Stock option plans

Pirelli to People

Group Senior Executives

Plan features

Option rights granted, non-transferable to third parties, for the subscription of future new issues of Pirelli & C. ordinary shares or, as decided by the latter, for the purchase of treasury shares of Pirelli & C..

Option rights granted, non-transferable to third parties, for the subscription of future new issues of Pirelli & C. ordinary shares or, as decided by the latter, for the purchase of treasury shares of Pirelli & C..

Recipients at December 31, 2007

255 employees (senior executives, cadres, key employees) of the companies of the Group.
Originally 725 persons at the date of approval of the plan.

25 senior executives of the companies of the Group.

Originally 51 persons at the date of approval of the plan.

Conditions for exercising options

Continuance of employment.

(a) continuance of employment, and (b) the reaching, in the two-year period 2001-2002, of specific targets, assigned to each recipient.

Subscription/purchase price per share

Each option right granted gives the right to subscribe/purchase one Pirelli & C. ordinary share at the price of Euros 1.150 1.

Each option right granted gives the right to subscribe/purchase one Pirelli & C. ordinary share at the price of Euros 1.150 1.

Vesting period of options

Up to nine years from the date the options are granted (which took place on November 5, 2001), but not before one year has passed from that date for 50 percent of the options granted, two years for another 25 percent and three years for the remaining 25 percent.

As regards the options granted on November 5, 2001, up to nine years from the date the options are granted, but not before one year has passed from that date for 50 percent of the options, two years for another 25 percent and three years for the remaining 25 percent. For the options granted definitively on May 10, 2002, up to May 31, 2009 but not before June 1, 2002 for 50 percent of the options and not before January 1, 2003 for the remaining 50 percent.

Maximum number
of options for which
the offer was open
at December 31, 2006

20,389,204 options equal to about 0.39 percent of outstanding ordinary shares destined for 288 recipients.

12,397,548 options equal to about 0.24 percent of outstanding ordinary shares destined for 28 recipients.

Maximum number
of options for which
the offer was open
at December 31, 2007

18,175,604 options equal to about 0.35 percent of outstanding ordinary shares destined for 255 recipients.

11,541,015 options equal to about 0.22 percent of outstanding ordinary shares destined for 25 recipients.

Options forfeit during 2007 as a result of persons
leaving the Group

2,213,600

856,533

Shares issued during
the period

None

None

1 This amount was changed (from Euros 1.284) on the basis of the adjustment factor established by AIAF on February 7, 2005 following the capital increase approved by the special shareholders’ meeting held on January 21, 2005, in accordance with the Regulations of those Stock Option Plans in the event of transactions involving share capital. Following the resolution passed by the shareholders’ meeting held on December 12, 2007 for the reduction of share capital, this amount will be reduced to Euros 0.996.

Table 1

2007

2006

Number of shares

Average
exercise price in Euro

Market price
in Euro

Number of shares

Average
exercise price in Euro

Market price
in Euro

Rights existing at 1/1/2007

20,389,204

1.15 (¹)

0.75

21,693,205

1.15 (¹)

0.77

Rights granted during year

-

-

-

-

-

-

(rights exercised during year)

-

-

-

-

-

-

(Rights forfeit during the year 2007 as a result of persons leaving the Group)

2,213,600

-

-

1,304,001

-

-

Rights existing at December 31, 2007

18,175,604

1.15 (¹)

0.75

20,389,204

1.15 (¹)

0.75

Table 2

Exercise price

Rights granted – existing at December 31, 2007

Remaining contractual life

Of which exercisable

>2 years *

Total

From 11/5/2004

Euro 1.15 (¹)

18,175,604

18,175,604

18,175,604

* Until 05/31/2009

1 This amount was changed to Euros 1.150 on the basis of the adjustment factor established by AIAF on February 7, 2005 following the capital increase approved by the special shareholders’ meeting held on January 21, 2005, in accordance with the Regulations of those Stock Option Plans in the event of transactions involving share capital. Following the resolution passed by the shareholders’ meeting held on December 12, 2007 for the reduction of share capital, this amount will be reduced to Euros 0.996.

TaBLE 1

2007

2006

Number of shares

Average
exercise price in Euro

Market price
in Euro

Number of shares

Average
exercise price in Euro

Market price
in Euro

Rights existing at 1/1/2007

12,397,548

1.15 (¹)

0.75

13,986,882

1.15 (¹)

0.77

Rights granted during year

-

-

-

-

-

-

(rights exercised during year)

-

-

-

-

-

-

(Rights forfeit during the year 2007 as a result of persons leaving the Group)

856,533

-

-

1,589,334

-

-

Rights existing at December 31, 2007

11,541,015

1.15 (¹)

0.75

12,397,548

1.15 (¹)

0.75

TaBLE 2

Exercise price

Rights granted – existing at December 31, 2007

Remaining contractual life

Of which exercisable

> 1 year *

Total

From 11/5/2004

Euro 1.15 (1)

11,541,015

11,541,015

11,541,015

* until 05/31/2009

1 This amount was changed to Euros 1.150 on the basis of the adjustment factor established by AIAF on February 7, 2005 following the capital increase approved by the special shareholders’ meeting held on January 21, 2005, in accordance with the Regulations of those Stock Option Plans in the event of transactions involving share capital. Following the resolution passed by the shareholders’ meeting held on December 12, 2007 for the reduction of share capital, this amount will be reduced to Euros 0.996.

Name

Rights held

at 1/1/2007

Rights granted
during year 2007

Rights exercised
during year 2007

Rights held

at 12/31/2007

No.
of rights

Average exercise price

No.
of rights

Average exercise price

No.
of rights

Average exercise price

No.
of rights

Average exercise price

Claudio De Conto

778,774(¹)

1.15 (³)

-

-

-

-

778,774(¹)

1.15 (³)

410,667(²)

1.15 (³)

-

-

-

-

410,667(²)

1.15 (³)

Luciano Gobbi

778,774(¹)

1.15 (³)

-

-

-

-

778,774(¹)

1.15 (³)

360,000(²)

1.15 (³)

-

-

-

-

360,000(²)

1.15 (³)

Francesco Gori (4)

533,334(¹)

1.15 (³)

-

-

-

-

533,334(¹)

1.15 (³)

666,667 (²)

1.15 (³)

-

-

-

-

666,667 (²)

1.15 (³)

1 Group Senior Executives incentive plan.

2 Pirelli to People incentive plan.

3 This amount was changed to Euros 1.150 on the basis of the adjustment factor established by AIAF on February 7, 2005 following the capital increase approved by the special shareholders’ meeting held on January 21, 2005, in accordance with the Regulations of those Stock Option Plans in the event of transactions involving share capital. Following the resolution passed by the shareholders’ meeting held on December 12, 2007 for the reduction of share capital, this amount will be reduced to Euros 0.996.

4 Francesco Gori, starting from July 1, 2006, took over the post of chief executive officer and general manager of the subsidiary Pirelli Tyre S.p.A..
The deputy chairman Carlo Alessandro Puri Negri is the grantee of stock options as the chief executive officer of Pirelli & C. Real Estate S.p.A..
Carlo Buora, starting November 6, 2006 – after relinquishing all the posts held in the Company – is no longer a grantee of any option rights.

Plan features

Option rights granted, non-transferable to third parties, for the purchase of Pirelli & C. Real Estate S.p.A. ordinary shares held by the company (treasury shares )

Recipients at December 31, 2007

60 persons (directors, general managers and other key resources) of Pirelli & C. Real Estate S.p.A. and its subsidiaries.

Originally 60 persons at the date of approval of the plan.

Conditions for exercising options

(a) continuance of the employment relationship or status as a director in the companies of the Pirelli Group;

(b) the reaching/exceeding, when the rights are exercised, of a minimum market price of the Pirelli RE share, not less than Euros 55.00 [market restriction];

(c) average annual growth of the Operating Result Parameter (PBIT) + Income from investment holdings (IEP) not less than 10 percent [operating restriction ].

Subscription/purchase prices per share

Each option right granted gives the right to subscribe/purchase one Pirelli & C. Real Estate ordinary share at the price of Euros 46.50, which corresponds to the fair value of the share on the grant date; this price may vary as a result of share capital increases or other extraordinary transactions, but in every case ensuring the equivalent rights held by the grantees before those transactions.

Vesting period of options

40 percent (or a part thereof) of the options can be exercised from July 1, 2008 to December 15, 2009 (first tranche) and the remaining 60 percent from July 1, 2009 to December 15, 2009 (second tranche); all options must be exercised by December 15, 2009. The options may be exercised in advance, in the event of a "change of control” and, as a result of which, Pirelli & C. S.p.A. would no longer be the majority shareholder of the company. However, the market and operating restrictions remain in place, with predetermined criteria to be applied in relation to the exercise of the options if the event should occur.

Maximum number of options for which the offer was open at December 31, 2006

1,800,000 options equal to about 0.04 percent of outstanding ordinary shares destined for 60 recipients .

Maximum number of options for which the offer was open at December 31, 2007

1,800,000 options equal to about 0.04 percent of outstanding ordinary shares destined for 60 recipients.

Options forfeit during 2007 as a result of persons leaving the Group

None

Shares issued during the period

None

Name

Position

Rights held at

1/1/2007

Rights granted
in 2007

Rights exercised
in 2007

Rights expired/forfeit in 2007

Rights held at

12/31/2007

(A)

(B)

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)
=(1)+(4)-
-(7)(10)

(12)

Number
of options

Average exercise price

Expiration

Number
of options

Average exercise price

Expiration

Number
of options

Average exercise price

Average exercise market price

Number
of options

Number
of options

Average exercise price

Carlo Alessandro
Puri Negri

Deputy Chairman and Chief Executive Officer

427,500

40.61

12/15/09

-

-

-

-

-

-

127,500

300,000

46.5

Carlo Bianco

Deputy Chairman

183,000

41.86

12/15/09

-

-

-

43,000

26.75

39.47

-

140,000

46.5

Emilio Biffi

Managing Director - Chief Technical Officer - General Manager

143,000

41.86

12/15/09

-

-

-

-

-

73,000

70,000

46.5

Olivier
De Puolpiquet

Chief Executive Officer - Investment & Assets Management

300,000

39.92

12/15/09

-

-

-

100,000

26.75

39.76

-

200,000

46.5