Appointment of an Auditing Firm for the audit of the financial statements of the Company, the consolidated financial statements and the short form six-month periods financial statements, referring to each fiscal yr. of the nine-year period 2008-2016, pursuant to art. 159 of the Legislative Decree no. 58/1998

Dear Shareholders,

At the approval of the financial statements as at December 31, 2007, the three-year mandate granted by the Shareholders’ Meeting held on April 28, 2006 to the auditing firm PricewaterhouseCoopers S.p.A. for the audit of the financial statements of Pirelli S.p.A. is expired. Such mandate, in accordance with the current laws and regulations, is no more renewable and it is therefore necessary to appoint a different auditing firm.

The Shareholders’ Meeting shall therefore appoint a new auditing firm for the next nine-year period, pursuant to and in accordance with article 159 of the Legislative Decree no. 54 of February 24, 1998 (the “Unified Financial Act”).

In this regard, we remind you that new article 159 of the Unified Financial Act, as amended by the Legislative Decree no. 303 of December 29, 2006, concerning the procedure for the appointment of the auditing firm, provides that the Shareholders’ Meeting shall grant to an auditing firm the mandate for the audit of the company financial statements and the consolidated financial statements “on the basis of a justified proposal by the Board of Statutory Auditors”.

We therefore inform you that the Board of Statutory Auditors of Pirelli & C. has carried out a deep technical and economical analysis in agreement with, and with the support of, the competent offices of the Company, resolving to submit to the Shareholders’ Meeting its proposal attached herewith, to which we make entirely reference.

The Board of Directors fully agree with the analysis independently carried out by the Board of Statutory Auditors

JUSTIFIED PROPOSAL BY THE BOARD OF THE STATUTORY AUDITORS CONCERNING THE APPOINTMENT OF THE AUDITING FIRM FOR 2008-2016 FISCAL YEARS.

Dear Shareholders,

considered that:

  • at the date of the Shareholders’ Meeting called for the approval of the financial statements as at December 31, 2007 and at the delivery of the relevant audit report, the mandate granted by the Shareholders’ Meeting of Pirelli & C. S.p.A. (the “Company” or “Pirelli & C.”) held on April 28, 2005 to the Auditing Firm PricewaterhouseCoopers S.p.A., will expire;
  • such mandate, according to the current laws and regulations, is no more renewable and it shall be, therefore, necessary to appoint a different auditing firm;
  • on January 10, 2007 the Legislative Decree no. 303 of December 29, 2006 amending, inter alia, Article 159 of the Legislative Decree no. 58 of February 24, 1998 (the “Unified Financial Act” or “UFA”) has been published on the Official Gazette of the Republic of Italy and such amendment provides that the corporate body in charge of the control activities is due to propose to the Shareholders’ Meeting the appointment of the auditing firm and the relevant remuneration.

therefore, the Board of Statutory Auditors of the Company, in accordance with article 159 of the Unified Financial Act, has carried out a competitive contest to select the Auditing Firm to be proposed for appointment to the Shareholders’ Meeting.

At the end of the contest and further to a deep technical-economical analysis – independently carried out by the Board of Statutory Auditors, in agreement with, and with the support of the competent offices of, the Company – the best offer which has been selected is the offer by the auditing firm Reconta Ernst & Young S.p.A.. The choice has been made on the basis of a global and comparative analysis of the proposals submitted to us, having particular regard to the comparison between (i) the expenses and the terms and conditions of the mandate; (ii) the characteristics of the team in charge of the office; (iii) the geographical presence, the competence and the specific expertise and (iv) the fees requested with respect to same areas.

In this regard, pursuant to article 159, paragraph 1, of UFA, we finally remark that:

  • Reconta Ernst & Young is the Italian entity of Ernst & Young network and it is registered in the special register of the auditing firms kept by Consob pursuant to article 161 of UFA;
  • the audit plan exposed in the proposal is appropriate and exhaustive considering the size and the complexity of the mandate; the proposal contains a detailed description of the mandate, the description of the activities and how such activities shall be carried out with particular reference to:

(i) the audit of the financial statements of the Company and the consolidated financial statements (art. 155, paragraph 1, letter b), of UFA);

(ii) the verification that the accounts of the Company are properly kept and that the management events are properly reflected into the accounts (art. 155, paragraph 1, letter a), of UFA);

(iii) the auditing activity pursuant to article 165 of UFA;

(iv) the limited review of short form six-month period financial statements as at June 30 of each single financial year in the nine-year period 2008-2016;

(v) the audit of the financial statements of the foreign subsidiaries having their registered offices in countries which do not ensure corporate transparency (art. 165-quater, paragraph 4, of the UFA);

(vi) the verification activities which related to the subscription of the Fiscal Declarations (namely, Modello Unico and Modello 770 Semplificato e Ordinario) referring to the fiscal years from 2007 to 2015;

  • the evaluation of the working hours needed for the audit on the financial statements and for all the other auditing activities, together with the allocation between the different categories of professionals – for a total amount of 3.200 hours – is adequate taking into account (i) the size, the composition and the risk extent of the most important economical and financial data of the Company, as well as the risk profile due to the consolidation process of the data referring to the subsidiaries, (ii) the technical knowledge and expertise necessary to execute an audit and, (iii) the necessity to ensure, in addition to the execution of the verification activity, an appropriate supervising and directing activity, in accordance with the principles and the criteria determined by Consob pursuant to article 162, paragraph 2, letter a), of the UFA).
  • The remuneration for the mandate – which is equal to Euro 235.000,00 – having regard to both the total amount and the single items, has been determined in order to ensure the quality and the reliability of the auditing activity, as well as the Auditor’s independence.

Mandate

Hours

Fees (Euro)

Audit of the company financial statements¹

980

60,000

Audit of the consolidated financial statements

1,430

115,000

Limited review of the interim consolidated financial statements

790

60,000

TOTAL

3,200

235,000

1 This includes periodical audits pursuant to article 155, paragraph 1, letter a), of UFA and all auditing activities related to the subscription of the Fiscal Declarations (namely, Modello Unico and Modello 770 Semplificato e Ordinario).

Reimbursement for expenses sustained by reason of the office, such as the expenses for transfers and accommodation outside the offices, if sustained, the tax due to Consob (contributo di vigilanza) and VAT, shall be added to the remuneration described in details above.

Working time and remuneration may be periodically reviewed, also depending on the general criteria set forth by article 145-bis of the Consob Regulation 11971/1999 as amended, if the conditions provided by the current laws and regulations shall occur.

  • Reconta Ernst & Young complies with the requirements of independence provided by the current laws and regulations (as at today, according to the available information, no incompatibilities exist)

The Partner which is responsible for the fulfilment of the mandate has been identified by Reconta Ernst & Young in the person of Pellegrino Libroia, registered in the Professional Accountants Register and in the Auditors Register (Albo dei Dottori Commercialisti e Registro dei Revisori Contabili), who has gained a multiyear experience in the audit of the financial statements of listed companies.

Finally, the Board of Statutory Auditors having verified that the economical terms of the proposal by the auditing firm is in line with the amount and the quality of the activities to be carried out, the professional competence of the personnel to be employed and the current market prices;

Proposes

to this Shareholders’ Meeting to grant to the Auditing Firm Reconta Ernst & Young the mandate for:

  • the audit, in accordance with the article 156 of the Legislative Decree 58/1998, of the yearly financial statements of the Company and the consolidated financial statements, referring to the nine years ending from December 31, 2008 to December 31, 2016;
  • the verification activity provided for by article 155, paragraph 1, letter a), of Legislative Decree 58/1998;
  • the verification on the coherence between the management report and the financial statements of the Company and the consolidated financial statements provided for by article 156, paragraph 4-bis, letter d), of Legislative Decree 58/1998;
  • the limited review of the short form six-month consolidated financial statements for each of the nine interim periods as at June 30, from 2008 to 2016;
  • the verification activities related to the signature of the Fiscal Declarations (namely, Modello Unico and Modello 770 Semplificato e Ordinario) referring to the nine-year period 2007-2015;

in accordance with the proposal from the Auditing Firm dated March 12, 2008[1] that provides for a total amount equal to Euro 235.000,00 as remuneration of the mandate.

Milan, March 26, 2008

Board Of Statutory Auditors

Luigi Guatri

Enrico Laghi

Paolo Francesco Lazzati

[1]The proposal by Reconta Ernst & Young is available to the public at the registered office of Pirelli & C. S.p.A. and published on the web site of the Company
www.pirelli.com, under section Corporate Governance.