 1.01 “Olivetti Shares”: ordinary shares with voting rights in Olivetti (as defined in paragraph 1.23 below). 1.02 “Current Olimpia Shareholders”: Pirelli, Edizione Finance, Unicredito and Intesa, collectively. 1.03 “Hopa Controlling Companies”: Fingruppo Holding S.p.A., Banca Monte dei Paschi di Siena, S.p.A., Compagnia Assicuratrice Unipol S.p.A., Banca Popolare di Lodi S.c.a.r.l. and other private individuals signatory to the voting trust with regard to Hopa. 1.04 “Notice of Deadlock”: shall have the meaning set forth in paragraph 8.04(d) below. 1.05 “Notice of Accelerated Deadlock”: shall have the meaning set forth in paragraph 8.06 (b)(i) below. 1.06 “Control”, “to control”, “Subsidiaries,” and “Controlling companies”: other than cases that expressly differ from the context herein, shall have the meaning set forth in Article 2359, paragraph 1, No. 1 and No. 2 of the Italian Civil Code. 1.07 “Relevant Date”: shall have the meaning set forth in paragraph 9.01 of the present Contract. 1.08 “Term of Agreement”: shall have the meaning set forth in paragraph 6.00 below. OMISSIS 1.12 “Business Day”: every calendar day other than Saturday, Sunday, and other days when as a general rule the banks of Milan are not open for performing their usual activities.

208 1.13 “Holinvest”: Holinvest S.p.A., with registered offices in Brescia, at Corso Zanardelli 32, issued capital of _ 700,000,000 and subscribed capital of _ 514,000,000.00, registered in the Brescia Companies Registry under registration No., tax code No. and VAT No. 03562710172. 1.14 “Holy”: Holy S.r.l., with registered offices in Brescia, at Corso Zanardelli 32, capital of _ 10,000.00, registered in the Brescia Companies Registry under registration No., tax code No., and VAT No. 03517530170. OMISSIS 1.16 “Net Financial Borrowings”: unless otherwise specified with regard to specific cases, shall be the algebraic sum on a consolidated basis (with the understanding that for each case net financial borrowings for Olimpia, borrowings for Olivetti and its Subsidiaries will not be taken into account) of the following items entered in the balance sheet prepared pursuant to Art. 2424 of the Italian Civil Code: “bonds (D1) = convertible bonds (D2) + due to banks (D3) + due to other financial backers (D4) + financial debts owed to unconsolidated subsidiaries (D8) + financial debts owed to affiliates (D9) + financial debts owed to controlling companies (D10) – amounts due from unconsolidated subsidiaries (C II 2) – amounts due from affiliates (C II 3) – amounts due from controlling companies (C II 4) – financial assets other than fixed assets (C III) – liquid assets (C IV).” Any existing present value must be added to this amount, for financial leases, if such are not included in the aforementioned items. OMISSIS 1.18 “Key Issues”: shall have the meaning set forth in paragraph 6.02 below. 1.19 “Net Asset Value”: shall mean the valuation method used for calculating the value, according to market practice and at current values, of financial assets and liabilities. 1.20 “Olimpia Bonds”: 1.5% Olimpia bonds, 2001-2002, each of which is an “Olimpia bond.” 1.21 “Olivetti Bonds”: 1.5% convertible bonds, 2001-2010, convertible to Olivetti Shares issued by Olivetti, each of which is an “Olivetti Bond”. OMISSIS 1.24 “Extraordinary Transactions”: every merger or spin-off involving Olivetti, on the one hand, and one or more of its direct or indirect subsidiaries, on the other. 1.24bis “Capital Transactions”: such extraordinary transactions as may involve Olivetti capital and which change the number of shares or which result in, by way of example though not exclusively: stock splits, reverse splits, assignments of Olivetti shares to shareholders for bonus increases in share capital. 1.25 “Holy holding in Holinvest”: Holy holding in Holinvest capital, or 19.999% of this capital. 1.26 “Hopa holding in Holinvest”: Hopa holding in Holinvest capital, or 80.001% of this capital. 1.27 “Olivetti holding”: alternately: (i) when there are no Extraordinary Transactions, holding with full voting rights equal to at least 25% of Olivetti capital on the date the present Contract is signed, or (ii) when there are Extraordinary Transactions, the entire package of Olivetti Shares and/or Financial Instruments (granting equal voting rights) arising from the exchange of shares with voting rights equal to at least 25% of Olivetti capital that would be attained through Extraordinary Transactions executed prior to the Relevant Date. OMISSIS 1.29 “Net Assets”: the difference – to be determined in accordance with Accounting Principles – between assets and liabilities on the “statutory” balance sheets of a corporation where, upon drafting the resultant consolidated balance sheet, it is understood that for purposes of determining Olimpia’s Net Assets the assets of Olivetti and its Subsidiaries are not taken into account.

209 1.30 “Agreements”: agreements among shareholders set forth in Articles VI and VII of the present Contract. OMISSIS 1.32 1.32 “Increase Premium”: shall have the meaning set forth in paragraph 10.00 below. 1.33 “Accounting Principles”: Accounting principles as provided by law, and when not specifically stated therein, those set forth by the National Council of Professional Accountants, or otherwise by the International Accounting Standards Committee. 1.34“Debt/equity ratio”: the ratio between Net Assets (as defined in paragraph 1.29 above) and Net Financial Borrowings (as defined in paragraph 1.16 above). Possible derivative instruments (as defined in Decree Law No. 58 dated February 24, 1998,– Draghi Law, Article 1, paragraph 2), not for hedging, (as defined by Banca d’Italia Measure of July 30, 2002) put into place as of November 30, 2002, must be valued at cost or market price, whichever is less, and any necessary write-off must result in a reduction in Net Assets. Possible derivative instruments for hedging must be valued in a manner consistent with the asset or liability being hedged, with it understood that the so-called equity swap underwritten by Olimpia on November 20, 2001, will be valued at cost as a matter of course. OMISSIS 1.36 “Spin-off”: shall have the meaning set forth in paragraph 9.01 below. 1.37 “Holinvest Spin-off”: shall have the meaning set forth in paragraph 9.05 below. OMISSIS 1.39 “Holy Position”: Balance sheet of Holy at December 31, 2002, with the accompanying reports, attached hereto as number 5.02(ii) which – in accordance with the provisions of paragraph 5.02(ii) below – shall represent the Holy financial position of reference for the plan of Merger. 1.40 “Olimpia Position”: Balance sheet of Olimpia at November 30, 2002, with the accompanying reports, attached hereto as number 5.02(i) which – in accordance with the provisions of paragraph 5.02(i) below – shall represent the Olimpia financial position of reference for the plan of Merger. 1.41 Olivetti Companies”: Telecom, TIM, and Seat, collectively. 1.42 “Deadlock”: shall have the meaning set forth in paragraph 8.01 below. 1.42bis“Accelerated Deadlock”: shall have the meaning set forth in paragraph 8.06 below. 1.43 “Financial Instruments”: every financial instrument (including Olivetti Instruments as defined below) that directly or indirectly grants subscription rights to Olivetti Shares (which, by way of example and not exclusively, includes convertible bonds, forward contracts, call options, and prepaid swaps). 1.44 “Olivetti Instruments”: instruments with the characteristics as set forth in the attached document 1.44. OMISSIS 1.46 “Initial Term”: shall have the meaning set forth in paragraph 8.05 below. OMISSIS Article II Object of Contract (a) Under the present Contract, the various transactions governed thereby and the Shareholder Agreements contained herein, the Current Olimpia Shareholders, Olimpia, and Hopa hereby agree on the terms and conditions for creating a partnership with strategic connotations. (b) The partnership referred to in the previous paragraph shall be achieved by Hopa’s joining its capital to that of Olimpia (by Holy’s merger with Olimpia) together with the Current Olimpia Shareholders, and the subsequent joining of Olimpia’s capital to that of Holinvest, together with Hopa.

210 (c) The following stipulations in the present Contract shall, inter alia, govern: (i) the steps taken to achieve the aforesaid situation (setting the terms and conditions thereof), in particular with regard to the provisions of Articles II, IV, and V below; (ii) the rules of corporate governance and other provisions in shareholders’ agreements to which the Parties have agreed, in particular with regard to the provisions of Articles VI and VII below; (iii) (A)the mechanisms for settling possible Deadlocks or Accelerated Deadlocks such as may arise in the administration of Olimpia (also with regard to voting instructions for Olivetti Extraordinary Shareholders’ Meeting) and/or of Holinvest; and (B)the means of any possible dissolution of the partnership carried out under the present Contract, with regard to confirming a Deadlock or Accelerated Deadlock, as well as to the failure to renew Agreements upon their expiration; with particular regard to the provisions of Articles VIII, IX, and X below.

Article III Preliminary Obligations of the Parties OMISSIS Article IV Suspensive Conditions OMISSIS Article V Merger OMISSIS 5.09 Olimpia and Holinvest post-Merger ownership. The Parties mutually recognize that, on the basis of the Stipulated Exchange Rate: (i) Olimpia post-Merger shall be owned as follows: Pirelli: 50,40%; Edizione: 16,80%; Hopa: 16,00%; Unicredito: 8,40%; e Intesa: 8,40%. (ii) Holinvest post-Merger shall be owned as follows: Hopa: 80,001%; e Olimpia: 19,999%. OMISSIS Article VI Shareholder Agreements concerning Olimpia and Olivetti Companies 6.00 Agreements and Term of Agreement. (a) The Parties mutually recognize that the provisions in this Article VI, as well as those in Article VII below (collectively, the “Agreements”) shall be effective for the entire period (“Term of Agreement”) between the effective date of the Merger and the earlier of either: (i) the natural expiration of such Agreements, as regulated under paragraph (b) below; or (ii) the date on which, in compliance with the applicable provisions herein, (A) – as a result of a Deadlock, the Spin-off and Holinvest Spin-off become effective; (B) as a result of an Accelerated Deadlock, the Current Olimpia Shareholders receive an Notice of Accelerated Deadlock.

211 (b) The Agreements shall have a term of three years as from the effective date of the Merger, and upon expiration shall be deemed tacitly extended [for an equal period], unless a notice of termination is served by either Party to the other, subject to the provisions in paragraph (c) below. (c) Without prejudice to the provisions of the law, the Parties may withdraw from the Agreements, effective on the expiration date, by written notice to the other Party 3 (three) months before such expiration date. 6.01 Board of Directors of Olimpia. (a) For the entire Term of the Agreements, the Board of Directors of Olimpia will be made up of a fixed and unchangeable group of 10 members, one of which will be appointed upon designation by Hopa. The first Director appointed by Hopa will be Emilio Gnutti. (b) In the event the Director appointed by Hopa should cease to be on the Board, a replacement shall be designated within the next 20 (twenty) Business Days, and it is understood that the designation of the replacement will be still made by Hopa, with the consent of Pirelli, which shall not withhold it unreasonably. (c) Should Hopa wish to revoke one or more of the Directors it designated, the Current Olimpia Shareholders will cooperate fully, in order for this revocation to proceed as rapidly as possible. Hopa shall have the right to designate – in accordance to what was set forth in the preceding paragraph (b) – the Director to be appointed as a replacement for the Director who was revoked, subject to the consent of Pirelli, which shall not withhold such consent unreasonably. (d) The Parties commit to holding each other exonerated and discharged and to holding Olimpia exonerated and discharged from any onus or damage deriving from the revocation without just cause of the Directors that each one of them from time to time designates, pursuant to paragraph 6.01. 6.02 Key Issues. (a) For the purposes of this contract and in particular of subsequent Article VIII the following shall be considered to be Key Issues: (i) In reference to the resolutions to be adopted by Olimpia’s Extraordinary Shareholders’ Meeting in relation to any subject that pertains to it, any time the resolution is adopted: (A) In opposition to a proposal by Olimpia’s Board of Directors passed with the agreement of the Directors appointed by Olimpia’s Current Shareholders and by Hopa; or (B) In agreement with a proposal by Olimpia’s Board of Directors passed without the agreement of the Director appointed by Hopa; (ii) In reference to the resolutions to be adopted by Olimpia’s Board of Directors in relation to those pertaining to: (A) The suggested vote to be cast during Olivetti’s Extraordinary Shareholders’ Meeting; (B) the purchase, sale and transfer of any interest valued over _ 100,000,000.00 per transaction, or for multiple transactions carried out during the same calendar year, with the exception of that which is provided for in the subsequent paragraph (b); (C) Acts or initiatives that modify or will modify the debt/equity ratio from a 1:1 ratio (while keeping open the option to remedy this situation pursuant to the procedure outlined in subsequent paragraph 8.07(a)(ii) and with the understanding that in this case it will not be considered to be a situation causing a Deadlock) and/or that concern the definition of the terms and conditions for using outside sources of financing; (D) Proposals for resolutions to be submitted to Olimpia’s Extraordinary Shareholders’ Meeting. (b) The Parties reciprocally acknowledge that – in spite of being slightly different from what was outlined in the preceding paragraph (a) (ii) (B) – the following shall not be considered Key Issues for the purposes of this Contract: actions relating to the purchase or sale of Olivetti shares, the conversion of convertible Olivetti bonds into Olivetti shares or equivalent financial instruments, as long as Olimpia’s debt/equity ratio remains below 1:1 even after these transactions.

212 6.03 Board of Directors of Olivetti Companies. (a) For the entire Term of the Agreements the Current Olimpia Shareholders will do whatever is in their power to ensure that, in the meetings of the Boards of Directors of the Olivetti Companies, a director shall be appointed as a result of being designated by Hopa. The first directors that Hopa designates to this end are those indicated in the attached document by number 6.03(a). (b) The new Boards of Directors of the Olivetti Companies, made up according to the dispositions in the preceding paragraph (a), will be appointed as soon as possible after the Merger and in any event within and no later than 60 Business Days after the effective date of the Merger itself. (c) The dispositions in the preceding paragraphs 6.01(b) and (c) will apply, mutatis mutandis, also regarding the meetings of the Board of Directors of the Olivetti Companies. 6.04 Tender Offers for Olivetti Shares. Hopa commits itself to the fact that, in the event Olivetti Shares are subject to a tender offer, the Director that it designated in Olimpia’s Board of Directors – if the Current Olimpia Shareholders requests it in writing – will not oppose Olimpia’s agreeing to such tender offer. 6.05 Deadlock. (a) Except for what is set forth in the subsequent paragraph (b) or expressly provided for by this Contract, the Current Olimpia Shareholders and Hopa (also with respect to its respective controlling companies and subsidiaries) commit themselves not to purchase Olivetti Shares for the Term of the Agreements, and agree to the fact that Olimpia – in partial derogation from this limitation - notwithstanding what is set forth in subsequent paragraph 8.06, will have the right to buy and sell Olivetti Shares as long as these transactions do not cause the limits described in paragraph 4.01(iii) to be exceeded, notwithstanding the fact that in order to calculate the threshold specified in the aforementioned paragraph, one shall have to take into account the quantities allowed by paragraph (a) of Article III. (b) The following cases are exceptions to the Deadlock commitment specified in paragraph 6.05(a): (i) The exercise on Pirelli’s part of the rights already acquired before executing this Contract, in relation to the exercise of call options and swap contracts relating to the purchase of Olivetti Shares and Bonds (which are described in detail in the attached document designated by number 6.05(b)(i); (ii) For purchases of Olivetti Shares which were already allowed: (A) to Unicredito and Intesa, by the current Shareholder Agreements agreed to by these entities with Pirelli, which is described in the attached document designated by number 6.05 (b) (ii) (A); and (B) to Edizione, within the limits outlined by the current Shareholder Agreements agreed to by this entity with Pirelli, which are described in the attached document designated by number 6.05(b) (ii) (B). (iii) The maximum number of Olivetti Shares that the Hopa Controlling Companies are authorized to possess pursuant to paragraph 4.01. (c) Notwithstanding the above mentioned rights, furthermore, the Parties reciprocally acknowledge that the purchase by one Party of convertible bonds and/or warrants that grant the right to subscribe to bonds convertible into Olivetti Shares and the exercise of the rights that go with it will be allowed only following the consent of the other Party, consent that shall not be unreasonably withheld, with the proviso that in the event of a request by Hopa there will have to be the unanimous consent of all the Current Olimpia Shareholders that at the time of this request are Olimpia shareholders. 6.06 Olimpia’s Business Purpose. The Current Olimpia Shareholders commit themselves not to change Olimpia’s business purpose (as reflected in the sample by-laws which are found under attachment 5.07 (b) up to the latter of the following dates (i) the date of the natural expiration of the Agreements as set forth by paragraph 6 (b) of this Contract; and (ii) in the event of a Deadlock or an Accelerated Deadlock, the effective date of the Spin-off and the Holinvest Spin-off.

213 6.07 Other Commitments Relating to Olimpia. The Current Olimpia Shareholders commit to make it so that, for the entire term of the Agreements, Olimpia: (i) Does not have other holdings or financial investments other than its holding in Olivetti, Olivetti’s bonds, Olivetti’s instruments and the holding by Olimpia in Holinvest possessed as a result of the Merger; (ii) Has a debt/equity ratio that does not exceed 1:1; and (iii) Does not sell its holding in Olivetti to entities controlled by Olimpia or that are parts of groups whose ownership can be ascribed to the Current Olimpia Shareholders. 6.08 Co-sale Rights and Obligations. (a) Except when otherwise set forth in this Contract and in particular in the following paragraph 8.06(b)(iii) and 8.07(b)(ii), for the entire Term of the Agreements – and in any case until the effective date of the Spin-off and of the Holinvest Spin-off – if the holding of Pirelli in the capital of Olimpia is reduced by transfer, contribution, assignment (including by spin-off), or sale of a portion thereof, directly or indirectly, or a financial instrument that may be converted and/or which gives right to a holding in the capital of Olimpia (hereinafter collectively the “Assigned Holding”) for payment, free of charge, for cash, or for payment in kind, under any status, including in several tranches as compared to that held as of the signing date of this Contract, Hopa will have the right to claim (and therefore Pirelli will be obligated to cause) that the buyer (hereinafter the “Third-Party Buyer”) – pursuant to the applicable provisions of this paragraph 6.08: (i) whenever, notwithstanding the transfer and/or sale of the Assigned Holding, Pirelli, together with Unicredito and Intesa, maintains absolute majority in the capital of Olimpia, acquires: (A) a percentage of the holding of Holinvest equal to the percentage between the Assigned Holding and 50.4% according to the following formula: PPiH : PiH = PC : 50,4% Where: PPiH: is the holding percentage of Hopa in Holinvest that Hopa may claim transfer to the Third-Party Buyer; PiH: is the total holding (expressed as a percentage of the capital of Holinvest) of Hopa in Holinvest; PC: is the Assigned Holding (expressed as a percentage of the capital of Olimpia); or, as an alternative (B) a percentage of the Olivetti Instruments and/or of the Olivetti Shares and/or of the Financial Instruments held by Holinvest on the date Pirelli communicates its intent, equal to the percentage between the Assigned Holding and 50.4% according to the following formula: PSOH : SOH = PC : 50,4% Where: PSOH: is the portion of the Olivetti Instruments and/or Olivetti Shares and/or of the Financial Instruments held by Holinvest on the date Pirelli communicates its intent, for which Hopa may claim transfer to the Third-Party Buyer; SOH: the total number of Olivetti Instruments and/or Olivetti Shares and/or of the Financial Instruments on the date Pirelli communicates its intent, held by Holinvest; PC: is the Assigned Holding (expressed as a percentage of the capital of Olimpia); and therefore (C) a percentage of its own holding in Olimpia equal to the percentage between the Assigned Holding and 50.4%:

214 PPiO: PiO = PC : 50,4% Where: PPiO: is the portion of Hopa’s holding in Olimpia for which Hopa may claim transfer to the Third-Party Buyer; PiO: the total holding held by Hopa in Olimpia; PC: Assigned Holding (expressed as a percentage of the capital of Olimpia); (ii) whenever the sale and/or transfer with price paid in kind (contribution and/or spin-off) of the Assigned Holding implies the loss of the absolute majority in the ordinary capital of Olimpia by Pirelli together with Unicredito and Intesa, acquires the entire holding held by Hopa in Olimpia and/or Holinvest; (iii) whenever the sale and/or transfer with the price paid in cash of the Assigned Holding implies the loss of the absolute majority in the ordinary capital of Olimpia, by Pirelli, together with Unicredito and Intesa, Hopa will also have the obligation to sell (and, respectively, Pirelli will have the obligation and the right to cause Hopa to sell) to the Third-Party Buyer the entire holding of Hopa in Olimpia and/or in Holinvest; with the understanding that: (x) for the purposes of this paragraph 6.08, the financial instruments whose acquisition by the Third Party-Buyer must be imposed by Hopa, exercising the alternative power set forth in this paragraph 6.08(a), will be identified as “Instruments to be Assigned”; (y) once Hopa communicates – pursuant to the following paragraph (c) – to Pirelli that it wishes to exercise the co-sale right set forth in this paragraph 6.08(a), Hopa will be obligated to sell the Instruments to be Assigned under the terms and conditions set forth in this paragraph 6.08 and, in particular, the following paragraphs (d) and (e); and (z) the choice between the options referred to in the previous paragraph 6.08(a)(i) will be exercised discretionally by Hopa and will be final. (b) In order to allow Hopa to exercise the rights set forth in the previous paragraph (a), Pirelli undertakes to communicate to Hopa any intention to sell, transfer, assign (including by spin-off) or otherwise transfer under any status all or part of its own holding in Olimpia, as soon as allowed by the negotiations with the Third-Party Buyer (taking into consideration possible reasons of confidentiality), communicating to Hopa the nature of the Third-Party Buyer and the terms and conditions of the possible transfer transaction. (c) Hopa, after receiving the communication about the plan to transfer the Assigned Holding by Pirelli, must communicate to Pirelli within twenty (20) Business Days from receipt of the communication, whether or not it intends to exercise its own co-sale right and whenever Pirelli’s communication refers to a transaction of the type indicated in the previous paragraph (a)(i), which of the options set forth in Sections (A) through (C) of said paragraph (a)(i) it intends to choose. (d) Should Hopa exercise the co-sale right set forth in this paragraph 6.08, the transfers of the Instruments to be Assigned to the Third-Party Buyer following such exercise must be perfected simultaneously with the transfer of the Assigned Holding by Pirelli to the Third-Party Buyer. (e) The transfer price of the Instruments to be Assigned must be established pursuant to the following provisions: (i) whenever Hopa exercised the co-sale right set forth in its favor in the previous paragraph 6.08(a)(i)(C) or 6.08(a)(ii), the latter in the portion referring to the Olimpia holding, the price will be equal to the same price for each Olimpia share obtained by Pirelli from the sale of the Assigned Holding; (ii) whenever Hopa exercised the co-sale right in its favor pursuant to the previous paragraph 6.08(a)(i)(A) or 6.08(a)(ii), the latter in the portion referring to the holding in Holinvest, the price will be established by considering the implicit value assigned by the Third-Party Buyer to the Olivetti shares and to any Financial Instrument held by Olimpia valuing Holinvest on this basis at Net Asset Value;

215 (iii) whenever Hopa exercised the co-sale right in its favor pursuant to the previous paragraph 6.08(a)(i)(B), the price of the Olivetti Instruments will be established considering the implicit value assigned by the Third-Party Buyer to the Olivetti shares and to any Financial Instrument held by Olimpia. with the understanding that, for the purposes of this paragraph, the Net Asset Value (referred to in the previous paragraph (ii)) and the price of the Financial Instruments (referred to in the previous paragraph (iii)) will be established pursuant to the previous paragraph (e) and, in the event of disagreement between Pirelli and Hopa, by an audit firm included among the so-called “Big Four” – appointed by the Parties by mutual agreement or, in the absence of such agreement, by the Presiding Judge of the Court of Milan at the request of the most diligent Party; with the understanding that – the determinations made by audit firm will be unappealable and final. (f) It is understood between the Parties that the obligations set forth in this paragraph 6.08 must be considered exclusively at the charge of Pirelli, excluding any joint liability of the Current Olimpia Shareholders. 6.08bis Co-sale Rights concerning Olimpia’s assets. (a) For the entire Term of the Agreements – and in any event until the effective date of the Spin-off and of the Holinvest Spin-off – if Olimpia’s holding is reduced to a level below 25% of Olivetti’s capital or, whenever it is so reduced, it is further reduced by transfer, assignment (including by spin-off) or sale of a portion thereof for payment, free of charge, for cash or by payment in kind, under any status, including in several tranches (hereinafter, together, the “Assigned Olivetti Holding”), Holinvest will have the right to claim (and therefore Olimpia will be obligated to cause) that the buyer (hereinafter the “Third-Party Buyer of Olivetti Instruments”) – pursuant to the applicable provisions of this paragraph - acquire a percentage of the Olivetti Shares (and/or Financial Instruments) held by it on that date, equal to the percentage between the Assigned Olivetti Holding and Olimpia’s holding in Olivetti, held before the assignment of the Assigned Olivetti Holding: PAOH : AOH = POC : PO Where: PAOH: is the number of Olivetti Shares (and/or Financial Instruments) held by it, for which Holivest [sic] may claim the transfer to the Third-Party Buyer; AOH: is the total number of Olivetti Shares (and/or Financial Instruments) held by Holinvest on the date Olimpia communicates its intent to transfer the Assigned Investment; POC: is the Assigned Olivetti Holding (expressed as a percentage of the Olivetti Shares (and/or of the Financial Instruments) held by Olimpia on the date Olimpia communicates its intent to transfer the Assigned Olivetti Holding); PO: the total holding in Olivetti and/or all Financial Instruments held by Olimpia before the assignment of the Assigned Olivetti Holding; with the understanding that: (x) for the purposes of this paragraph 6.08bis, the Olivetti Shares and/or Financial Instruments for which Holinvest must impose the acquisition of the Olivetti Instruments by the Third-Party Buyer will be identified as “Olivetti Instruments to be Assigned”; (y) once Holinvest communicates – pursuant to the following paragraph (c) – to Olimpia that it wishes to exercise the co-sale right set forth in this paragraph 6.08bis, Holinvest will be obligated to sell the Olivetti Instruments to be Assigned under the terms and conditions set forth in this paragraph 6.08bis and, in particular, the following paragraphs (d) and (e); and (b) In order to allow Holinvest to exercise the rights set forth in the previous paragraph (a), Olimpia undertakes to communicate to Holinvest any intention to sell, transfer, assign (including by spin- off), or otherwise transfer under any status all or part of its own holding in Olivetti, as soon as allowed by the negotiations of the Olivetti Instruments with the Third-Party Buyer (taking into

216 consideration possible reasons of confidentiality), communicating to Holinvest the nature of the Third-Party Buyer of the Olivetti Instruments and the terms and conditions of the possible transfer transaction. (c) Holinvest, after receiving the communication about the plan to transfer the Assigned Olivetti Holding by Olimpia, must communicate to Olimpia within twenty (20) Business Days from receipt of the communication, whether or not it intends to exercise its own co-sale right. (d) Should Holinvest exercise the co-sale right set forth in this paragraph 8.06(ii)[sic], the transfers of the Assigned Olivetti Instruments to the Third-Party Buyer of the Olivetti Instruments to be Assigned following such exercise must be perfected simultaneously with the transfer by Olimpia to the Third-Party Buyer of the Olivetti Instruments of the Assigned Olivetti Holding. (e) The transfer price of the Olivetti Instruments to be Assigned will be equal to the price for each Olivetti share (and/or Financial Instrument) obtained by Olimpia from the transfer for the assignment of the Assigned Olivetti Holding. (f) The Parties mutually take note and agree that – as a partial exception to the provisions of this paragraph 6.08bis – whenever Holinvest exercises the co-sale right referred to in this paragraph 6.08bis, the assignment of the Assigned Olivetti Holding which – pursuant to the terms of the preceding paragraph would give rise to an event of Accelerated Deadlock – will not be considered Accelerated Deadlock. 6.09 Taking Note. The parties mutually take note that: (i) the Agreements set forth in this Contract do not replace and therefore do not impair the validity, efficacy and enforceability of the Agreements referred to in the Shareholder Agreement executed on September 14, 2001 between Pirelli, Unicredito, and Intesa; (ii) in light of the preceding paragraph (i), the exercise by Unicredito and/or Intesa of the rights set forth in their favor in the Shareholder Agreement referred to in the previous paragraph (i) may not in any manner represent nonperformance of any commitments assumed by Unicredito and Intesa (as Current Olimpia Shareholders) under this Contract, nor cause under any other status any liability for Unicredito and Intesa themselves; (iii) whenever Unicredito and/or Intesa exercise the put right pursuant to the Shareholder Agreement referred to in the preceding paragraph (i), they will immediately be released from any obligation towards Hopa arising from this Contract, regardless of the date of the actual transfer of the Olimpia shares subject to the put, without prejudice to the fact that Pirelli will be automatically obligated towards Hopa to perform all such obligations towards Hopa itself; (iv) (iv) whenever Unicredito and/or Intesa exercise the put right referred to in the previous paragraph (iii), Edizione Finance and Hopa waive, as of now, exercising the pre-emptive right established in their favor in the by-laws.

Article VII Shareholder Agreements Concerning Holinvest 7.01 Board of Directors of Holinvest. (a) For the entire Term of the Agreements, the Board of Directors of Holinvest will be made up of a fixed, unchangeable number of 7 members, one of whom will be appointed by Olimpia’s designation. (b) The provisions of the previous paragraphs 6.01(b), (c) and (d) will apply, mutatis mutandis, to the Board of Directors of Holinvest. 7.02 Lock-up Commitments. (a) As of the date of this Contract and for a period of twenty months from the effective date of the Merger, Hopa: (i) undertakes not to: (A) offer, constitute in pledge, sell, carry out preliminary sales, lend or otherwise transfer or assign (including by contribution or partial spin-off), directly or indirectly, Hopa’s Holinvest Holding

217 or any financial instrument that may be converted or which would give right to a holding in the capital of Holinvest, or (B) execute swap contracts and other acts and/or contracts transferring to a different party, in full or in part, any risk or economic profit arising from Hopa’s ownership of the Holinvest Holding, regardless of the fact that the transactions described in the preceding points (A) and (B) must be liquidated by delivery of Hopa’s Holinvest Holding or of the aforementioned financial instruments, for cash or otherwise. (ii) it pledges – without prejudice to the provisions of the following paragraphs (b) and (c) – to take all necessary steps to prevent Holinvest from: (A) offering, selling, carrying out preliminary sales, lending, granting in pledge to guarantee obligations of third parties or otherwise transferring or assigning (including by contribution or partial spin-off), directly or indirectly, the Olivetti Instruments which, as of the date of this Contract, are owned by it, or any other financial instrument that may be converted or which gives right to a holding in the capital of Olivetti; or (B) executing swap contracts or other acts and/or contracts transferring to a different party, in full or in part, any risk or economic profit arising from the ownership of the Olivetti Instruments which, as of the date of this Contract, are owned by it, regardless of the fact that the transactions described in the preceding points (A) and (B) must be liquidated by delivery of the Olivetti Instruments or of the other aforementioned financial instruments, for cash or otherwise. (b) Concerning the provisions of the following paragraph 7.03: (i) the Parties mutually take note of their awareness of the following: (A) Holinvest gave in pledge to the banks which financed it (the “Creditor Banks”) the Olivetti Instruments which, as of the date of this Contract, are owned by it (as identified in the document enclosed herewith under No. 7.02(b)(ii)(A)) as guarantee of the obligations to reimburse the financing granted to it by said Creditor Banks; (B) Hopa undertakes to take all possible steps to avoid any enforcement of the pledge by the Creditor Banks and therefore to preserve the pre-emptive rights in favor of Olimpia referred in paragraph 7.03 below; (ii) in light of the provisions of the preceding paragraph (i), the Parties agree that: (A) following the execution of this Contract, Hopa will do everything possible so that the Creditor Banks: (1) consent that, in the event of sale of the Olivetti Instruments following the enforcement of the pledge referred to in the preceding paragraph (i)(A), Olimpia be granted a pre-emptive right concerning the acquisition of the Olivetti Instruments so sold; or, whenever such hypothesis is not feasible, (2) accept – in the event that the pledge referred to in the preceding paragraph (i)(A) must be enforced – to transfer to Olimpia the financing contracts and the respective guarantees, at a price equal to the market value as of that date of the credit granted by the Creditor Banks to Holinvest, under the same financing contracts so assigned; on the other hand, it is understood that Hopa undertakes as of now to cause Holinvest – in the event that the Creditor Banks declare their availability to transfer the contract as indicated in this paragraph (ii)(A)(2) to accept – and therefore consent to – such assignments: (B) without limitation to the provisions of the preceding paragraph (A), immediately after the execution of this contract, the Parties will send a joint communication to the Creditor Banks to inform them of the existence of the pre-emptive right referred to in paragraph 7.03 below, and also requesting the Creditor Banks to a meeting to discuss the provisions of the aforementioned paragraph (ii)(A);

218 (C) in order to help Olimpia achieve the purposes set forth in the previous paragraph (i)(C), Hopa will allow a representative of Olimpia (chosen by Olimpia with the consent of Hopa – which may not be unreasonably denied) to participate in all the meetings with the Creditor Banks which are the consequence or related to the provisions of the previous paragraph (ii)(A); (iii) the sections in the previous paragraphs(i) and (ii) will apply, mutatis mutandis, also in the case of subsequent financing and the respective pledges, with the understanding that the pledges so granted by Holinvest may refer only to the debts contracted by it, to the exclusion of the guarantees pledging the debts of other parties. (c) Hopa’s obligation referred to in the previous paragraph (a)(ii) is understood in the sense of allowing Holinvest to freely dispose – during the lock-up period – of the Olivetti Instruments and/or Financial Instruments (but without application of the pre-emptive right referred to in paragraph 7.03 below) provided that during said period, Holinvest keeps its ownership of a number of securities of not less than 65% and not more than 125% of those listed in the previous paragraph 4.01(ii)(A) and provided the shares of the companies directly or indirectly controlled by Olivetti do not exceed 10% of the assets of Holinvest, without prejudice to the composition of the assets of Holinvest on the Relevant Date. 7.03 First Pre-emptive Right in Favor of Olimpia. (a) At the end of the Lock-up period referred to in the previous paragraph 7.02(a)(ii) and for the entire residual Term of the Agreements – and in any case until the effective date of the Spin-off and of the Holinvest Spin-off – Holinvest may freely dispose of the Financial Instruments and of the Olivetti Shares, provided – should it carry out any of the transactions set forth in the previous paragraph 7.02(a)(ii)(A) and (B) – it grants Olimpia (with written communication detailing the identity of the potential buyer whenever it is known to Holinvest, regardless of the fact that the sale takes place on the regulated market, and all the elements necessary for the adequate evaluation of the offer of the latter and of the elements showing seriousness) a pre-emptive right to the Olivetti Instruments which are the object of such transaction. (b) It is understood that: (i) the offer must be presented by the third party within (30) thirty Business Days from the date Olimpia received Holinvest’s communication referred to in the previous paragraph 7.03(a); (ii) the pre-emptive right referred to in the previous paragraph (b) must be exercised by Olimpia within two (2) Business Days after Olimpia’s receipt of the respective denunciatio. 7.04 Holinvest’s By-laws. Hopa will take all necessary steps so that, by the date of the Merger and not later, Holinvest’s by-laws will be amended to allow Holinvest exclusively to engage in the holding and financial activity concerning holding and trading of the Olivetti Shares, Olivetti Instruments and Financial Instruments, as well as the shares and/or financial instruments of the companies directly or indirectly controlled by Olivetti; Hopa’s commitment is subject to the admissibility of such amendment pursuant to current legislation, without prejudice to the fact that Hopa will not be obligated to make such amendment whenever it implies that Holinvest will be prohibited from continuing to hold investments in securities other than those indicated in this paragraph currently held, with the understand that, in this case, Hopa undertakes to cause Holinvest not to acquire new investment securities other than those described above. In addition, within the same term, Hopa undertakes to make in the current by-laws of Holinvest [sic] the amendments necessary to make it consistent with the model by-laws enclosed herewith under No. 7.04. 7.05 Second Pre-emptive Right in Favor of Olimpia. (a) Unless there is an Accelerated Deadlock, on the expiration of the first three-year period of the Term of the Agreements (but completely independently from the fact that the agreements are extended for a subsequent three-year period or not) Hopa will cause Holinvest to execute with Olimpia a pre-emptive rights agreement with a term of two years, under which – as of that date – Holinvest – whenever it intends to offer, pledge, sell, carry out

219 preliminary sales, sell any purchase option or contract, purchase any sale option or contract, grant any option, right or warrant for acquisition, lend or otherwise transfer, assign or dispose (including by contribution or partial spin-off), directly or indirectly, all or part of Olivetti’s holding post-Spin-off – it must offer it pre-emptively to Olimpia to the extent that, due to the transaction planned, Hopa and Holinvest would own together less than: (i) 65% of the holding in Olivetti belonging to them by the effect of the Spin-off; or (ii) 65% of the Olivetti Instruments owned by Holinvest on the reference date of the Spin-off. (b) The pre-emptive right referred to in the previous paragraph (a) must be exercised by Olimpia within 15 days after its receipt of the respective denunciatio. (c) For the entire term of the pre-emptive rights agreement set forth in this paragraph 7.05, the provisions of the previous paragraph 6.05 apply, mutatis mutandis.

Article VIII Deadlock and Accelerated Deadlock 8.01 Identification of Deadlock cases. For the purposes of this Contract, “Deadlock” means a situation of disagreement, expressed in preliminary consultations or, in the absence thereof, in the Extraordinary Shareholders’ Meeting of Olimpia or in the Board of Directors’ Meeting of Olimpia, among the Current Olimpia Shareholders, on the one hand, and Hopa, on the other hand, on a Key Issue, at any time during the Term of the Agreements. 8.02 Obligation of consultation. The Current Olimpia Shareholders undertake to first consult Hopa whenever a Relevant Deliberation must be discussed or approved. 8.03 Procedure. (a) For the performance of the obligation referred to in paragraph 8.02 above, the Current Olimpia Shareholders and Hopa undertake to meet, or to first consult each other by telephone conference or videoconference, subject to the appropriate minutes, within and not later than the third (3rd) day prior to the day scheduled for the meeting of the board or shareholders of Olimpia, or immediately after they become aware, in the event of urgent invitation to call a meeting of the Board of Olimpia pursuant to the applicable by-laws’ provisions. (b) In the consultation referred to in this paragraph, the Current Olimpia Shareholders and Hopa will do everything possible to reach an agreement and/or identify a common position on the issues submitted to their examination, and undertake for this purpose to act in good faith. (c) The unjustified absence of a Party in the preliminary consultation or its abstention from decisions reached during the consultation, implies acceptance of the decisions reached by the other Party and imposes on the absent or abstaining Party the obligation to comply with and observe such decisions. 8.04 Manifestation of will. Whenever the Current Olimpia Shareholders and Hopa, in the preliminary consultation referred to in paragraphs 8.02 and 8.03 above, reach an agreement concerning the issues submitted to said consultation, they will be obligated to express their will at the relevant level, according to the following provisions: (i) by delegating a common representative to participate in Olimpia’s Extraordinary Shareholders’ Meeting and to cast the vote in said meeting, according to the decision made; or, as applicable, (ii) to cause its representatives on the Board of Directors of Olimpia to participate in the meeting of the board and cast their vote there, according to the common decisions reached in the preliminary consultation. (b) Otherwise, in the absence of mutual agreement on the issues submitted to consultation, Hopa will be obligated to refrain from participating in the meeting of the shareholders or of the board and from casting or causing its vote to be cast at said level and/or refrain from expressing, at any level and mode, its will or position concerning the issue subject to said preliminary consultation, except as indicated in point (d) below.

220 (c) Whenever the preliminary consultation referred to in the previous paragraphs 8.02 and 8.03 does not take place by the fault of the Current Olimpia Shareholders, Hopa will have the right to participate in the meeting of the shareholders and/or board and cast or cause casting of its vote at that level and/or to express, at any level and mode, its will or position concerning the Key Issue, except as set forth in point (d) below. (d) Whenever the situation referred to in point (b) or the situation referred to in point (c) above occur, Hopa will have the right to send to the Current Olimpia Shareholders, by telegram or registered letter and pursuant to paragraph 12.03, a “Notice of Deadlock” within the term of 15 (fifteen) days from the end of the consultation referred to in paragraph 8.03 or, in the absence of consultation, from the date of the decision referred to in the preceding paragraph 8.04(c). (e) Within 30 Business Days from the date the Current Olimpia Shareholders received the Notice of Deadlock, the Parties must submit – for the only purpose referred to in paragraph 10.01 below – to the unappealable judgement of an Arbitration Board, to be appointed in accordance with Article XIII below, as regards the ascertainment, for the purposes set forth in Article X, of whether or not the Deadlock situation was declared by Hopa in good faith. In any event, it is understood in order to avoid any doubt, that Hopa’s right (as referred to in Article IX below) to have the Spin-off [and] the Holinvest Spin-off take place without the results of such ascertainment and therefore the Current Olimpia Shareholders must implement all necessary steps for the Spin-off and Holinvest Spin-off to take place within the term indicated in paragraph 9.01(c) below. 8.05 Rights of the Parties. (a) Whenever Hopa sends to the Current Olivetti Shareholders a Notice of Deadlock pursuant to paragraph 9.04 (c) above, Hopa will have the right (which will be deemed exercised by the receipt of the Notice of Deadlock by the Current Olimpia Shareholders pursuant to point (c) paragraph 8.04 above) to claim – as of the end of the thirty-sixth (36) month after the date of the Merger (the “Initial Term”) – all necessary steps to be taken so that within 6 months from the Initial Term, the Spin-off and Holinvest Spin-off take place pursuant to the applicable provisions of Article IX below. (b) The Parties agree that in any case of absence of opt-out of the Agreements and their consequent automatic renewal pursuant to the provisions of paragraph 6.00(b) above, the Initial Term must be considered from time to time [the end of the thirty-sixth (36) month after the date of each renewal]. 8.06 Identification of Cases of Accelerated Deadlock. (a) Whenever - during the Term of the Agreements – one of the following events takes place (each of them an event of “Accelerated Deadlock”): (i) a decision is made for the merger and/or spin-off of Olimpia and/or Olivetti with companies other than companies directly or indirectly controlled; (ii) Olimpia stops owning a holding in Olivetti at least equal to the Holding in Olivetti, also as a consequence of: (A) sale and/or assignment (including by spin-off) and/or contribution of all or part of its holding in Olivetti and/or Financial Instruments (with voting right) to companies belonging to the groups in which the Current Olimpia Shareholders are members or which are managed by them; or (B) sale and/or assignment (including by spin-off) of all or part of its holding in Olivetti and/or Financial Instruments (with voting right) to third parties with payment in kind (for example by swap or contribution). (iii) Olimpia’s debt/equity Ratio - without prejudice to paragraph (b) below – exceeds 1:1; (iv) the Current Olimpia Shareholders decide to contribute all or part of their total holding in Olimpia to companies belonging to groups in which the Current Olimpia Shareholders are members or which are managed by them;

221 (v) without prejudice to the provisions of paragraph 8.06(b) (iii) (C) below, there are plans for transfer, sale and/or assignment (including by spin-off) under any status, of all or part of the total holding of the Current Olimpia Shareholders in Olimpia, to companies belonging to groups in which the Current Olimpia Shareholders are members or which are managed by them, at a price lower than the market price of Olimpia’s holding in Olivetti plus _ 0.60 per Olivetti Share and/or Financial Instrument owned by Olimpia. It is understood that, whenever Extraordinary Transactions or Capital Transactions are carried out, such increase of _ 0.60 must be determined for a number of Olivetti Shares and/or Financial Instruments appropriately adjusted or changed as a consequence of such Transactions, according to market practice, with the understanding that whenever, due to the determination of such number there is a disagreement among the Parties, such determination will be requested by the most diligent Party from a prime business bank chosen by mutual agreement or, in the absence thereof, designated by the Presiding Judge of the Court of Milan; (vi) there are plans for the sale and/or assignment (including by spin-off) of all or part of the total investment of the Current Shareholders in Olimpia to third parties, with payment in kind (for example by swap or contribution), whenever the third party does not assume towards Hopa the same obligations assumed by the Current Olimpia Shareholders pursuant to the Agreements, without prejudice to the fact that in such case Hopa will not be subject to any co-sale obligation; in all these cases, Hopa will have the right to ask Olimpia and the Current Olimpia Shareholders to take all necessary steps in order to decide – pursuant to the applicable provisions of Article IX below – on the Spin-off and Holinvest Spin-off. (b) The Parties mutually take note that: (i) the right granted to Hopa in paragraph (a) above will be deemed exercised when the Current Olimpia Shareholders receive a written communication from Hopa indicating to the Current Olimpia Shareholders its desire to enforce its rights established in the event of Accelerated Deadlock, “Notice of Accelerated Deadlock”; (ii) this communication must be sent by Hopa to the Current Olimpia Shareholders not later than by the fifteenth (15th) day after the occurrence of one of the events referred to in paragraph (a) above; (iii) in the event referred to in paragraph 8.06(a)(v) above, Hopa will not have: (A) the right to exercise the co-sale rights reserved in its favor in paragraph 6.08(a) above; (B) the right to exercise its pre-emptive right established in the by-laws; and (C) any co-sale obligation. 8.07 Exceptions to Cases of Accelerated Deadlock. (a) In partial derogation to the provisions of paragraph 8.06(a)(iii) above, the Parties mutually take note that: (i) the verification of whether the threshold of 1:1 in the debt/equity Ratio of Olimpia was possibly exceeded, relevant for the purposes of paragraph 8.06(iii) above, will exclusively be carried out by Olimpia and the Current Olimpia Shareholders and communicated by them to Hopa (including as part of the approval of the periodic balance sheet situation and the financial statements of Olimpia by its Board of Directors) quarterly, and at any time following a written request from Hopa to Olimpia; and (ii) it may be considered that the event referred to in the previous paragraph 8.06(iii) took place only if, following said event, the debt/equity Ratio of Olimpia is not restored to a value equal to or lower than 1:1 within the next 5 days from the date of the communication by which Olimpia notifies Hopa that the debt/equity Ratio of Olimpia has exceeded 1:1 or, as an alternative, the latter does not irrevocably undertake to restore it, with the understanding that such restoration may occur (A) by non-refundable payments to the capital account made by the Current Olimpia Shareholders and without causing economic difficulties for Hopa or dilutions of the latter’s holding in Olimpia or (B) by subordinated financing, with the understanding that, in this case, the Current

222 Olimpia Shareholders will be obligated (in order to avoid an Accelerated Deadlock) to convert or replace within 60 (sixty) days such subordinated financing by non-refundable payments to the capital account, without causing economic difficulties for Hopa or dilution of the latter’s holding in Olimpia. (b) In addition, the Parties mutually take note that: (i) the sale or contribution of their holding in Olimpia will not constitute a case of Accelerated Deadlock pursuant to paragraph 8.06(v) above: (A) by one of the Current Olimpia Shareholders, to a company which is (and remains) controlled by it; and (B) by Unicredito and Intesa to: (1) a company subject to joint control of said parties in their respective bank group and as long as they remain members thereof; and/or (2) to Pirelli, pursuant to the provisions of the current Voting Trust Agreement between Pirelli, on the one hand, and Unicredito and Intesa on the other hand, provided that Pirelli – simultaneously with such sale or contribution – is subrogated in the obligations assumed by Unicredito and Intesa towards Hopa pursuant to the Agreements and in general pursuant to this Contract; (C) by Edizione to Pirelli pursuant to the provisions of the current Voting Trust Agreement between Pirelli, on the one hand, and Edizione, on the other hand, whereby Pirelli is subrogated as of now, in the event of such sale or contribution, in the obligations assumed by Edizione towards Hopa pursuant to the Agreements and, in general, pursuant to this Contract; (ii) the sales referred to in paragraph 8.07(b)(i) above will not give Hopa the right to exercise the co- sale rights reserved to it under paragraph 6.08(a) above, nor the pre-emptive right established for it in the by-laws, nor will they create any co-sale obligation for Hopa. 8.08.Relations between Deadlock and Accelerated Deadlock. The Parties mutually take note that whenever, in the event of a Deadlock, there is an event of Accelerated Deadlock, the applicable provisions in the case of Accelerated Deadlock will prevail and, whenever there is an Accelerated Deadlock, there may be no Deadlock or a subsequent Accelerated Deadlock, with the understanding that in the event of a Deadlock, an Accelerated Deadlock may take place but a subsequent Deadlock may not be deemed to occur.

Article IX Spin-off and Holinvest Spin-off 9.00 Triggering Events. Should Hopa exercise the rights set forth in its favor in paragraphs 8.05 and 8.06(a) above, and in the event of failure to renew the Agreements on their initial expiration or at the expiration of the subsequent renewals periods pursuant to paragraph 6.00 above: (i) the Current Olimpia Shareholders undertake to do everything necessary so that – pursuant to the following paragraphs of this Article IX and in particular paragraph 9.01 – the Spin-off takes place; and (ii) Hopa and Olimpia undertake to do everything necessary so that - pursuant to the following paragraphs of this Article IX and in particular paragraph 9.04 – the Holinvest Spin-off takes place. 9.01 The Spin-off. (a) The Spin-off will consist of a partial spin-off of Olimpia as a consequence of which Hopa will receive the pro-quota of Olimpia’s assets and liabilities. (b) The reference date, including for the determination of the pro-quota of the assets and liabilities and without prejudice to paragraph 9.02, of the Spin-off (the “Relevant Date”) will be: (i) the Initial Term, in the event of Deadlock and in the event of failure to renew the Agreements on the original expiration or on the expiration of the subsequent renewal periods (without prejudice to paragraph 8.05(b) above); and

223 (ii) a date coinciding with the third (3rd) Business Day following the date of the key issue for the purposes of Accelerated Deadlock, in the event of Accelerated Deadlock. (c) Without prejudice to paragraph 9.06 below, the Current Olimpia Shareholders must take all necessary steps to complete the Spin-off within six (6) months: (i) from the Initial Term, in the event of Deadlock and in the event of failure to renew the Agreements on the original expiration or on the expiration of the subsequent renewals periods; and (ii) from the date of receipt of the Notice of Accelerated Deadlock, in the event of Accelerated Deadlock. 9.02 Commitment of the Current Olimpia Shareholders. Without prejudice to paragraph 9.07 below for the so-called cash settlements, in all cases in which, pursuant to this Contract, it is necessary to proceed with the Spin-off, the Current Olimpia Shareholders must do everything necessary so that, on the Relevant Date: (i) the assets of Olimpia consist at least of the Olivetti Holding (ii) the share of the Olivetti Holding and Financial Instruments to be attributed to Hopa in the Spin- off is equal to the percentage of Hopa’s holding in the capital of Olimpia, without prejudice to the fact that, in the Spin-off, Hopa must be attributed a share of the Olivetti Holding including in the event that, on the Relevant Date, Olimpia has a holding lower than the Olivetti Holding, except that, upon the reduction of Olimpia’s holding in Olivetti below the Olivetti Holding, the exercise of the co-sale right is obtained by Hopa; in this case, Hopa will be attributed the prorata of Olimpia’s holding in Olivetti and of its financial instruments; (ii) Hopa will be attributed a portion, in a percentage equal to Hopa’s holding percentage in Olimpia’s capital, (A) of Olimpia’s holding in Holinvest on the Relevant Date; or (B) the share reserved to Olimpia in connection with Holinvest’s assets and liabilities on the same date. 9.03 Further Commitments in the Event of Deadlock, Accelerated Deadlock and Failure to Renew. In addition to the provisions of Paragraph 9.02 above, in the event of a Spin-off following a Deadlock, and an Accelerated Deadlock or failure to renew the Agreements, the Current Olimpia Shareholders must take all necessary steps so that the debt/equity Ratio of Olimpia on the Relevant Date is not higher than 1:1. 9.04 Subsequent Commitments only in the Event of Accelerated Deadlock. In addition to the provisions of paragraph 9.02 above, in the event of Spin-off following an Accelerated Deadlock (and therefore not in the case of Deadlock or failure to renew the Agreements), the Current Olimpia Shareholders must take all necessary steps so that the effects of the event which gives rise to Hopa’s right to enforce the Accelerated Deadlock (provided it does not consist of the events referred to in paragraphs 8.06(ii) and 8.06(iii) above) do not prejudice the Spin-off. 9.05 Holinvest Spin-off. (a) The Holinvest Spin-off will consist of a partial Spin-off of Holinvest as a consequence of which Olimpia will be attributed the pro-quota of the assets and liabilities of Holinvest. (b) Without prejudice to paragraph 9.07 below, the reference date of the Holinvest Spin-off will be the Relevant Date of the Spin-off (and must therefore be determined pursuant to paragraph 9.01(b) above). (c) Without prejudice to paragraph 9.07 below, Hopa must take all necessary steps for the Holinvest Spin-off to be completed within six (6) months: (i) from the Initial Term, in the event of Deadlock and in the event of failure to renew the Agreements on the original expiration or on the expiration of the subsequent renewals periods; and (ii) from the date of receipt of the Notice of Accelerated Deadlock, in the event of Accelerated Deadlock.

224 9.06 Commitment of Hopa. In all cases in which the Holinvest Spin-off must be carried out, Hopa will take all necessary steps so that, on the Relevant Date: (i) Holinvest’s debt/equity Ratio is not higher than 1:1; and (ii) Holinvest’s assets do not include financial instruments other than Olivetti Bonds or other Olivetti Instruments or financial instruments coming from Extraordinary Transactions or Olivetti Shares arising from the conversion of the instruments mentioned above, in addition to the Olivetti Shares referred to in paragraph 4.01 (a) (ii) (A) (4) above. 9.07 Procedures for the Spin-off and Holinvest Spin-off. (a) Without prejudice to the previous paragraphs of this Article IX, the Parties mutually take note that, in order to carry out the agreement of the Parties in the event that it is necessary to proceed with the Spin-off and the Holinvest Spin-off: (i) the Holinvest Spin-off must proceed and be effective before the Spin-off becomes effective, and must attribute to Olimpia (or, should it so require, in writing, to one of its 100%-owned subsidiaries) the pro-quota of the assets and liabilities of Holinvest (as set forth in paragraphs 9.05 and 9.06 above); however, it is understood that, whenever Hopa so desires, instead of the Holinvest Spin-off (and therefore instead of the allocation to Olimpia of the pro-quota of the assets and liabilities of Holinvest) Hopa may liquidate Olimpia [and therefore buy Olimpia’s holding in Holinvest] with a payment in cash (so-called cash settlement) whose amount must be calculated equal to the difference, calculated at market prices on the Relevant Date, between the assets and liabilities which, in the event of the Holinvest Spin-off (and therefore in the event of allocation to Olimpia of the pro-quota of the assets and liabilities of Holinvest) would have been reserved for Olimpia; with the understanding that this right may be exercised by Hopa only within 15 (fifteen) Business Days from the Relevant Date, and that the payment of the aforementioned amount must take place within 15 (fifteen) Business Days after the exercise of said right. (ii) subsequently – although uninterruptedly – at the time the Holinvest Spin-off becomes effective, the Spin-off will be carried out attributing to Hopa (or, if it so desires, to one of its 100% subsidiaries) the pro-quota of the assets and liabilities of Olimpia (as set forth in paragraphs 9.01 to 9.04 above); however, it is understood that, whenever the Current Olimpia Shareholders so desire, instead of the Spin-off (and therefore instead of the allocation to Hopa of the pro-quota of the assets and liabilities of Olimpia) the Current Olimpia Shareholders may liquidate Hopa [and therefore buy the pro-quota, unless decided otherwise, of Hopa’s entire holding in Olimpia] with a payment in cash (so-called cash settlement) whose amount must be calculated equal to the difference, calculated at market prices on the Relevant Date, between the assets and liabilities which, in the event of the Spin-off (and therefore in the event of allocation to Hopa of the pro-quota of the assets and liabilities of Olimpia) would have been reserved for Hopa; with the understanding that this right may be exercised by the Current Olimpia Shareholders only within 15 (fifteen) Business Days from the Relevant Date, and that the payment of the aforementioned amount must take place within 15 (fifteen) Business Days after the exercise of said right. (iii) including in the event of cash settlement, Hopa will be paid or attributed the Increase Premium to which it is entitled pursuant to Article X below. (iv) the stipulation of the Spin-off instrument will be subject to the stipulation of the pre-emptive right agreement referred to in paragraph 7.05 above, whose enforceability will be, in turn, subject, as a suspensive condition, to the completion of the Spin-off. (b) Furthermore, the Parties mutually take note of the fact that Olimpia’s liabilities include a “syndicated loan,” in the amount of _ 1.8 billion maturing in October 2006, which cannot be distributed as part of the Spin-off between the company subject to spin-off and the beneficiary, and that therefore:

225 (i) such syndicated loan will fully remain in the liabilities of Olimpia; (ii) as part of the Spin-off, Olimpia will attribute to the beneficiary another financial loan, equal to the portion of the syndicated loan which would be due to the beneficiary of the Spin-off, without changing the preexisting pro-quota of the assets and liabilities to which the beneficiary is entitled. (c) The Parties mutually take note that, as part of the Holinvest Spin-off, as part of the attribution of the pro-quota of the applicable assets and liabilities, Hopa will be attributed 100,000,000 Olivetti Bonds and the respective debt as referred to in paragraph 4.01(ii)(D)(2).

OMISSIS

Article X Increase Premium 10.00 Description. In all the events in which it is necessary to proceed with the Spin-off, pursuant to the applicable provisions of this contract and in particular Article 9 above (in the calculation of the pro quota of the assets and liabilities to which the beneficiary is entitled under the Spin off) Olimpia or the Current Olimpia Shareholders, if Olimpia fails to do so, must pay to Hopa, by the methods referred to in paragraph 10.04 below, but in addition to any right of Hopa by the effect of the Spin-off pursuant to Article IX above, an Increase Premium (the “Increase Premium”) for each Olivetti share and/or financial instrument which, by the effect of the Spin-off, must be attributed to Hopa (or should have been attributed to Hopa in the event that the Current Olimpia Shareholders would have exercised their right to the cash settlement pursuant to the paragraph 9.07(a) above, to be determined and paid pursuant to the provisions of the following paragraphs of this Article X. It is understood that, whenever Extraordinary Transactions or Capital Transactions are carried out, such Increase Premium must be paid for the entire number of Olivetti Shares and/or Financial Instruments timely adjusted or changed as a consequence of such transactions, according to market practice, with the understanding that whenever, due to the determination of such number there is a disagreement between the Parties, such determination will be requested by the most diligent Party from a prime business bank chosen by mutual agreement or, in the absence thereof, designated by the Presiding Judge of the Court of Milan; with the understanding that, without prejudice to paragraph (i) above, the Increase Premium will be paid only for the Olivetti shares and Financial Instruments directly or indirectly owned, held, or available to Olimpia as of the date of the Spin-off (net of those arising from the Holinvest Spin-off, which will consequently not be considered for the determination of the Increase Premium). Whenever actually paid, the Increase Premium must be considered to include all Hopa’s claims following the Deadlock or the Accelerated Deadlock, as the case may be. 10.01 The Increase Premium in the Event of Deadlock: In the event that the Spin-off takes place following a Deadlock, the Increase Premium must be determined as follows: (i) at € 0.35, whenever the Arbitration Board referred to in Article XIII below, selected by the Parties pursuant to paragraph 8.04(d) above, determines that the Deadlock was not declared by Hopa in good faith; or instead (ii) at € 0.60, whenever the Arbitration Board referred to in Article XIII below, selected by the Parties pursuant to paragraph 8.04(d) above, determines that the Deadlock was declared by Hopa in good faith. 10.02 The Increase Premium in the Event of Accelerated Deadlock. In the event that the Spin-off takes place following an Accelerated Deadlock, the Increase Premium will be equal to € 0.60, without prejudice to the fact that, in the case referred to in paragraph 8.06 (ii) above, the Increase Premium

226 will be equal to € 0.70. 10.03 The Increase Premium in the Event of Failure to Renew the Agreements. In the event that the Spin- off takes place as the consequence of the failure to renew the Agreements, the Increase Premium will be determined according to the following provisions: (i) the Increase Premium may not in any event and therefore not even if the Parties resort to the evaluation of the investment banks referred to in paragraph (ii) below, be determined at an amount of less than € 0.35; (ii) the Increase Premium will be determined by mutual agreement between the Current Olimpia Shareholders and Hopa within 10 business days from the last day of the term of the agreement or, in the absence of such agreement, by two “investment banks” with the national standing selected one by each Party; for the purposes of this paragraph 10.03. Party means Hopa, on the one hand, and the Current Olimpia Shareholders on the other hand, without prejudice to the fact that, whenever the “investment banks” so appointed disagree on the evaluation within 30 business days from their appointment, the evaluation will be made by a third “investment bank” with the same standing, selected by agreement between the first two (at the time the Parties give the assignment) or, in the absence of agreement, by the Presiding Judge of the Court of Milan; (iii) the Presiding Judge of the Court of Milan will be (in the order and in the terms indicated above) also requested to appoint the “investment bank” which one of the Parties may have omitted to appoint or to replace it, in the event it is released from its assignment; (iv) the evaluation referred to in point (i) above will be final and binding for the Parties pursuant to articles 1349 and 1473 of the Italian Civil Code, for the purposes of this Article X and in particular this paragraph 10.03. 10.04 Terms and Manner of Payment of the Increase Premium. The Increase Premium must be paid or allocated to Hopa by Olimpia – or by the Current Olimpia Shareholders pursuant to paragraph 10.00 above – in immediately available funds; (i) in the event referred to in paragraph 10.01 above; (A) concerning the _ 0.35, at the time of affecting the Spin-off: and (B) concerning the possible balance (equal to _ 0.25), within 15 (fifteen) business days from the decision of the Arbitration Board, determining that the Deadlock was determined by Hopa in good faith; (ii) in the event referred to in paragraph 10.02 above, concerning the _ 0.35, within 30 (thirty) calendar days from receipt of the notice of Accelerated Deadlock by the Current Olimpia Shareholders, and the balance of the applicable Increase Premium at the time of perfecting the Spin-off; (iii) in the event referred to in paragraph 10.03 above, within 30 (thirty) business days from the determination referred to in points (ii) to (iv) of paragraph 10.03 above.

Article XI Tax expenses

OMISSIS

Article XII General Provisions

OMISSIS

Article XIII Disputes

227 OMISSIS

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The full text of the Contract (without any OMISSIS): (i) will be filed – in accordance with the paragraph 1, letter (c) of article 122 of Legislative Decree No. 58/98 – at the Milan and Turin/Ivrea Companies Registry; and (ii) is already available for viewing on the corporate website www.pirelli.com

Milan, March 1, 2003

228 PLAN FOR THE MERGER BY INCORPORATION IN PIRELLI & C. A.P.A. (AFTER ITS TRANSFORMATION TO A CORPORATION) OF PIRELLI & C. LUXEMBOURG S.P.A. AND PIRELLI S.P.A. DRAWN UP IN ACCORDANCE WITH ART. 2501 BIS OF THE ITALIAN CIVIL CODE.

Considering that: a. the intention is to proceed with the merger by incorporation in Pirelli & C. A.p.A. (after its transformation, in the same shareholders’ meeting called to approve this plan of merger, but with immediate effect, from a limited partnership to a corporation – hereinafter Pirelli & C.) of Pirelli & C. Luxembourg S.p.A. (hereinafter Pirelli & C. Luxembourg) and Pirelli S.p.A.; b. the assumptions for the merger are described in the reports by the Board of Managing Partners of Pirelli & C. and the Board of Directors of Pirelli S.p.A. to the respective shareholders’ meetings; c. the plan of merger makes reference to the balance sheet data at December 31, 2002 of the companies taking part in the merger, that in all cases coincide with the respective annual financial statements. For purposes of determining the exchange ratios and the valuations needed of the relative value of the economic capitals of the companies, account was also taken of the following significant events subsequent to such date: (i) the purchase by Pirelli & C. of 47,973,139 Pirelli S.p.A. ordinary shares (equal to 2.5 percent of ordinary share capital) from BZ Group Holding Limited for a total price of about Euros 43.1 million; (ii) the merger of Holy S.r.l. in Olimpia S.p.A. on the basis of the agreements signed between the shareholders of Olimpia S.p.A., Olimpia S.p.A. and Hopa S.p.A. and announced to the market on December 19, 2002 (published in accordance with the law), after which Pirelli S.p.A.’s investment in Olimpia S.p.A. will be reduced from 60 percent to 50.4 percent; (iii) the proposed pay out of dividends from 2002 profits by both Pirelli & C. (Euros 0.08 per ordinary share and Euros 0.0904 per savings share, for a total of about Euros 52 million) and Pirelli S.p.A. (Euros 0.0364 per savings share for a total of about Euros 3 million), submitted to the approval of the respective shareholders’ meetings; (iv) the capital increase cum warrants offered on option to the shareholders of Pirelli & C. referred to in the preceding paragraph 2.

Having said that

The following plan of merger by incorporation is submitted for approval to the shareholders’ meetings of Pirelli & C., Pirelli & C. Luxembourg and Pirelli S.p.A..

229 1. Type, name of company and registered offices of the companies taking part in the merger

Merging company Pirelli & C. A.p.A. (Pirelli & C. S.p.A. after transformation of its legal entity as stated in the introduction), with registered office in Milan, Via Gaetano Negri 10, with share capital of Euros 339,422,773.56, fully paid-in, subdivided into 652,736,103 shares of par value Euros 0.52 each, of which 618,317,846 ordinary shares and 34,418,257 savings shares, Milan Companies Registry number 00860340157, tax code number 00860340157, established in Milan on May 15, 1883 by deed of the notary public Stefano Allocchio, file number 10752.

Companies to be merged Pirelli & C. Luxembourg S.p.A., with registered office in Milan, Via Gaetano Negri 10, (formerly Pirelli & C. Luxembourg S.A., with registered offices in Luxembourg, 13 Boulevard du Prince Henri), share capital of Euros 183,600,000.00, fully paid- in, subdivided into 270,000 ordinary shares of par value Euros 680.00 each, Milan Companies Registry number 03913350967, tax code number 03913350967, established in Luxembourg on February 28, 1997 by deed of the notary public Jacques Delvaux.

Pirelli S.p.A., with registered office in Milan, Viale Sarca 222, share capital of Euros 1,043,707,463.24, fully paid-in, subdivided into 2,007,129,737 shares of par value Euros 0.52 each, of which 1,919,123,721 ordinary shares and 88,006,016 savings shares, Milan Companies Registry number 00886890151, tax code number 00886890151, established in Milan on November 3, 1920 by deed of the notary public Gerolamo Serina, file number 18657.

2. By-laws of the merging company and amendments to the by-laws as a result of the merger The shareholders’ meeting of Pirelli & C. called to vote on the merger will be asked to pass resolutions, beforehand, on the transformation of the merging company to a corporation, the change in the corporate business purpose and a series of consequent amendments to the by-laws, the one and the other effective immediately.

Specifically, amendments will be made to articles 1 (name of the company), 2 (corporate business purpose), 7 (convocation of shareholders’ meetings), 8 (constitution of shareholders’ meetings), 9 (chairmanship of shareholders’ meetings), 10 (management of the company), 11 (convocation of the Board of Directors and majorities), 12 (representation of the company), 13 (compensation to the directors), 14 (resignation of the directors) and 17 (distribution of profits) of the by-laws of Pirelli & C..

A new article will also be inserted between articles 10 and 11 relating to the powers of the Board of Directors and will be numbered article 11, with the consequent re- numbering of the following articles.

230 The same shareholders’ meeting, always before the resolution on the merger, will be asked to approve a share capital increase cum warrants that will be offered on option to shareholders of Pirelli & C. prior to the effective date of the merger, as a result of which article 5 of the by-laws of the aforementioned company will be consequently amended.

Specifically, the shareholders of Pirelli & C. will be asked to approve: a) a share capital increase by Pirelli & C., separable, against payment for a maximum par value of Euros 1,014,185,020.68 through the issue of a maximum of 1,950,355,809 ordinary shares, all with a par value of Euros 0.52, with regular dividend rights from January 1, 2003, to be granted on option to the shareholders, in a ratio of 3 new ordinary shares for every 1 share of any class of stock held, at a price equal to par value, for a total equivalent spot amount of a maximum of Euros 1,014,185,020.68. Each new share issued will also have a free warrant attached, that can be traded separately, valid to subscribe, from January 1, 2004 to June 30, 2006, to Pirelli & C. ordinary shares in a ratio of 1 new Pirelli & C. share for every 4 warrants held, at a unit price equal to par value; b) a consequent share capital increase, separable, against payment for a maximum par value of Euros 253,546,255.04 through the issue, at one or more times, of a maximum of 487,588,952 ordinary shares, all with a par value of Euros 0.52, with regular dividend rights, to be reserved exclusively and irrevocably for the exercise of the warrants attached to the shares that will be issued as described in the preceding point a), for a further equivalent amount in the future of a maximum of Euros 253,546,255.04.

Again on the basis of the resolutions that will be proposed to the aforementioned extraordinary shareholders’ meeting, as a result of the merger, and effective from the date the merger comes into effect with third parties, articles 5 and 17 (previously numbered article 18) of the by-laws of the merging company will be further amended. As for article 5, the amendments incorporate: (i) the capital increase to service the merger and (ii) the delegation of power to the Directors of Pirelli & C. to increase share capital through the issue, at one or more times, of a maximum of 100,000,000 Pirelli & C. ordinary shares, by April 30, 2008, to be granted to the managers and cadres of the company and its subsidiaries, in Italy and abroad, pursuant to articles 2441 and/or 2349 of the Italian Civil Code.

As for art. 17 (renumbered art. 18), the amendment refers to the increase in the preference dividend from 5 percent to 7 percent of the par value of the savings shares (Euros 0.52 for both Pirelli & C. and for Pirelli S.p.A.) to be paid from the annual earnings calculated net of the portion to appropriate to the legal reserve. This was done in order to render the economic treatment of Pirelli & C. savings shareholders the same as Pirelli S.p.A. savings shareholders.

A copy of the by-laws – in the version reflecting the changes that will be submitted to the extraordinary shareholders’ meeting of Pirelli & C. convened to approve, among other things, this plan of merger, described in the preceding paragraphs – is attached to the plan of merger.

231 The renewal of the corporate boards will also be proposed to the Pirelli & C. shareholders’ meeting.

3. Share exchange ratio The exchange ratio is equal to the following: – 4 new Pirelli & C. ordinary shares for every 3 Pirelli S.p.A. ordinary shares; – 10 new Pirelli & C. non-convertible savings shares for every 7 Pirelli S.p.A. non- convertible savings shares.

There is no cash differential anticipated.

The shares of Pirelli & C. Luxembourg (a wholly-owned subsidiary of the merging company) will be cancelled, without exchange.

4. Manner of assigning the shares of the merging company Pirelli & C. will execute the merger by: – cancellation, without exchange, of the shares representing the entire share capital of Pirelli & C. Luxembourg, since it is a wholly-owned subsidiary of the merging company; – cancellation, without exchange, of the Pirelli S.p.A. ordinary and savings shares that, at the date the merger becomes effective, are owned by Pirelli & C. or Pirelli & C. Luxembourg; – cancellation, without exchange, of the shares of the company to be merged, Pirelli S.p.A., which, at the date the merger becomes effective, are owned by the same company to be merged; – increase of its share capital for a maximum par value of Euros 786,127,230.72 through the issue of a maximum number of 1,398,203,116 ordinary shares and a maximum number of 113,580,020 non-convertible savings shares of par value Euros 0.52 each with dividend rights from January 1 of the year in which the merger comes into effect with third parties, to be reserved for the shareholders of Pirelli S.p.A. (other than Pirelli & C. and Pirelli & C. Luxembourg) on the basis of the exchange ratios indicated in the preceding paragraph 3.

The amount of the capital increase to service the exchange ratio represents the maximum theoretical amount based upon the structure of the shareholder base as of the date of this report, assuming: (i) full exercise of the 46,154,000 “Mediocredito Lombardo Warrants – Pirelli S.p.A. ordinary shares 1998-2003”, held by a single party, valid for the subscription, in the period July 1 – 31, 2003, of 1 Pirelli S.p.A. ordinary share for each 1 warrant held at the price of approx. Euros 3.24 per share, and (ii) full exercise of the options granted by Pirelli S.p.A. under the existing incentive plans giving the beneficiaries the right to subscribe to a maximum of 46,829,692 Pirelli S.p.A. ordinary shares.

In order for the Pirelli S.p.A. shares, that are to be exchanged for the exchange ratio to be exactly separable, up to a maximum of 2 ordinary shares and up to a maximum of 6 savings shares of Pirelli S.p.A. will be cancelled and made available to a shareholder. The exact amount of the shares to be cancelled will be determined at the time of signing the deed of merger, taking into account the number of Pirelli

232 S.p.A. ordinary and savings shares held by Pirelli & C., Pirelli & C. Luxembourg and the same Pirelli S.p.A. at that date, as well as the eventual exercise of “Mediocredito Lombardo Warrants – Pirelli S.p.A. ordinary shares 1998-2003” and the eventual exercise of the options granted by Pirelli S.p.A. to the beneficiaries of the existing incentive plans.

The Pirelli & C. shares issued under the exchange ratios referred to in the preceding paragraph 3 will be made available to those entitled, under conditions of dematerialization, through the respective authorized depositary agents registered with Monte Titoli S.p.A. beginning from the date the merger becomes effective, if the stock market is open for trading or from the first trading day thereafter.

Where necessary, Pirelli S.p.A. will ensure, through a broker charged especially for the purpose, that shareholders can purchase or sell the minimum number of Pirelli S.p.A. shares in order to have a whole number of Pirelli & C. shares without any additional expenses, stamps, duties and commissions. This information will be announced on a timely basis through a specific notice published in at least one national newspaper.

Pirelli & C. and Pirelli S.p.A. will advise those concerned of the necessary procedures to be followed to exchange the shares after the merger has been executed through publication of a specific notice in at least one national newspaper.

As from the date the merger becomes effective, if the stock market is open for trading, or from the first trading day thereafter, the Pirelli S.p.A. shares of all classes of stock will be delisted from the Mercato Telematico Azionario organized and operated by Borsa Italiana S.p.A..

Pirelli & C. shares, including the new shares issued to service the exchange ratio, will continue to be listed on the Mercato Telematico Azionario organized and operated by Borsa Italiana S.p.A.

5. Date from which the new Pirelli & C. shares accrue dividend rights The new Pirelli & C. ordinary and non-convertible savings shares to service the exchange will have dividend rights from January 1 of the year in which the merger comes into effect with third parties.

6. Date the merger becomes effective The deed of merger will establish the date from which the merger will be in effect ex art. 2504 bis of the Italian Civil Code. The date could also be subsequent to the date in which the final registrations required by art 2504 of the Italian Civil Code have been completed.

In accordance with the combined provision of articles 2504 bis, paragraph 3, and 2501 bis, paragraph 6 of the Italian Civil Code, the transactions of Pirelli & C. Luxembourg and Pirelli S.p.A. will be taken up by Pirelli & C. in its financial statements beginning from January 1 of the year in which the merger comes into effect with third parties, and this is also the date on which the merger becomes effective for tax purposes, pursuant to art. 123, paragraph 7, of D.P.R. No. 917 of December 22, 1986.

233 7. Eventual treatment reserved for specific categories of shareholders and holders of securities other than shares The exchange ratio to which the Pirelli S.p.A. ordinary and savings shareholders are entitled are indicated in the preceding paragraph 3.

As a result of the amendment to art. 17 (renumbered art. 18) of the by-laws following the approval of the plan of merger, the Pirelli & C. holders of savings shares (including those coming from the exchange ratio with Pirelli S.p.A. shares) will be entitled to a preference dividend on profits equal to 7 percent of the par value of the savings shares (Euros 0.52) to be paid from the annual earnings, calculated net of the portion to appropriate to the legal reserve. This change will come into force from the date the merger comes into effect with third parties, taking into account the comments in the preceding paragraph 5.

The Pirelli & C. savings shares granted in the exchange ratio for the Pirelli S.p.A. savings shares will have all the features of the latter.

As for the 46,154,000 “Mediocredito Lombardo Warrants – Pirelli S.p.A. ordinary shares 1998-2003”, valid for the subscription, in the period July 1 – 31, 2003, of 1 Pirelli S.p.A. ordinary share for each 1 warrant held at the price of approx. Euros 3.24 per share, account was taken of the eventual exercise of the warrants for purposes of determining the maximum number of shares to be issued to service the exchange.

Lastly, Pirelli & C. will substitute: (i) Pirelli & C. Luxembourg as the issuer of the “Pirelli & C. Luxembourg S.A. – 5.125% Guaranteed Notes due 2009” of Euros 150,000,000 (ii) Pirelli S.p.A. as the issuer of “Pirelli S.p.A.– 4.875% Notes due 2008” of Euros 500,000,000 and (iii) Pirelli S.p.A. as the guarantor of the “Pirelli Finance (Luxembourg) S.A.– 6.50% Guaranteed Notes due 2007” of Euros 500,000,000”.

There are no treatments reserved for the holders of securities other than those mentioned above.

However, the absent or dissenting holders of Pirelli & C. ordinary shares regarding the specific resolutions on the transformation of Pirelli & C. to a corporation and the change in the corporate business purpose (more fully described in the preceding paragraph 2) referred to in point 1 of the agenda of the extraordinary session of the Pirelli & C. shareholders’ meeting called to approve, among other things, the plan of merger, and the holders of Pirelli & C. savings shares, will be entitled to the right of withdrawal pursuant to art. 2437 of the Italian Civil Code to be exercised in the manner indicated in the specific notice that will be published in at least one national newspaper subsequent to the registration of the relative resolutions in the Companies Registry.

234 8. Specific advantages eventually proposed in favor of the directors of the merging company and/or merged companies

There are no particular advantages anticipated for the directors of the merging company and/or merged companies.

Milan, March 11, 2003

Pirelli & C. Accomandita per Azioni The Chairman Dott. Marco Tronchetti Provera

Pirelli Società per Azioni The President and CEO Dott. Marco Tronchetti Provera

Milan, April 2, 2003

Pirelli & C. Luxembourg S.p.A. The Chairman Dott. Pierluigi Zanaboni

Attachment: By-laws

235 BY-LAWS

COMPANY’S NAME, PURPOSE, REGISTERED OFFICE AND DURATION

Article 1 A Corporation is hereby incorporated under the name Pirelli & C. Società per Azioni.

Article 2 The purpose of the Company is the following: a) the acquisition of participating interests in other companies or corporations, both in Italy and abroad; b) the financing, the technical and financial co-ordination of the companies or corporations in which it has interests; c) the sale, ownership, management or placement of both government and private securities; The Company may carry out all transactions of any type whatsoever - excluding the collection of savings deposits from the public - connected to its corporate business purpose.

Article 3 The registered office of the Company is in Milan, at Via G. Negri 10.

Article 4 The duration of the Company is fixed until the date of December 31, 2100.

SHARE CAPITAL

Article 5 The share capital is Euros 339,422,773.56 (threehundredthirtyninemillion- fourhundredtwentytwothousandsevenhundredseventythreeandfiftysixcents) divided into 652,736,103 (sixhundredfiftytwomillionsevenhundredthirtysixthousand- onehundredthree) shares with a par value of Euros 0.52 (fiftytwocents) each consisting of 618,317,846 (sixhundredeighteenmillionthreehundredseventeenthousand- eighthundredfourtysix) ordinary shares and 34,418,257 (thirtyfourmilion- fourhundredeighteenthousandtwohundredfiftyseven) savings shares. By resolution passed by the extraordinary shareholders’ meeting held on December 22, 1998, the Directors were granted the power to increase the share capital, at one or more times, by a maximum amount of Euros 103,291,379.81 (onehundredthreemilliontwohundrednintyonethousandthreehundredseventynineand eightyonecents) and for a maximum time period of five years from the date of said resolution. The share capital increase may be carried out by issuing, also with a premium, both ordinary and savings shares, and must be reserved for shareholders and/or holders of convertible bonds. By resolution passed by the extraordinary shareholders’ meeting held on December

236 22, 1998, the Directors were granted the power to issue bonds, at one or more times, including bonds that are convertible both into ordinary shares or into savings shares, or bonds with warrants valid for the subscription of said shares, for a maximum par value amount of Euros 206,582,759.63 (twohundredsixmillion- fivehundredeightytwothousandsevenhundredfiftynineandsixtythreecents) and for a maximum time period of five years from the date of said resolution, with the consequent possible increase of the share capital to serve the bond conversion. The extraordinary shareholders’ meeting of May 7, 2003 voted the following: a) to increase share capital, against payment, separable, by and no later than December 31, 2003, of a maximum of Euros 1,014,185,020.68 (onebillion- fourteenmilliononehundredeightyfivethousandandtwentyandsixtyeightcents), through the issue of a maximum of 1,950,355,809 (onebillionninehundred- fiftymillionthreehundredfiftyfivethousandeighthundredandnine) ordinary shares of par value Euros 0.52 (fiftytwocents) each, with dividend rights from January 1, 2003, to be offered on option to the shareholders, at a unit price equal to par value, in a ratio of 3 new ordinary shares for every 1 share of whatsoever class of stock owned; b) to attach to each share referred to in point a) a free warrant, that can be traded separately, valid to subscribe, at any time from January 1, 2004 to June 30, 2006, in a ratio of 1 Pirelli & C. ordinary share, with regular dividend rights and a par value of Euros 0.52 (fiftytwocents) for every 4 warrants held, at a unit price equal to par value; c) to consequently increase share capital against payment, separable, by and not later than June 30, 2006, of a maximum par value of Euros 253,546,255.04 (twohundredfiftythreemillionfivehundredfortysixthousandtwohundredfiftyfivean dfourcents) through the issue, at one or more times, of a maximum of 487,588,952 (fourhundredeightysevenmillionfivehundredeightyeightthousand- ninehundredfiftytwo) ordinary shares, of par value Euros 0.52 (fiftytwocents) each, with regular dividend rights, to be reserved exclusively and irrevocably for the exercise of a maximum of 1,950,355,809 (onebillionninehundred- fiftymillionthreehundredfiftyfivethousandeighthundredninne) warrants attached to the shares referred to in the preceding point b). The extraordinary shareholders’ meeting of May 7, 2003 which approved the merger by incorporation in Pirelli & C. S.p.A. of Pirelli & C. Luxembourg S.p.A. and Pirelli S.p.A. voted to increase share capital to service the exchange ratio by a maximum par value of Euros 786,127,230.72 (sevenhundredeightysixmilliononehundred- twentyseventhousandtwohundredthirtyandseventytwocents) through the issue of a maximum of 1,398,203,116 (onebillionthreehundredninetyeightmillion- twohundredandthreethousandonehundredandsixteen) ordinary shares and a maximum of 113,580,020 (onehundredthirteenmillionfivehundredeightythousandtwenty) savings shares of par value Euros 0.52 (fiftytwocents) each with dividend rights from January 1 of the year in which the merger comes into effect with third parties, to be reserved for the shareholders of Pirelli S.p.A., other than Pirelli & C. S.p.A. and Pirelli & C. Luxembourg S.p.A., on the basis of the exchange ratio of: (i) 4 new Pirelli & C. ordinary shares for every 3 Pirelli S.p.A. ordinary shares and (ii) 10 new Pirelli & C. non-convertible savings shares for every 7 Pirelli S.p.A. non-convertible savings shares. By resolution voted by the extraordinary shareholders’ meeting of May 7, 2003, the Directors were granted the power to issue, at one or more times, up to a maximum

237 of 100,000,000 (onehundredmillion) ordinary shares, by April 30, 2008, to be granted to the managers and cadres of the Company and its subsidiaries and the subsidiaries of the latter, in Italy and abroad, pursuant to articles 2441 and/or 2349 of the Italian Civil Code.

Article 6 The shares are divided into ordinary shares and savings shares. Ordinary shares give the right to one vote per share; they may be either registered or bearer shares insofar as the law permits, and in this case may be converted, especially at the holder's request and expense, from one type to the other. Savings shares do not give the right to vote and, unless the law provides otherwise, are bearer shares. At the request and expense of the shareholder they may be converted into registered shares. As well as any rights and privileges provided for by law and in other parts of the present by-laws, savings shares shall have pre-emptive rights in the matter of paying-off of capital up to the full par value of same; in the event of a capital reduction due to loss, the par value of the saving shares will be reduced only by that part of loss exceeding the total par value of the other shares. Savings shares keep the rights and privileges foreseen by law and by the present by- laws even in the event of exclusion of ordinary shares and savings shares from trading. In order to ensure the common representative of the holders of savings shares, of adequate information about any transactions which might influence the trend in the market prices of the shares in that class, any communications concerning said transactions will promptly be sent to same, by the legal representatives. In the event of a share capital increase being carried out by issuing shares of only one class, same must be offered on option to the shareholders of all classes of shares. In the event of both ordinary shares and savings shares being issued: a) the holders of ordinary shares shall have the right to receive ordinary shares on option, and savings shares to make up any difference; b) the holders of savings shares shall have the right to receive savings shares on option, and ordinary shares to make up any difference.

SHAREHOLDERS’ MEETING

Article 7 The convocation of the shareholders’ meeting, which may take place anywhere in Italy including in a place other than the registered office, the right to attend meetings and representation at same are all governed by law. In view of the nature of the Company's business and the special requirements arising therefrom, the ordinary shareholders’ meeting may be convened within six months of the end of the financial period. Article 8 The due convocation of the meeting and the validity of its resolutions are governed by law. The voting quorum for the appointment of Directors is established as a relative majority of the votes.

238 Article 9 The meeting shall be presided over by the Chairman of the Board of Directors, by a Deputy Chairman or by a Managing Director, in that order; whenever there are two or more Deputy Chairmen or Managing Directors, the chair shall be taken respectively by the senior in age. In the event of the absence of the above-indicated individuals, the chair shall be taken by another person chosen by the shareholders’ meeting among the shareholders present. The Chairman is assisted by a Secretary appointed by the meeting; there is no need to appoint a Secretary when the minutes of the meeting are drawn up by a notary public. It is the duty of the Chairman of the meeting to verify the right to attend the meeting, including by means of proxy; to ascertain whether or not the meeting has been duly constituted and has achieved the quorum required in order to pass resolutions; to conduct and moderate the discussion; to establish the order and manner of voting as well as announce the results thereof. The resolutions of the meeting shall be recorded in the minutes, which shall be signed by the Chairman and the Secretary of the meeting or the notary public. The minutes of the extraordinary shareholders’ meeting must be drawn up by a notary public appointed by the Chairman. Any copies and extracts thereof, that have not been drawn up by a notary public, shall be certified as true copies by the Chairman of the Board of Directors.

MANAGEMENT OF THE COMPANY

Article 10 The Company is managed by a Board of Directors composed of between seven and twenty-three members who shall remain in office for three years (unless the meeting fixes a shorter term of office at the time of making the appointment) and may be re- elected. A Chairman, and if necessary, one or more Deputy Chairmen shall be appointed from amongst the members of the Board. In the event of the Chairman being absent, the chair shall be taken by a Deputy Chairman or a Managing Director, in that order; if there should happen to be two or more Deputy Chairmen or Managing Directors, the chair shall be taken respectively by the senior in age. The Board shall appoint a Secretary, who is not necessarily a member of the Board. Unless otherwise decided by the shareholders’ meeting, the Directors are not bound over by the prohibition mentioned under art. 2390 of the Italian Civil Code.

Article 11 The Board is empowered with the management of the Company and, for this purpose, is invested with the fullest powers for administration, except those, which according to the by-laws or by law, are reserved for the shareholders’ meetings. The Board of Directors, also through delegated bodies, informs the Board of Statutory Auditors on a timely basis about the activities conducted and the most important economic, financial and equity transactions carried out by the Company and its subsidiaries; it specifically makes reference to transactions with potential conflicts of interest. The information is provided, at least quarterly, at the board

239 meetings or Executive Committee meetings or by written communication to the Board of Statutory Auditors. The Board is authorized to delegate those powers it wishes to confer on one or more of its members, eventually through the positions of Managing Directors, attributing single or collective signature powers as it deems to establish for the administration of the Company. It may also delegate its competence to an Executive Committee composed of some of its members, whose compensation shall be established by the shareholders’ meeting. It may also nominate one or more committees with consulting functions, also for purposes of updating the corporate governance structure to the recommendations issued from time to time by the competent authorities. Lastly, the Board may appoint General Managers, Deputy General Managers, Managers and Deputy Managers and persons with power of attorney for single acts or categories of acts, establishing powers and competence. The appointment of Managers, Deputy Managers and persons with power of attorney for individual acts or categories of acts, can also be referred by the Board to the Managing Directors and the General Managers.

Article 12 The Board shall meet at the invitation of the Chairman or whomsoever is acting on his behalf, at the registered office of the Company or in any other place stated in the letter of convocation, every time he considers it in the best interests of the Company, or whenever a meeting has been requested by one of the Managing Directors or by at least two standing statutory auditors. However, the Board may validly pass resolutions, even failing any formal convocation, if all the board members and all the standing statutory auditors in office are present. Board meetings shall be convened by means of a letter, telegram, telex or fax sent to the address of each Director and each Standing Statutory Auditor, at least five days before (or in urgent cases at least six hours before) the day set for the meeting. Meetings of the Board and of the Executive Committee may be held by teleconference or videoconference. In this case the following must be guaranteed: a) identification of all the participants at each point in the connection; b) the possibility for each participant to intervene, to orally put forward same’s own opinion, to view, receive and transmit all documentation, as well as the contextuality of considerations and resolutions. Meetings of the Board of Directors and of the Executive Committee are considered to be held in the place in which the Chairman and the Secretary must be simultaneously. The presence of at least half the members plus one is necessary for the resolutions of the Board to be deemed valid, and the favorable vote of the majority of those present is required. In the event of a tie in votes, the casting vote shall be that of the Chairman. The resolutions of the Board, even when passed by meetings held by teleconference or by videoconference, are recorded in a special book signed by the Chairman and the Secretary. Any copies and extracts thereof, that have not been drawn up by a notary public, shall be certified as true copies by the Chairman.

Article 13 Legal representation of the Company vis-à-vis third parties and in court proceedings shall be the duty, with separate and several signatory powers, of the Chairman of the

240 Board of Directors and, if appointed, of the Deputy Chairmen and Managing Directors, within the limits of the powers granted to them by the Board of Directors. Each one of the aforesaid shall in any case have full powers to take legal action and file appeals before any judicial authority and any court of any degree, including in revocation or cassation (supreme court) proceedings, to file statements and prosecute in criminal cases, to sue on behalf of the Company in criminal proceedings, to begin legal proceedings and file petitions before all administrative jurisdictions, to intervene and protect the Company's interests in case of proceedings and claims against the Company, granting for this purpose all necessary mandates and powers of attorney ad litem. The Board of Directors and, within the limits of the powers granted to them by said Board, the Chairman of the Board and, if appointed, the Deputy Chairmen and the Managing Directors, are authorized to grant Managers and staff in general, and when necessary third parties, the power to represent the Company vis-à-vis third parties and in court proceedings.

Article 14 The members of the Board of Directors are entitled to annual compensation established by the shareholders’ meeting and shall be reimbursed for all expenses incurred during the course of their duties. The compensation to Directors invested with special duties is established by art. 2389, paragraph 2, of the Italian Civil Code.

Article 15 If, due to resignation or any other cause, more than half the Directors should leave office, then the entire Board of Directors is considered to have resigned with effect as from the time of its re-constitution.

BOARD OF STATUTORY AUDITORS

Article 16 The Board of Statutory Auditors is composed of three standing statutory auditors and two alternate statutory auditors who must hold the requisites required by existing laws and regulations; to this end, account will be taken that the matters and sectors of business strictly inherent to those of the Company are those indicated in the corporate business purpose with particular reference to companies or entities operating in the industrial, banking, insurance, real estate and services sectors in general. The ordinary shareholders’ meeting shall elect the Board of Statutory Auditors and determine its compensation. The minority shareholders shall appoint one standing statutory auditor and one alternate statutory auditor. With the exception of the provisions of the second last paragraph of the present article, the appointment of the Board of Statutory Auditors shall be made on the grounds of lists put forward by the shareholders in which candidates are listed under progressive numbers. Each list shall contain a number of candidates which does not exceed the number of members to be appointed. All shareholders who, alone or together with other shareholders, represent at least 2 percent of the shares with voting rights in the ordinary shareholders’ meeting, have the right to put forward a list.

241 The lists of candidates, undersigned by the parties presenting them, must be filed at the Company’s registered office at least ten days before the day fixed for the meeting in first call. A description of the professional résumé of the individuals standing for election must be enclosed with the lists together with statements whereby the single candidates accept the nomination and attest, under their own personal responsibility, that no circumstances exist for ineligibility or incompatibility, and that they comply with requirements prescribed by law or by the articles for the position Any lists put forward which do not comply with the aforesaid provisions shall be considered not to have been put forward. Each candidate may be included on only one list, under penalty of ineligibility. Likewise, any individuals who are not in possession of the requisites established by the applicable rules and regulations or who already hold the position of statutory auditor in more than five companies with stocks listed on regulated Italian markets, with the exception of the subsidiaries of Pirelli & C. may not be appointed as statutory auditors. Each individual with voting rights may vote for only one list. The election of the members of the Board of Statutory Auditors is performed as follows: two standing statutory members and one alternate member are taken from the list which has obtained the highest number of votes, in the progressive order in which they are listed thereon; the remaining standing statutory member and the other alternate member are taken from the list which has obtained the highest number of votes from the meeting after the first list, again in the progressive order in which same are listed thereon; in the event of several lists obtaining the same number of votes, a new run-off vote between the said lists will be cast by all the shareholders present at the meeting, and the candidates on the list which obtains the simple majority of the votes will be appointed. The Chairman of the Board of Statutory Auditors shall be the statutory member indicated as the first candidate on the list which obtained the highest number of votes. In case of death, waiver or resignation of a Statutory Auditor, the alternate belonging to the same list as the resigned statutory auditor shall replace him. In the event of replacement of the Chairman the Board of Statutory Auditors, the chair shall be taken by the other statutory member on the list to which the resigning chairman belonged; if it is not possible to perform substitutions and replacements as set out hereinabove, then a meeting shall be convened to integrate and complete the Board of Statutory Auditors and which shall pass resolutions with a relative majority. When the meeting has to make provisions, pursuant to the terms of the aforegoing paragraph or to the terms of law, for the appointment of statutory auditors and/or alternates needed to complete the Board of Statutory Auditors, it shall proceed as follows: if statutory auditors appointed from the majority list have to be replaced, then the appointment is made with a relative majority vote without being tied to any list; if, on the other hand, statutory auditors appointed by the minority shareholders have to be replaced, the meeting shall replace them with a relative majority vote choosing names where possible from amongst the candidates indicated on the list on which the statutory auditor to be replaced appeared. If only one single list has been put forward, then the meeting shall cast its vote in relation to that list; if the list obtains a relative majority, then the first three candidates on the list in progressive order shall be appointed as the standing statutory auditors, and the fourth and fifth candidate shall be appointed as alternate statutory auditors; Chairman of the Board of Statutory Auditors shall be the person indicated at the top of the list put forward; in case of death, waiver or

242 resignation of a statutory auditor, and in the event of substitution of the Chairman of the Board of Statutory Auditors, they shall be replaced respectively by an alternate statutory auditor and a standing statutory auditor in the order arising from the progressive numbering of the said list. Failing any lists, the Board of Statutory Auditors and its Chairman shall be appointed by the shareholders’ meeting with the majorities prescribed by law. Resigning statutory auditors may be re-elected.

FINANCIAL STATEMENTS – DISTRIBUTION OF PROFITS

Article 17 The Company's financial period shall end on the December 31 each year.

Article 18 After all the appropriations to the reserves prescribed by law have been carried out, the annual profits shall be distributed as follows: a) savings shares shall be attributed an amount of up to seven per cent of their par value; if, in any financial period, a dividend of less than seven per cent of the par value has been distributed to the savings shares, the said difference is calculated as an increase to be added to the preference dividend during the following two financial periods; any profits remaining after the aforesaid appropriations and provisions and which the meeting resolves to distribute, shall be distributed amongst all the shares in such a manner that the savings shares shall receive a total dividend which is increased, compared to the dividend received by the ordinary shares, by an amount equivalent to two percent of their par value; b) aside from what has been established above in respect of the total higher dividends attributed to the savings shares, the ordinary shares shall be attributed an amount up to five percent of their par value. The profits remaining shall be distributed among all the shares, in addition to the attribution described in the preceding letters a) and b), unless the shareholders’ meeting, based upon the proposal of the Board of Directors, votes special appropriations to the extraordinary reserves, or other destination or decides to appropriate a part of such profits to retained earnings. In the event of distribution of reserves, savings shares shall have the same rights as the other shares. Interim dividends can be paid, in observance of the law.

GENERAL PROVISIONS

Article 19 Insofar as their relationships with the Company are concerned, the domicile of the shareholders is understood, for all legal purposes, to be that shown in the Shareholders’ Register.

Article 20 All matters not provided for in the present by-laws shall be governed by the provisions of law.

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