INFORMATION ON THE STRUCTURE OF SHARE OWNERSHIP (in accordance with Article 123-bis, paragraph 1 of the Unified Finance Law (TUF) as of March 12, 2012)

a) Structure of the share capital.

The subscribed and paid-in share capital amounts to euro 1,345,380,534.66, divided into a total of 487,991,493 shares without par value indicated, of which 475,740,182 (euro 1,311,603,971.79) are ordinary shares and 12,251,311 (euro 33,776,562.87 are savings shares).

In this regard, it is important to note that the ordinary Shareholders’ Meeting held on April 21, 2011 resolved a voluntary reduction of the share capital without annulling shares that was completed on August 29, 2011. The share capital reduction formed part of the transaction to assign the shares of Prelios (formally Pirelli RE) that the Company executed during the 2010 financial year and representing its natural completion.

In fact, as is known, the assignment of Prelios shares was performed by allocating to Pirelli & C. shareholders almost all of the ordinary Prelios shares held by the Company and executed by reducing the share capital, the actual amount of which was determined by the extraordinary Shareholders’ Meeting of Pirelli & C. held on July 15, 2010 at a value equivalent to the fair value of the Prelios shareholding to be assigned (corresponding to euro 178,813,982.89), in turn, determined on the basis of the official price of the Prelios shares (corresponding to euro 0.367) determined on July 14, 2010, the trading day prior to the date of the Shareholders’ Meeting that resolved the assignment.

The assignment was executed on October 25, 2010, in accordance with Article 2445, paragraph 3 of the Italian Civil Code, after the time limits laid down by law had expired, and in compliance with the accounting provisions, based on the official stock exchange price of the Prelios shares determined precisely on October 25, 2010 (euro 0.4337); Pirelli & C. restated in the financial statements the liabilities generated by the assignment from euro 178,813,982.89 to euro 211,312,328.01, with a negative change in Shareholders’ equity as a balancing entry amounting to euro 32,498,345.12, reported in the Financial Statements under “Reserve for assignment of Prelios S.p.A. shares”. At the same time, in relation to the assignment of the Prelios shares, Pirelli & C. reported a loss in the Income Statement amounting to approximately euro 118.3 million, corresponding with the difference between the value of liabilities, as redetermined above, and the net book value of the Prelios shares.

Accordingly, in order to realign the share capital with the Shareholders’ equity it was found appropriate to reduce to zero the Reserve for assignment of Prelios shares, as has been said, corresponding to a negative amount of euro 32,498,345.12, by the voluntary reduction of the share capital for an equal amount.

Rights and obligations

The shares are divided into ordinary shares and savings shares, without par value. The ordinary shares entitle the holder to one vote per share; they are registered shares or bearer shares to the extent permitted by law, and in this case, can be converted from one type of share to the other type of share at the holder’s request and expense.

Savings shares do not have voting rights and are bearer shares, unless otherwise provided for by law, and can be converted into registered savings shares at the shareholder’s request and expense.

In addition to the rights and privileges envisaged by law and by the Company Bylaws, savings shares have the right of first refusal in the reimbursement of capital up to the amount of euro 3.19 per share. If the share capital is reduced due to losses, the reduction does not effect the savings shares, except for the part of the loss that exceeds the portion of capital represented by the other shares.

Savings shares retain the rights and privileges set forth by law and by the Company Bylaws, even if the ordinary shares and savings shares are excluded from trading.

If the share capital is increased by issuing shares of a single category, these shares must be offered as an option to all categories of shareholders.

If the share capital is increased by issuing ordinary and savings shares:

  • holders of ordinary shares are entitled to receive options for ordinary shares and savings shares for any possible difference;
  • holders of savings shares are entitled to receive options for savings shares and ordinary shares for any possible difference.

The net annual profit is divided as follows, after the legal allocation to reserve has been made:

  • savings shares are attributed an amount up to 7% of euro 3.19; if the savings shares are assigned a dividend of less than 7% of euro 3.19 in a given financial year, the difference is added to the preference share dividend in the two following financial years; the profit that remains after the dividend specified above has been assigned to the savings shares is apportioned among all the shares so that the savings shares receive a dividend that is 2% of euro 3.19 higher, overall, compared to the dividend received by the ordinary shares;
  • ordinary shares are attributed an amount of up to 5% of their par value in accounting terms (defined as the ratio between the amount of the share capital and the overall number of shares issued), without prejudice to the above provisions concerning the overall increased dividend payable to savings shares.

The remaining profit will be distributed among all the shares, in addition to the sums assigned as outlined above, unless the Shareholders’ Meeting resolves special allocations to extraordinary reserves or for other uses, or decides to carry forward part of the foregoing portion of profit.

Savings shares have the same rights as the other shares if reserves are distributed. Advances on dividends may be distributed as provided for by law.

Financial instruments which attribute the right to subscribe to new issue shares

No financial instruments which attribute the right to subscribe to new issue shares were issued at the Date of the Report.

Stock incentive plans

The Company does not currently have stock incentive plans.

b) Restrictions on the transfer of securities.

There are no restrictions on the transfer of securities.

c) Significant shareholdings.

The parties owning shares with voting rights in the Ordinary Shareholders’ Meeting, and representing more than 2% of the ordinary capital, according to the requirements published by Consob, are listed in Table 2.

d) Securities which confer special rights.

There are no securities which confer special rights of control.

e) Employee shareholdings: mechanism to exercise voting rights.

There are no mechanisms to exercise voting rights in the case of employee shareholdings, when such voting rights are not exercised directly by the employees concerned.

f ) Restrictions on voting rights.

There are no restrictions on voting rights (such as, for example: limitations on voting rights at a given percentage or at a certain number of votes, time limits imposed to exercise the voting rights or systems in which, with the Company’s co-operation, the financial rights associated with the securities are separate from ownership of the securities).

g) Shareholder agreements.

The list of participants in the “Sindacato Blocco Azioni Pirelli & C. S.p.A.” (Pirelli & C. S.p.A. Shareholders’ Agreement) (hereafter, the “Agreement”) (as of December 31, 2011), aimed at assuring the stability of the shareholding structure of Pirelli & C., and an abstract from the text of the Agreement are included in the annex to the Report and can be accessed on the Pirelli Internet website.

In particular, it is important to observe that the agreement among the participants of the Shareholders’ Agreement does not represent a controlling, or voting agreement.

Indeed, the shareholders’ agreement management2 meets to examine the proposals to be submitted to the Shareholders’ Meeting, concerning the agreement’s possible early termination and to accept new participants; moreover, the management meets at least twice a year to examine the interim trend, the annual results, the Company’s general lines of development, the significant investment and divestment policy and, more in general, all matters within the jurisdiction of the ordinary and extraordinary Shareholders’ Meeting.

The shareholders’ agreement management resolves with the favourable vote of the members representing the majority of the shares conferred and when the resolutions of the shareholders’ agreement management are not passed unanimously, the dissenting participant shall have the right to cast its vote freely in the Shareholders’ Meetings.

h) Amendments to Company Bylaws.

The amendments to the Company Bylaws are resolved as provided for by law.

i) Change of control clauses and statutory provisions concerning a public purchase offer.

Change of control clauses

There is no party that can exercise control over Pirelli & C., either directly or indirectly, also by virtue of shareholder agreements, individually or jointly with other subjects included in these agreements.

It follows that no change of control of the Company can be envisaged at present.

The bond loan amounting to 500 million euro placed on the market by Pirelli & C. envisages that the bondholders are entitled to avail of the clause to request early repayment if a “Change of Material Shareholding” occurs that corresponds to the following cases: (i) Pirelli & C. no longer holds (directly or directly) a percentage of at least 85% of the share capital of Pirelli Tyre (barring the case that Pirelli Tyre is incorporated in Pirelli & C. or in another company of the Pirelli Group); (ii) a party other than one or more of the shareholders participating in the Pirelli Shareholders’ Agreement holds more than 50% of the share capital of Pirelli & C. with voting rights or acquires the right to appoint or remove the majority of the members of the Board of Directors; (iii) Camfin S.p.A. no longer holds (directly or indirectly) at least 20% of the share capital of Pirelli & C. with voting rights.

A similar clause is envisaged in the agreement entered into among Pirelli & C., Pirelli Tyre and Pirelli International Ltd. and a pool of lending banks in relation to granting Pirelli a revolving line of credit amounting to 1.2 billion euro.

Statutory provisions concerning a public purchase offer

On a preliminary count, it is important to remember that Article 104 of the Unified Finance Law (TUF) envisages that Italian listed companies whose securities are subject to the offer shall refrain from executing actions or transactions which may conflict with achieving the offer’s objectives (so-called passivity rule), barring an authorisation by the Shareholders’ Meeting. It is also envisaged that the companies’ bylaws may derogate from the passivity rule foreseeing that the Board of Directors may adopt “defensive measures”, even without an authorisation expressed in this sense by the Shareholders’ Meeting.

Furthermore, Article 104-bis of the Unified Finance Law (TUF) (recorded as the “Breakthrough rule) envisages that the bylaws of Italian listed companies can foresee that when a public purchase offer or an exchange is promoted and involves the securities issued by them: (i) the restrictions on the transfer of securities envisaged in the Company Bylaws are not applicable in relation to the bidder during the offer acceptance period, nor are the restrictions on voting rights envisaged in the Company Bylaws or in the Shareholders’ Agreements applicable in the Shareholders’ Meetings convened to resolve the actions and transactions envisaged under Article 104 cited above; (ii) when the bidder, after an offer, holds at least 75% of the share capital with voting rights in resolutions concerning the appointment or revocation of Directors or Members of the Management Board or Supervisory Board, then the following conditions shall not apply in the first Shareholders’ Meeting convened to amend the Company Bylaws or to revoke or appoint Directors or Members of the Management Board or Supervisory Board after closing the offer: the restrictions on voting rights envisaged in the Company Bylaws or in shareholders’ agreements, nor any special right concerning the appointment or revocation of the Directors or Members of the Management Board or Supervisory Board envisaged in the Company Bylaws.

The Company Bylaws of Pirelli & C. do not envisage departures from the provisions concerning the passivity rule illustrated previously or the application of the breakthrough rule contemplated under Article 104-bis.

l) Powers to increase the share capital and authorisations to purchase treasury shares.

Powers to increase the share capital.

Directors have not been given powers to increase the share capital against payment in one or more operations or given the authority to issue bonds convertible into both ordinary and saving shares or with warrants valid to subscribe to shares.3

Authorisations to purchase treasury shares

At the Date of the Report no resolutions had been passed by the Shareholders’ Meeting which authorise the Board of Directors to plan to purchase treasury shares.

At the Date of the Report, the Company holds 351,590 ordinary treasury shares corresponding to 0.07% of the whole share capital and 408,342 savings treasury shares corresponding to 3.3% of the saving shares capital and corresponding to 0.084% of the whole share capital.

m) Directors’ indemnity in the case of resignation, dismissal or termination of the employment relationship following a public purchase offer4

Pirelli has a policy not to enter into agreements with Directors, Executive Managers with strategic business responsibilities, Senior Managers and Executives, which regulate beforehand economic aspects relating to the possible early termination of the employment relationship at the Company’s initiative or at the individual’s initiative (socalled “parachutes”).

Indeed, the agreements entered into with Pirelli in the event the employment relationship is interrupted for reasons other than just cause do not represent “parachutes”. Pirelli adopts a policy that seeks to come to agreements to reach a consensual conclusion of the employment relationship. In any event, the possible agreements reached to terminate the employment agreement with Pirelli relate to the reference benchmarks applicable in this area and fall within the limits defined by the jurisprudence and accepted practice of the country in which the agreement is made, without prejudice to legal and/or contractual obligations.

The Company defines internal criteria which are also complied with by the other Group companies when managing the agreements which discipline the early termination of relationships concerning Executives and/ or Directors assigned special duties.

Pirelli does not envisage the payment of an extraordinary indemnity or compensation associated with the end of the mandate with regard to Directors assigned special duties in Pirelli & C. who are delegated with specific powers and are not bound by management level employment relationships. The payment of a specific indemnity (that, accordingly, can be considered a “parachute”) may be acknowledged, always subject to the assessment by the competent company bodies in the following cases:

  • termination at the Company’s initiative not supported by a just cause
  • termination at the Directors’ initiative for just cause, meaning, by way of example, a substantial change of role, or of the powers assigned and/or the cases of a so-called “hostile” public purchase offer.

In these cases the indemnity is equal to 3 annuities of the gross annual payment, meaning the sum of (all the fixed annual gross payments for the positions held; average annual MBO received during the mandate; End of Mandate Indemnity (TFM) on the foregoing amounts).

In this regard, the reader is referred to the “Remuneration Report” for the 2011 financial year published on the Pirelli Internet website. It is important to note that the updated Remuneration Report referred to the 2012 financial year will be submitted to the Company’s Shareholders’ Meeting in the light of the new legislation, and the applicable regulatory provisions governing the subject.

n) Management and coordination activities (pursuant to Article 2497 and following articles of the Italian Civil Code).

There is no party that can exercise control over Pirelli & C., directly or indirectly, also by virtue of shareholders’ agreements, individually or jointly with the other parties participating in such agreements.

Nor is the Company subject to management and coordination activities by another company or body, pursuant to Article 2497 and following articles of the Italian Civil Code.

By contrast, Pirelli & C., heads the Group of the same name and exercises management and coordination activities over numerous subsidiary companies and has disclosed the information envisaged under Article 2497-bis of the Italian Civil Code.

2 The Shareholders' Agreement management represents the agreement's body composed of the Chairman and the Deputy-Chairman who shall be the most senior Chairman and the Deputy Chairman in office of Pirelli & C., and by a member for each participant, without prejudice to the right of the participant that has contributed shares exceeding 10% of the share capital in ordinary shares to designate another member; for this purpose, if several companies associated by a control relationship have participated in the agreement or are controlled by the same Parent Company, the grouping, as a whole, will be considered in the same way as a single participant.
3 The amendment to Article 5 of the Company Bylaws was approved during the 2011 financial year (Shareholders' Meeting to approve the Financial Statements closed as of December 31, 2010), to eliminate the reference to the power granted by the Extraordinary Shareholders' Meeting held on May 7, 2003 to issue up to a maximum of 100,000,000 ordinary shares, in one or more operations, within April 30, 2008, to be assigned to Executives and the middle management in the company and in its subsidiaries and in the companies controlled by the latter, in Italy and abroad, and the reference to the circumstance that the Board of Directors' Meeting held on February 25, 2005 had resolved, as a partial execution of the power conferred on it, to increase the share capital by a maximum par value of Euro 15,725,496.50, by issuing a maximum of 54,225,850 ordinary shares with a par value of Euro 0.29 each at a price of Euro 0.996 each, including Euro 0.706 as a share premium, to be reserved for subscription to Executives and the middle management in the Company and in its subsidiaries or in the companies controlled by the latter, in Italy and abroad.
4 The information contained in this section is provided also in compliance with the requirement set out in Consob Communication DEM/11012984 dated February 24, 2011.