Shareholders’ resolution

APPROPRIATION OF THE RESULT FOR THE YEAR

The year ended December 31, 2008 shows a loss of Euros 189,548,806.

The board motions that the loss should be absorbed by using available reserves.

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

Resolution

The shareholders' meeting:

  • having taken note of the Directors’ Report on Operations;
  • having taken note of the reports of the board of statutory auditors’ and the independent auditors;
  • having examined the financial statements at December 31, 2008 which show a loss of Euros 189,548,806

Resolves

a) to approve:

— the balance sheet, the income statement, the statement of recognized income and expense, the statement of cash flows and the notes to the financial statements for the year ended December 31, 2008 which show a loss of Euros 189,548,806 as presented by the board of directors in their entirety and in the individual entries, with the proposed accruals;

b) to fully absorb the loss for the year 2008 of Euros 189,548,806 as follows:

— by full use of the revaluation reserve Law 413/91 for Euros 707,349

— by full use of the revaluation reserve Law 72/83 for Euros 972,216

— by full use of retained earnings of Euros 985,279

— by partial use of the share premium reserve for Euros 186,883,962

after which the share premium reserve amounts to Euros 229,710,152.

Appointment of the board of statutory auditors

  • appointment of standing and alternate auditors;
  • appointment of the chairman of the board of statutory auditors;
  • determination of the compensation of the members of the board of statutory auditors

Shareholders,

The board of statutory auditors in office was elected by the ordinary session of the shareholders’ meeting held on April 21, 2006. The board’s mandate will therefore expire upon the approval of the financial statements for the year ended December 31, 2008.

The shareholders’ meeting is therefore called, in accordance with the law and regulations according to article 16 of the bylaws (reported in full at the end of this report) to

  • appoint the standing and alternate auditors (respectively, three and two in number)
  • appoint the chairman of the board of statutory auditors
  • determine the compensation of the members of the board of statutory auditors

The appointment of the standing and alternate auditors shall be carried out casting a vote for a slate of candidates.

To this end, shareholders shall have the right to submit slates, alone or together with other shareholders, representing at least 2 percent of the share capital with voting rights in the ordinary session of the shareholders’ meeting (the maximun threshold established in the bylaws and identical to that established by Consob in resolution 16679 dated January 27, 2009), with the obligation to prove the ownership of the number of shares required to present slates within the terms of filing the slates.

The slates of candidates, undersigned by those presenting them, must file the slates at the legal office of the company by April 5, 2009. If only one slate is filed by that date, or only slates that are associated among each other pursuant to the applicable laws and regulations, additional slates may be presented within the following five days. In that case, the previously indicated threshold of 2 percent indicated for the filing of the slates is reduced to 1 percent. The slates that are filed without observing the provisions contained in article 16 of the bylaws shall be disregarded.

The company shall make public the slates of candidates filed by the shareholders, together with the information required by the applicable discipline, at its offices and at Borsa Italiana S.p.A. and also through publication on the internet website www.pirelli.com.

With regard to the requisites required of the shareholders intending to present slates for the election of the board of statutory auditors and the requisites that the statutory auditor candidates must possess, your attention is drawn to the provisions issued in this sense by Consob in its regulation 11971 dated May 14, 1999 (articles 144-quinquies and subsequent articles), with regard to the implementation of the provisions of articles 148 and 148-bis of Legislative Decree 58 dated February 24, 1998 (TUF).

Finally, it should be noted that – in accordance with art. 10.C.2 of the Code of Self-Disciples for Listed Companies, to which the company adheres – the statutory auditors must be chosen from among persons who can be qualified as independent, also in accordance with the criteria established by the Code with reference to the directors and, therefore, the shareholders having the right and intention to present slates are asked to take this into account when identifying the candidates to be proposed.

Having said this, the board of directors,

  • having taken note of the provisions of the bylaws with regard to the composition and manner of electing the board of statutory auditors: asks the shareholders’ meeting
  • to elect three standing auditors and two alternate auditors, elect the chairman of the board of statutory auditors and establish the compensation to which the board of statutory auditors is entitled;
  • to vote for the slates of candidates for office as a member of the board of statutory auditors of the company that have been filed and made known in the manner and according to the terms of article 16 of the bylaws and the existing laws and regulations.

Article 16 of the bylaws

The Board of Statutory Auditors shall be composed of three standing and two alternate auditors, who must be in possession of the requisites established under applicable laws and regulations; to this end, it shall be borne in mind that the fields and sectors of business closely connected with those of the Company are those stated in the Company’s purpose, with particular reference to companies or corporations operating in the financial, industrial, banking, insurance and real estate sectors and in the services field in general.

The ordinary shareholders’ meeting shall elect the Board of Statutory Auditors and determine its remuneration. The minority shareholders shall be ent itled to appoint one standing auditor and one alternate auditor.

The Board of Statutory Auditors shall be appointed in compliance with applicable laws and regulations and with the exception of the provisions of the third-to-last paragraph of this article 16, on the basis of slates presented by the shareholders in which candidates are listed by consecutive number.

Each slate shall contain a number of candidates which does not exceed the number of members to be appointed.

Shareholders who, alone or together with other shareholders, represent at least 2 percent of the shares with voting rights in the ordinary shareholders’ meeting or the minor percentage, according to the regulations issued by Commissione Nazionale per le Società e la Borsa for the submission of slates for the appointment of the Board of Directors shall be entitled to submit slates.

Each shareholder may present or take part in the presentation of only one slate.

The slates of candidates, which must be undersigned by the parties submitting them, shall be filed in the Company’s registered office and be available to anyone on request, at least fifteen days prior to the date set for the shareholders’ meeting to be held on first call except for those cases in which the law and/or the regulation provide an extension of the deadline.

Without limitation to any further documentation required by applicable rules, including any regulatory provisions, a personal and professional curriculum, mentioning also the offices held in management and supervisory bodies of other companies, of the individuals standing for election must be enclosed with the slates together with statements in which the individual candidates agree to:

  • their nomination
  • attest, under their own liability, that there are no grounds for their ineligibility or incompatibility, and that they meet the requisites prescribed by law, by these By-laws and by regulation for the position.

Any changes that occur up to the date of the Shareholders’ meeting must be promptly notified to the Company.

Any slates submitted without complying with the foregoing provisions shall be disregarded.

Each candidate may appear on only one slate, on pain of ineligibility.

The slates shall be divided into two sections: one for candidates for the position of standing auditor and one for candidates for the position of alternate auditor. The first candidate listed in each section must be selected from among the persons enrolled in the Register of Auditors who have worked on statutory audits for a period of no less than three years.

Each person entitled to vote may vote for only one slate.

The Board of Statutory Auditors shall be elected as specified below:

a) two standing members and one alternate member shall be chosen from the slate which obtains the highest number of votes (known as the majority slate), in the consecutive order in which they are listed thereon;

b) the remaining standing member and the other alternate member shall be chosen from the slate which obtains the highest number of votes cast by the shareholders after the first slate (known as the minority slate), in the consecutive order in which they are listed thereon; if several slates obtain the same number of votes, a new vote between said slates will be cast by all the shareholders attending the meeting, and the candidates on the slate which obtains the simple majority of the votes will be elected.

The chair of the Board of Statutory Auditors shall pertain to the standing member listed as the first candidate on the minority slate.

The position of a standing auditor which falls vacant due to his/her death, forfeiture or resignation shall be filled by the alternate auditor chosen from the same slate as the former. In the event of the replacement of the Chairman of the Board of Statutory Auditors, the chair shall pertain to the candidate listed in the same slate of the former Chairman, following the order contained in the list; if it proves impossible to effect substitutions and replacements under the foregoing procedures, a shareholders’ meeting shall be called to complete the Board of Statutory Auditors which shall adopt resolutions by relative majority vote.

When the shareholders’ meeting is required, pursuant to the provisions of the foregoing paragraph or to the law, to appoint the standing and/or alternate members needed to complete the Board of Statutory Auditors, it shall proceed as follows: if auditors elected from the majority slate have to be replaced, the appointment shall be made by relative majority vote without slate constraints; if, however, auditors elected from the minority slate have to be replaced, the shareholders’ meeting shall replace them by relative majority vote, selecting them where possible from amongst the candidates listed on the slate on which the auditor to be replaced appeared and in any event in accordance with the principle of necessary representation of minorities to which this By Laws ensure the right to take part to the appointment of the Board of Statutory Auditors.

The principle of necessary representation of minorities shall be considered complied with in the event of the appointment of Statutory Auditors nominated before in the minority slate or in slates different other than the one which obtained the highest number of votes in the context of the appointment of the Board of Statutory Auditors.

In case only one slate has been presented, the shareholders’ meeting shall vote on it; if the slate obtains the relative majority, the candidates listed in the respective section shall be appointed to the office of standing auditors and alternate auditors; the candidate listed at the first place in the slate shall be appointed as Chairman of the Board of Statutory Auditors.

When appointing auditors who, for whatsoever reason, were not appointed under the procedures established herein, the shareholders’ meeting shall vote on the basis of the majorities required by law.

Outgoing members of the Board of Statutory Auditors may be re-elected to office.

Meetings of the Board of Statutory Auditors may, if the Chairman or whoever acts in his/her stead verifies the necessity, be attended by means of telecommunications systems that permit all attendees to participate in the discussion and obtain information on an equal basis.

The Board of Directors

Milan, March 10, 2009