Document:

Information Document deposited on March 25, 2005 with the Italian Stock Exchange

Table of Contents

 Exhibit 4.9 
  

TELECOM ITALIA S.p.A. – TELECOM ITALIA MOBILE S.p.A. 
  

			
	

	 	

	 	 	 

  
 Information document

 pursuant to Article 70.4 of the Regulation 
 approved by Consob Resolution No. 11971 
 of 14 May 1999, as amended, 
 concerning 
  
 THE MERGER 
  
 OF 
  
 TELECOM ITALIA MOBILE S.p.A.

  
 WITH AND INTO 
  
 TELECOM ITALIA S.p.A. 
  
 The Telecom Italia securities referred to herein that will be issued in connection with
the merger described herein have not been, and are not intended to be, registered under the U.S. Securities Act of 1933 (the Securities Act) and may not be offered or sold, directly or indirectly, into the United States except pursuant to an
applicable exemption. The Telecom Italia securities are intended to be made available within the United States in connection with the merger pursuant to an exemption from the registration requirements of the Securities Act. 
  
 The merger described herein relates to the securities of two foreign (non-U.S.) companies.
The merger in which TIM ordinary shares and savings shares will be converted into Telecom Italia shares is subject to disclosure requirements of a foreign country that are different from those of the United States. Financial statements included in
the document, if any, will be prepared in accordance with foreign accounting standards that may not be comparable to the financial statements of United States companies. 
  
 It may be difficult for you to enforce your rights and any claim you may have arising under the U.S. federal securities laws, since
Telecom Italia and TIM are located in Italy, and some or all of their officers and directors may be residents of Italy or other foreign countries. You may not be able to sue a foreign company or its officers or directors in a foreign court for
violations of the U.S. securities laws. It may be difficult to compel a foreign company and its affiliates to subject themselves to a U.S. court’s judgment. 
  
 You should be aware that Telecom Italia may purchase securities of TIM otherwise than under the merger, such as in open market or
privately negotiated purchases. Disclosure of such purchases will be made in accordance with, and to the extent required by, Telecom Italia’s disclosure obligations under Italian law. 

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INTRODUCTION 
  
 This information document
(“Information Document”) has been prepared and published jointly by Telecom Italia S.p.A. (“Telecom Italia” or the “Absorbing Company”) and Tim S.p.A. (“Tim” or the “Company
to be Absorbed”) in accordance with Article 70.4 of the Regulation approved by Consob Resolution No. 11971 of 14 May 1999, as amended (the “Consob Regulation”), in connection with the plan for the reorganization of the
group headed by Telecom Italia (the “Group”), of which the merger of Tim with and into Telecom Italia (the “Merger”) is the last step, to provide shareholders and the market with the necessary information on the
above-mentioned transaction. 
  
 The Merger, approved by the Boards of Directors
of Telecom Italia and Tim on 23 January 2005, is subject to Article 2501 et seq. of the Italian Civil Code (“Civil Code”). Since it involves companies with financial instruments listed on an Italian regulated securities exchange, it
is also subject to Legislative Decree 58/1998 (the “Consolidated Law”) and the Consob Regulation. 
  
 The Merger, as noted above, is the last step in the plan for the reorganization of the Group, the guidelines of which were approved by the Boards of Directors of Telecom
Italia and Tim in their meetings on 7 December 2004 and publicly disclosed on the same date. The plan also includes the following transactions, which have already been completed: 
  

	 	–	a voluntary partial tender offer for Tim ordinary shares and a voluntary tender offer for all Tim savings shares (collectively, the “Tender Offer”); and

  

	 	–	the spin-off of Tim’s mobile communications business in Italy (the “Domestic Mobile Division”) into Tim Italia S.p.A. (“Tim Italia”), a
company wholly owned by Tim (the “Spin-Off”). 

  
 Under the proposed Merger, Telecom Italia will succeed to all of Tim’s legal rights and obligations in respect of the latter’s assets and liabilities, except for those pertaining to the Domestic Mobile Division transferred in the
Spin-Off. These rights and obligations pertain to Tim Italia, which will be wholly owned by Telecom Italia upon completion of the Merger. 
  
 The Merger will result in the cancellation without exchange of the Tim ordinary and savings shares held by Telecom Italia. In addition, the treasury shares owned by Tim
will be cancelled without exchange pursuant to Article 2504-ter, second paragraph, of the Civil Code. 
  
 Holders of Tim ordinary and savings shares other than Telecom Italia will be assigned ordinary and savings shares newly issued by Telecom Italia on the basis of the exchange ratios described in Section 2.1.2(c).

  
 The bylaws of Telecom Italia will not be amended as a consequence of the
Merger, apart from the amendments described in Section 2.1.2(f). 
  
 In view of
the different dividend rights attaching to the Telecom Italia and Tim savings shares, persons who did not vote in favor of the resolution of the special meeting of Tim savings shareholders called pursuant to Article 146.1b) of the Consolidated Law
to approve the resolution of Tim’s extraordinary shareholders’ meeting concerning the Merger will be entitled to withdrawal rights pursuant to Article 2437, first paragraph, point g), of the Civil Code, since their rights will be modified
by the share exchange. See also Sections 2.1(a) and 2.1.2(e). 
  
 For purposes of
the Merger reference has been made to the balance sheets of Telecom Italia and Tim at 30 September 2004, which were prepared in accordance with Article 2501-quater of the Civil Code. As regards the preparation of the reports on the
fairness of the exchange ratios pursuant to Article 2501-sexies of the Civil Code, the competent courts appointed the accounting firms of Mazars & Guérard S.p.A. (for Telecom Italia) and Reconta Ernst & Young S.p.A. (for Tim).

  
 The Merger will be submitted for approval to the shareholders’ meetings
of Telecom Italia and Tim, which have been called for 5, 6 and 7 April 2005 and 5 and 6 April 2005, respectively. The special meeting of Tim savings shareholders has also been called for 6, 7 and 8 April 2005. The intention of the companies involved
is to arrange for the Merger to become effective by the end of June 2005. For accounting purposes the transactions effected by Tim will be attributed to and recorded in the financial statements of Telecom Italia from 1 January 2005. The Merger will
also become effective for Italian tax purposes from the same date. 
  
 Upon
completion of the Merger, Telecom Italia’s ordinary and savings shares will continue to be listed on the Mercato Telematico Azionario operated by Borsa Italiana S.p.A. and on the New York Stock Exchange in the 

  

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form of ADSs (American Depository Shares, each of which represents ten ordinary or savings shares). By contrast, with effect from 8 March 2005, Telecom
Italia’s ordinary shares have been delisted from the Frankfurt Stock Exchange following the decisions adopted by its Board of Admission. 
  
 The Tender Offer 
  
 The Tender Offer, which commenced on 3 January 2005 and terminated on 21 January 2005, represented the first step in the Group’s reorganization plan and must be considered as connected with and serving the
purposes of the Merger. 
  
 With a view to the Merger, the Tender Offer was
intended to contribute to optimizing the capital structure of the Absorbing Company. Since, in implementing the Merger, the Tim shares held by Telecom Italia will be cancelled without exchange, the acquisition of Tim shares in the Tender Offer will
have the effect of reducing the amount of equity to be issued in exchange for Tim shares. This will have a positive effect on earnings and free cash flow yield per share, to the benefit of all the shareholders of the Company resulting from the
Merger. From a financial perspective, the equity that is not issued will in effect be replaced, as a result of the settlement of the obligations arising from the Tender Offer, by an increase in Telecom Italia’s net debt. The cost of this new
debt – in terms of after-tax net financial expense – is lower than the cost – in terms of the expected dividends – which would have been incurred on the equity to be issued in exchange for Tim shares if they had not been
purchased in the Tender Offer. 
  
 The Tender Offer was for 2,456,534,241 Tim
ordinary shares and 132,069,163 Tim savings shares at a price of €5.6 for each ordinary share and each savings share. At the end of the acceptance period the following shares had been tendered: 2,639,154,665 ordinary shares (corresponding to
approximately 31.2% of Tim’s ordinary share capital and approximately 107.4% of the ordinary shares that were the subject of the ordinary share offer) and 8,463,127 savings shares (corresponding to approximately 6.4% of Tim’s savings share
capital and of the savings shares that were the subject of the savings share offer and to approximately 0.098% of Tim’s total share capital). Following the proration of the Tim ordinary shares tendered, Telecom Italia therefore owned
7,190,583,124 Tim ordinary shares (corresponding to approximately 84.8% of the company’s ordinary share capital and approximately 85.539% of its total share capital). 
  
 On the basis of the results of the Tender Offer, the total consideration paid by Telecom Italia for the Tim shares tendered was
approximately €13.8 billion. Of this amount, €2.5 billion was paid by using Telecom Italia’s own funds and approximately €11.3 billion was raised through bank financing agreed on 8 December 2004 with a syndicate of banks for up
to a maximum of €12 billion. Following the early repayment of the first tranche of the bank financing disbursed, the amount remaining to be repaid is equal to €9 billion. 
  
 It should also be noted that, following the Tender Offer and the exercise by the counterparty of put options referred to in the contract
executed on 21 December 2004, Telecom Italia purchased 42 million additional Tim ordinary shares and therefore owns at the date of this Information Document a total of 7,232,583,124 Tim ordinary shares (including those acquired in the Tender Offer),
corresponding to approximately 85.5% of the company’s ordinary share capital. In addition, as a result of the exercise of the put and call options disclosed to the market on 21 December 2004 (for approximately 21 million Tim savings shares),
the execution of securities lending agreements (for approximately 37 million Tim savings shares) and the subsequent purchase on the market of 5,063,816 Tim savings shares, as of 18 March 2005 Telecom Italia will be entitled to vote approximately
54.16% of the shares entitled to vote in the special meeting of Tim savings shareholders called to approve the Merger resolution. 
  
 For more information on the Tender Offer, see Section 2.1(b). 
  
 The Spin-Off 
  
 On 23 January 2005 the Board of Directors of Tim approved the Spin-Off, which led to the transfer of the Domestic Mobile Division to Tim Italia, a limited company established on 29 December 2004 by means of a
unilateral act. The Spin-Off was executed on 24 February by means of a capital increase in kind by Tim Italia that was paid for with the contemporaneous execution of the deed of transfer of the Domestic Mobile Division and became effective on 1
March 2005, upon completion of the authorization procedure referred to in Legislative Decree no. 259 of 1 August 2003 and the filing with the Milan Company Register on 25 February 2005 of the resolution to increase Tim Italia’s share capital.

  
 As a result of the Spin-Off, Tim Italia succeeded to the authorizations held
by Tim for the provision of mobile communications services in Italy, and to all the licenses (including those assigned temporarily to Tim at the date 

  

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of the transfer of the Domestic Mobile Division), numbering systems and/or radio frequencies that were already the subject of a franchise, license or general
authorization, and to the special authorizations following declarations of the commencement of activities. 
  
 The Spin-Off is a key step in the reorganization of the Group, following the Tender Offer and prior to the Merger that is the subject of this Information Document. Maintaining the autonomy of the Domestic Mobile
Division is in line with an assessment of what would be desirable from a regulatory and accounting perspective in the context of the overall reorganization plan and at the same time is an efficient way to meet the need for transparency in the
relationship between the fixed and mobile communications businesses: see Section 2.1(c). 
  
 The Domestic Mobile Division was valued on the basis of Tim’s balance sheet at 31 December 2004, as reported in the draft annual financial statements approved by Tim’s Board of Directors on 24 February 2005,
and includes all the assets and liabilities and the legal rights and obligations related in any way to the Domestic Mobile Division at the effective date of the transfer. In particular, all the employment contracts for employees and independent
contractors involved in the Spin-Off have been transferred to Tim Italia. 
  
 At
31 December 2004 the business to be spun-off included: 
  

	A.	assets with a book value of €7,721 million, comprising: (i) tangible fixed assets, amounting to €2,196 million; (ii) intangible fixed assets, amounting to €3,364
million; (iii) trade receivables, amounting to approximately €1,349 million; (iv) other receivables and accrued income and prepayments, totaling €768 million; (v) financial receivables and cash, amounting to €24 million; and (vi)
inventories amounting to €20 million; 

  

	B.	liabilities with a book value of €3,781 million, comprising: (i) trade payables, sundry payables and payables to employees and self-employed workers, and accrued expenses and
deferred income, totaling €3,405 million; (ii) the reserve for employee termination indemnities, amounting to €105 million; (iii) reserves for risks and charges connected with the activity transferred, totaling €134 million; and (iv)
the reserve for deferred taxes, amounting to €137 million. 

  
 The shareholders’ equity of the Domestic Mobile Division at 31 December 2004 amounted to approximately €3,940 million. 
  
 The items transferred at the values obtaining at the effective date of the Spin-Off did not include the following assets and liabilities related primarily to Tim’s
international business, which were reported in Tim’s draft annual financial statements for 2004 at the following values: (i) Tim’s 100% equity interest in TIM International N.V. (“TIM International”), the holding company
for equity investments in foreign companies engaged in mobile communications activities with a book value, including payments for future increases in capital, of €4,587 million; (ii) the reserves for risks in respect mainly of guarantees issued
on behalf of foreign affiliates, amounting to €211 million; (iii) the guarantees granted and received in relation to the foreign sector, included in the memorandum accounts, for a total of €395 million; (iv) the prepaid taxes related to
the international assets, totaling €587 million; (v) the balance of the current account held by Tim with Telecom Italia for the amount outstanding at the date of the transfer of the Domestic Mobile Division, equal at 31 December 2004 to
€633 million; and (vi) certain other financial and tax items. 
  
 Accordingly, as a consequence of the Spin-Off and until the Merger is consummated, Tim will maintain control of Tim Italia, the owner of the Domestic Mobile Division, and of Tim International. Upon completion of the merger Telecom Italia
will become the direct holder of 100% of the capital of both companies. 
  
 For
more information on the Spin-Off, see Section 2.1(c). 
  
 *        *        * 
  
 This Information Document is available to the public: at Telecom Italia’s registered office at 2 Piazza degli Affari, Milan; at Tim’s registered office at 6 Via Cavalli, Turin, and at its corporate
headquarters at 152 Via Pietro De Francisci, Rome; at Borsa Italiana’s registered office; and at the office of Telecom Italia North America Inc., 745 Fifth Avenue, New York, NY 10151. It has also been posted on the websites of Telecom Italia
and Tim, at respectively www.telecomitalia.it and www.investor.tim.it. 
  

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 SELECTED CONSOLIDATED FINANCIAL DATA FOR THE TELECOM ITALIA AND TIM GROUPS FOR FISCAL YEAR 2004 
  

								
	 	  	Tim Group

	 	 	Telecom Italia Group

	 (millions of euro)

	  	 Year 2004
 (historical)

	 	 	 Year 2004
 (historical)

	  	 Year 2004
 (pro forma)(°)

	 Statement of income data
	  	 	 	 	 	  	 
	 Sales and service revenues
	  	12,900	 	 	31,237	  	31,237
	 Gross operating profit
	  	6,052	 	 	14,528	  	14,528
	 Operating income before amortization of differences on consolidation
	  	4,166	 	 	8,754	  	8,754
	 Operating income
	  	4,073	 	 	7,200	  	6,565
	 Consolidated net income from ordinary activities (Parent Company’s interest)(1)(3)
	  	2,167	 	 	1,269	  	1,469
	 Consolidated net income before minority interest
	  	2,446	 	 	1,902	  	994
	 Consolidated net income (Parent Company’s interest)
	  	2,353	 	 	781	  	974
				
	 (millions of euro)

	  	
	 	 	
	  	

	 Balance sheet and financial data
	  	 	 	 	 	  	 
	 Net invested capital
	  	7,930	 	 	49,386	  	61,443
	 Shareholders’ equity
 of which:
	  	8,247	 	 	19,861	  	17,387
	 Parent Company’s interest
	  	7,660	 	 	15,172	  	15,887
	 Minority interests
	  	587	 	 	4,689	  	1,500
	 Net financial debt
	  	(317	)	 	29,525	  	44,056
	 Cash Flow(2)
	  	4,255	 	 	8,548	  	8,275
				
	 (in euro)

	  	
	 	 	
	  	

	 Per share data(*)
	  	 	 	 	 	  	 
	 Consolidated net income from ordinary activities (Parent Company’s interest)(1)(3) per:
	  	 	 	 	 	  	 
	 Ordinary share
	  	0.2521	 	 	0.0753	  	0.0763
	 Savings share
	  	0.2641	 	 	0.0863	  	0.0873
	 Consolidated net income (Parent Company’s interest) per(3):
	  	 	 	 	 	  	 
	 Ordinary share
	  	0.2736	 	 	0.0448	  	0.0493
	 Savings share
	  	0.2856	 	 	0.0558	  	0.0603
	 Cash flow(2) per share
	  	0.4951	 	 	0.5337	  	0.4500
	 Consolidated shareholders’ equity (Parent Company’s interest) per share
	  	0.8913	 	 	0.9473	  	0.8641
	
	  	
	
	 	
	  	

	 (*)
Number of shares (at 31 December) for the computation of the data per share:
	  	 	 	 	 	  	 
	 Ordinary shares
	  	8,462,512,633	 	 	10,220,792,202	  	12,348,570,253
	 net of treasury shares
	  	897,835	 	 	101,208,867	  	101,208,867
				
	 Savings shares
	  	132,069,163	 	 	5,795,921,069	  	6,038,071,314
	
	  	
	
	 	
	  	

	(°)	The pro forma column was prepared on the basis of the assumptions described in Section 5. 

  

	(1)	Consolidated net income from ordinary activities attributable to each group’s parent company was calculated on the basis of the share of the consolidated net income from
ordinary activities attributable to the parent company, net of the applicable income taxes determined in accordance with the tax rate applicable for 2004. 

  

	(2)	Consolidated net income before minority interest plus amortization and depreciation. 

  

	(3)	This indicator was calculated considering the bylaw provisions requiring dividends on savings shares to exceed dividends on ordinary shares by an amount equivalent to 20% of the
par value of the shares for Tim (Euro 0.012) and by 2% of the par value of the shares for Telecom Italia (Euro 0.0110). 

  

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TABLE OF CONTENTS 
  

											
	 
INTRODUCTION 
	  	3
	 1.
	  	 
RISK FACTORS 
	  	9
	 2.
	  	 
INFORMATION REGARDING THE MERGER 
	  	19
	 	  	 2.1
	  	 
Summary description of the procedures and time limits for the transaction 
	  	19
	 	  	 2.1(a)
	  	 
The transaction: general aspects
	  	19
	 	  	 2.1(b)
	  	 
The Tender Offer
	  	21
	 	  	 2.1(c)
	  	 
The Spin-Off
	  	22
	 	  	 	  	 2.1.1
	  	 
Description of the companies involved in the transaction 
	  	25
	 	  	 	  	 	  	 2.1.1(a)
	 	 
Absorbing company
	  	25
	 	  	 	  	 	  	 2.1.1(b)
	 	 
Company to be Absorbed
	  	34
	 	  	 	  	 2.1.2
	  	 
Procedures, time limits and conditions applying to the transaction 
	  	38
	 	  	 	  	 	  	 2.1.2(a)
	 	 
Values assigned to Telecom Italia and Tim, with reference also to expert appraisals
	  	38
	 	  	 	  	 	  	 2.1.2(b)
	 	 
Valuation methods applied in determining the exchange ratios
	  	39
	 	  	 	  	 	  	 2.1.2(c)
	 	 
Determination of the exchange ratios
	  	43
	 	  	 	  	 	  	 2.1.2(d)
	 	 
Procedure for assigning Telecom Italia shares and their entitlement date
	  	43
	 	  	 	  	 	  	 2.1.2(e)
	 	 
Withdrawal rights
	  	43
	 	  	 	  	 	  	 2.1.2(f)
	 	 
Amendments to the bylaws
	  	47
	 	  	 	  	 	  	 2.1.2(g)
	 	 
Date from which Tim’s transactions will be attributed to Telecom Italia and recorded, for Italian tax purposes as well, in its accounts
	  	48
	 	  	 	  	 	  	 2.1.2(h)
	 	 
Italian tax effects
	  	48
	 	  	 	  	 2.1.3
	  	 
Expected major shareholdings and control of the post-Merger Telecom Italia
	  	49
	 	  	 	  	 2.1.4
	  	 
Effects of the Merger on shareholders’ agreements falling within the scope of Article 122 of the Consolidated Law involving shares of the companies participating in the Merger
	  	50
	 	  	 2.2
	  	 
Reasons for and purposes of the transaction 
	  	50
	 	  	 	  	 2.2.1
	  	 
Reasons for and purposes of the transaction with specific regard to operating objectives
	  	50
	 	  	 	  	 2.2.2
	  	 
Plans prepared by the companies participating in the Merger with regard to the business prospects and possible restructuring and/or reorganization
	  	52
	 	  	 2.3
	  	 
Documents made available to the public and the places in which they can be consulted 
	  	54
	 3.
	  	 
SIGNIFICANT EFFECTS OF THE TRANSACTION 
	  	55
	 	  	 3.1
	  	 
Significant effects of the transaction on the key factors that influence and characterize the activity of the companies participating in the Merger and the types of business engaged in
	  	55
	 	  	 3.2
	  	 
Implications of the transaction for the strategies concerning business and financial dealings between Group companies or the centralized supply of services
	  	55
	 4.
	  	 
TIM’S OPERATING, FINANCIAL AND CASH FLOW DATA 
	  	57
	 	  	 4.1
	  	 
Comparative tables of the TIM Group’s reclassified consolidated income statements and balance sheets for financial years 2004 and 2003 with explanatory notes 
	  	57
	 	  	 	  	 4.1.1
	  	 
TIM Group’s reclassified consolidated income statements and balance sheets for financial years 2004 and 2003 with explanatory notes
	  	57
	 	  	 	  	 4.1.2
	  	 
TIM Group’s reclassified consolidated financial statements at 31 December 2004 and 2003 with explanatory notes
	  	60
	 	  	 	  	 4.1.3
	  	 
Tim Group’s cash flow for financial years 2004 and 2003 and net financial position at 31 December 2004 and 2003
	  	63
	 	  	 4.2
	  	 
Auditors’ opinion on the consolidated financial statements for 2004 and 2003 
	  	63
	 5.
	  	 
TELECOM ITALIA PRO FORMA OPERATING AND FINANCIAL DATA 
	  	65
	 	  	 5.1
	  	 
Pro forma consolidated balance sheet and consolidated income statement for the year ended 31 December 2004 
	  	67
	 	  	 	  	 5.1.1
	  	 
Description of the pro forma adjustments to the historical consolidated financial statements reclassified as at and for the year ended 31 December 2004
	  	69
	 	  	 	  	 5.1.2
	  	 
Purpose of the presentation of the pro forma financial statements
	  	69
	 	  	 	  	 5.1.3
	  	 
Assumptions underlying the preparation of the pro forma financial statements
	  	69
	 	  	 5.2
	  	 
Historical and pro forma data per share
	  	72
	 	  	 5.3
	  	 
Auditors’ report on pro forma financial statements
	  	72
	 6.
	  	 
OUTLOOK FOR THE ABSORBING COMPANY AND FOR THE GROUP IT HEADS 
	  	73
	 	  	 6.1
	  	 
General indications regarding business since the close of the 2004 fiscal year
	  	73
	 	  	 6.2
	  	 
Information permitting a reasonable forecast of the results for the current year
	  	73
	 
ANNEXES 
	  	75

  

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1.  RISK FACTORS 
  
 The principal risk
factors or significant uncertainties regarding the Merger covered by this Information Document and the activities of Telecom Italia and the Telecom Italia Group, including upon completion of the Merger, are indicated below. 
  
 Objectives 
  
 The Merger, as explained more fully in Section 2.2, satisfies a series of business needs prompted by the progressive convergence between
fixed and mobile communications platforms. 
  
 Market evolution and the defense of
the value creation requires business models to adapt and organizational strategies to change, an objective that the merger of Tim into Telecom Italia is intended to promote. In fact, the Merger is intended to simplify the Group’s ownership
structure and ensure the unitary governance of business processes, thereby enabling Telecom Italia to exploit the opportunity to achieve the synergies that are expected to derive from integrated management of fixed and mobile communications
business. 
  
 The achievement of the Merger’s business objectives could be
influenced by a number of factors, including, but not limited to, the ability of Telecom Italia to: 
  

	 	•	 	carry out an effective reorganization of the different corporate structures, avoiding overlap; 

  

	 	•	 	optimize the interaction between the different business areas; 

  

	 	•	 	continue with the policy of curbing costs; 

  

	 	•	 	develop and introduce new technologies and value-added services; 

  

	 	•	 	maintain an adequate level of investment with respect to continual technological innovation; 

  

	 	•	 	face the increase in competition in the market and the attendant policy of price cutting for the services offered by the different operators. 

  
 Furthermore, achievement of the objectives could also depend on factors that are beyond the
control of Telecom Italia, such as unfavourable economic and market developments. 
  
 In the first few days of April 2005 Telecom Italia will finalize the estimates of the potential economic and financial benefits foreseen in the 2005-2007 three-year term, as a result of the re-organization plans. Such benefits are expected
to be disclosed on the same day when Telecom Italia extraordinary shareholders’ meeting - which was called to approve the Merger (see Section 2.2.2) - takes place, and therefore they will be presented to the financial community, together with
the three-year objectives for revenues, operating results and total cash flow generation, on April 8, 2005. 
  
 Beside the operational needs described in Section 2.2, the Merger is intended to pursue the following additional objectives: 
  

	 	•	 	to optimize financial and cash flows within the Group by managing Group debt more efficiently and making better use of financial leverage. At the same time, Telecom Italia’s
current shareholders will have access to all the cash flow generated by the mobile communications business; 

  

	 	•	 	to enable Telecom Italia to optimize, in conjunction with the Tender Offer, its own financial structure and to reduce the weighted average cost of capital employed compared with its
current cost. Such a reduction in the weighted average cost of capital will foster the realization of the full value potential of the post-Merger Telecom Italia’s shares and thus the creation of value for the shareholders.

  
 Debt 
  
 To cover part of the consideration connected with the Tender Offer, on 8 December 2004
Telecom Italia entered into an agreement with a syndicate of banks for bank financing of up to €12 billion. 
  
 The total consideration paid was approximately €13.8 billion, of which approximately €11.3 billion deriving from the above-mentioned financing. On 11 February
2005, using Telecom Italia’s own funds, the first tranche of the bank financing, amounting to €2.3 billion, was repaid early and consequently cancelled in full; the portion of the bank financing remaining to be repaid equals €9
billion. 
  

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 As a result of the consideration paid by Telecom Italia for the Tim shares tendered in the Tender Offer, the net
financial debt of the Telecom Italia Group, excluding the other costs related to the Tender Offer, rose by €13.8 billion, from €29.5 billion at 31 December 2004 to €43.3 billion. 
  
 This figure does not take into account the exercise of the call/put options under the
agreement executed and disclosed to the market on 21 December 2004. The exercise of these options resulted in the purchase of approximately 42 million Tim ordinary shares and 21 million Tim savings shares for a total consideration of approximately
€351 million, which was paid using Telecom Italia’s own funds. 
  
 However, as a consequence of the requests to convert “Telecom Italia 1.5% 2001-2010 convertible bonds with redemption premium” received by 10 March 2005 – the last day before the suspension of conversion rights before the
annual shareholders’ meeting called to approve the annual financial statements (such conversion rights being again open to exercise as of 19 April 2005, that is ex dividend) – the net financial debt will have been reduced by approximately
€2 billion. 
  
 It should be noted that on 17 March 2005 Telecom Italia made
a note issue amounting to €850 million, with an annual coupon paying a fixed rate of 5.25% and a maturity date of 17 March 2055; this issue has no effect on the net financial debt, which remains unchanged since the proceeds of the note issue
constitute easily realizable financial resources. 
  
 By contrast, the note issue
impacts on gross financial debt: the €38.8 billion of gross financial debt at 31 December 2004 has in fact increased by €9 billion as a consequence of the financing of the Tender Offer and by an additional €850 million as a
consequence of the above-mentioned note issue, although here again the approximately €2 billion deriving from the partial conversion of “Telecom Italia 1.5% 2001-2010 convertible bonds with redemption premium” will contribute to the
reduction of gross financial debt. 
  
 It is expected that the bank financing used
for the purposes of the Tender Offer and not yet repaid, equal to €9 billion, may be refinanced in the capital markets, depending on market opportunities and conditions, probably over the next two years. It is also expected that the progressive
reduction in the debt incurred as a result of the Tender Offer will be made possible by the cash flow generated by the Absorbing Company, which is expected to be in line with the objectives disclosed to the market in March 2004. 
  
 The Group also aims to reduce its debt in the course of 2005, principally through the
generation of cash flows. However, factors now unforeseeable, including, but not limited to, the deterioration of the general situation of the economy, could significantly affect debt reduction or the ability to refinance existing debt through
further borrowing. 
  
 Possible recourse to additional financing and/or
refinancing 
  
 The operation and development of our fixed and mobile
telecommunications businesses, which will constitute the principal activities of the Group headed by Telecom Italia, require the implementation of major investment plans. In order to implement such plans, the Group may need to seek additional
financing and/or refinance its existing debt, which will be dependent on the opportunities offered by the bank credit and capital markets. The future profitability of the Group could be affected by the Group’s ability to complete such
transactions, which will be subject to the influence of market conditions and other external factors. 
  
 Competitive position 
  
 There is
intense competition in the communications market in Italy, particularly in the fixed and mobile telephony sectors. The growth in competition has been spurred by the advent of the euro and the liberalization of the Italian telecommunications market
(from 1 January 1998), which have made it easier for international operators to enter the Italian market and facilitated direct competition with Telecom Italia in fixed and mobile telephony and in local and long-distance markets. 
  
 A significant number of competitors offering fixed telephony services and three operators
(beside Tim) offering mobile telephony services were present on the Italian market at 31 December 2004. The concentration and globalization of the communications market in Europe and elsewhere may lead to a further increase in competition, including
in the domestic market. In any event, the coming years will see more resolute entry by international operators of equal standing alongside the existing ones. Direct competition with Telecom Italia in fixed and mobile telephony and in local and
long-distance markets will therefore increase. 
  

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 Notwithstanding Telecom Italia’s intent to make efficiency gains and innovate its network and services, and although
our strategic plans anticipate an increase in the number of competing operators in all of our communications markets, the reduction in tariffs due to the growth of competition in the sector and the erosion of market shares could affect Telecom
Italia’s and the Group’s revenues and margins in Italy. 
  
 Development of new products and services in the electronic communications sector 
  
 To sustain revenue growth in spite of more intense competition and the reduction of tariffs, the Group has adopted the strategy of introducing new fixed and mobile communications services, with a view to increasing
traffic on its own networks and developing alternative revenue sources in addition to carrying voice traffic. These strategic projects involve and will continue to involve substantial investments of financial and human resources. Although these
initiatives are fundamental for Telecom Italia’s strategy, it is possible that the company will be unable to launch new products and services on the market, or that the new products and services introduced will not obtain positive commercial
results. 
  
 New technologies 
  
 Many of the services supplied by Telecom Italia have a high technological content. The
development of new technologies in the future could render these services uncompetitive. Telecom has made substantial investments in new technologies in the past and must continue to do so in the future to remain competitive. However, the new
technologies in which Telecom Italia invests could yield unsatisfactory commercial results. Furthermore, Telecom Italia might not succeed in obtaining the necessary licenses or authorizations to provide services based on new technologies in Italy or
abroad. This could influence Telecom Italia’s ability to retain its existing customers or attract new ones, or could necessitate additional investments to retain existing customers. 
  
 Mobile communications services 
  
 In recent years Telecom Italia’s consolidated revenues have increased thanks largely to the rapid growth of mobile telecommunications business and the maintenance of
sales revenues in the fixed telephony sector. However, the mobile telecommunications market is approaching maturity in the field of voice services, while its data and innovative value-added services component is expanding. 
  
 In 2004 Tim’s share of the total Italian market was equal to approximately 42%, with
26.3 million subscribers; this figure excludes 688,000 dormant subscribers, to ensure greater consistency between the number of subscribers and the growth of traffic. At the same time, the contribution of the foreign affiliates is growing, above all
in Latin America, and with more than 27.5 million subscribers surpasses the number in the Italian market. 
  
 The Group has purchased two UMTS licenses to provide third-generation mobile telephony services in Italy and Greece, respectively. The acquisition of the licenses involved an outlay of, respectively, €2,417
million (for Tim) and €145 million (for TIM Hellas). Furthermore, the Group has had to make additional investments, required by the licenses, to create the UMTS infrastructures. Tim launched its UMTS services in Italy in the second half of
2004; it is therefore not yet possible to evaluate the market’s response. 
  
 The Group companies’ continued growth in the mobile communications market will depend on a number of factors, many of them beyond their control, including: 
  

	 	•	 	the activity of competitors; 

  

	 	•	 	the competitive and regulatory pressure on retail and wholesale prices; 

  

	 	•	 	the development and introduction of new technologies; 

  

	 	•	 	the development of substitutive services on other technological platforms and their penetration among customers; 

  

	 	•	 	the actual growth of the mobile communications market. 

  
 Internet and broadband services 
  
 The introduction of Internet and broadband services is an important element of Telecom Italia’s growth strategy and a means of increasing use of the network in Italy
and extending activities outside Italy, particularly in Europe. Telecom Italia’s strategy is to flank traditional voice services with value-added contents and services for 

  

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consumers and small and medium-sized enterprises. The company’s ability to realize this strategy with success could be adversely affected if:

  

	 	•	 	utilization of the Internet in Italy grows more slowly than expected, owing to changes in Internet users’ preferences; 

  

	 	•	 	the penetration of broadband in Italy does not develop according to expectations; 

  

	 	•	 	competition increases owing to the entry of new competitors, concentration in the market or technological developments that introduce new platforms for Internet access and/or
distribution, or because other operators provide better broadband connections than those Telecom Italia can offer. 

  
 Outside Italy, Telecom Italia’s ability to implement this strategy will also depend on its ability to acquire activities or networks or to utilize networks of other
operators that allow the company to offer its own services. 
  
 Each of the
above-mentioned factors could adversely affect the Group’s business and revenues. 
  
 Evolution of the regulatory framework 
  
 The activities
that Telecom and Tim currently perform separately are carried out within the legislative and regulatory framework applicable in the European Union and Italy, just as the activities of the foreign affiliates are in conformity with the laws and
regulations applicable in the individual countries in which the Group is present. In the same way, the post-Merger Telecom Italia will also be subject to applicable law and regulations. 
  
 In Italy, the regulatory framework for the communications sector was altered with the entry into force on 16 September 2003 of the new
Electronic Communications Code which, among other things, transposed into Italian law the European directives pursuant to the “99 Review” regarding electronic communications networks and services (the “Access”,
“Authorizations”, “Framework” and “Universal Service” directives). The Code was issued under Law no. 166 of 1 August 2002, which delegated authority to the Government to transpose the above-mentioned directives and
adopt a Code. The Government’s mandate included the simplification of administrative processes and the express repeal of the body of outdated provisions. Among its major innovative features, the Code established procedures and criteria for the
identification of remedies applicable to operators that have “significant market power”. In particular, such operators will be identified following specific market analyses of each of the eighteen markets, both retail and wholesale, in
which it is considered necessary to intervene to protect free competition. In conformity with the Code, the Communications Authority has already initiated the process. The market analyses and the application of the related remedies for each of the
eighteen markets are not likely to be completed before the second half of 2005. Accordingly, the fully operational phase of the Merger will coincide with the start of full implementation of the new legislative framework. In particular, pending the
conclusion of the market analyses Telecom Italia will continue to be notified as an operator with a dominant position in four of the markets identified on the basis of the previous regulatory framework, until the new Code takes effect, and to be
subject to all the relevant obligations. 
  
 It is likely that the set of remedies
for Telecom Italia at the completion of the procedure described above will be tailored more closely to the competitive structure of the market and more closely calibrated to the actual nature of the residual obstacles to the development of
competition. However, implementation of the new provisions and, in particular, the new measures that may be introduced in the future pursuant to them, as well as other changes in the legislative framework governing the communications market, could
affect the operations of Telecom Italia, especially as regards the supply of new services, which today are not subject to any market analysis since they are not included among the eighteen markets that are the subject of the current evaluation.

  
 As mentioned, the Absorbing Company is the dominant operator and, as such, is
subject to a series of especially stringent regulatory requirements regarding fixed telephony and the access network, the most important of which are: the obligation to provide interconnection services to other operators and other wholesale services
and to apply tariffs based on non-discriminatory costs and prices or subject to certain maximum limits (network caps and price caps). Even after the completion of the market analyses, the Absorbing Company might still be considered a dominant
operator and the above-mentioned restrictions could therefore continue to apply to it after the Merger. 
  
 As in the case of Telecom Italia, under the new rules of the Electronic Communications Code Tim’s obligations as dominant operator for the market of mobile and personal communications have been provisionally
confirmed, pending completion of the market analyses by the Communications Authority. 
  
 Possible amendments to the applicable legislation, in particular the easing or tightening of the restrictions and obligations to which the Group is subject, could affect the Group’s competitiveness. Decisions by the authorities 

  

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of the sector concerning the issue, modification or renewal of licenses in favour of Group companies or third parties in Italy or other countries in which
the Group operates, or further amendments to the provisions governing the sector, for example concerning carrier pre-selection, number portability and the liberalization of the last mile (local loop unbundling), could affect the Group’s
results. Similar consequences could derive from changes in applicable tax law. 
  
 Malfunctioning of infrastructures 
  
 Telecom
Italia’s technical infrastructures (including network infrastructures for fixed and mobile communications) are vulnerable to damage or service interruption due to computer malfunctions, power failures, natural events, terrorist acts, criminal
acts, human errors and similar events. Unexpected problems at plants, infrastructure breakdowns, hardware or software failures, computer viruses and hacker attacks could adversely affect the quality of services and cause service interruptions. Such
events could adversely affect traffic and revenues or harm the Group’s reputation. 
  
 Mobile communications and alleged risks for health 
  
 According to some studies, certain emissions of radio waves from wireless sets and transmission equipment could be associated with health problems and interfere with electronic devices. The possibility cannot be ruled out that exposure to
electromagnetic fields or other emissions generated by wireless equipment will be considered hazardous to health in the future. The Group’s mobile telephony business could be harmed by such alleged risks for health, including in terms of a
reduction in the number of customers, less use of mobile communications per customer or litigation. 
  
 Furthermore, although Italian law already sets strict limits regarding transmission equipment, the above-mentioned risks could induce lawmakers to introduce further restrictions on the construction of radio stations
or similar infrastructures, which could be detrimental to the updating of the network and the marketing of new services. 
  
 Judicial proceedings pending 
  
 Management does not believe that the companies of the Group are parties to legal or arbitration proceedings which, if determined unfavorably to the Group, could have
significant adverse effect on the financial position or the results of operations of the Group, taken as a whole. 
  
 On 19 November 2004 the Antitrust Authority notified the closure of its investigation A351, pursuant to which Telecom Italia was fined €152 million for alleged abuse
of dominant position. Telecom Italia petitioned the Lazio Administrative Tribunal for annulment of the decision. On 16 February 2005 the Lazio Administrative Tribunal issued an order granting Telecom Italia’s request for suspension but only as
regards the imposition of the fine. Subsequently, on 22 February 2005, the decision on the merits of the case was filed, showing that Telecom Italia’s petition had been granted in part. The publication of the reasons for the decision, now
pending, will provide additional information regarding the applicability of the fine. In any event, the administrative dispute can be appealed before the State Council. In 2004 Telecom Italia allocated the full amount of the fine to a specific risk
reserve. 
  
 On 23 February 2005 the Antitrust Authority decided to open an
investigation of Tim, Vodafone Omnitel N.V. and Wind Telecomunicazioni S.p.A. for abuse of both individual and collective dominant position in the market for access to mobile network infrastructures and in the markets for termination on individual
mobile networks, as well as for alleged collusive agreements in the access market, in the market for end-user mobile communication services and in commercial offers to business customers. The proceeding, which is to be concluded by 28 April 2006, is
still in the initial phase. Accordingly, any evaluation regarding its outcome must be deferred until a later date. 
  
 Political and economic context 
  
 The activity of the Group depends on the general conditions of the economy in the countries in which it operates, particularly as regards the levels of interest rates,
inflation and taxation. A significant worsening of such conditions could adversely affect Telecom Italia’s business and results. Radical changes in the economic or political field or alterations of the legislative framework or of the procedures
for applying legislation in such countries could harm the companies in which the Group has invested or diminish the value of the investments made. 
  

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 International activities 
  
 In recent years Telecom Italia has reviewed its international strategy, disposed of important non-core international businesses and chosen
to focus its international strategy on: 
  

	 	•	 	consolidating its presence in Latin America, Europe and the Mediterranean basin; 

  

	 	•	 	developing international investments in high-growth market segments, such as wireless, data and Internet (broadband); 

  

	 	•	 	strengthening its role as a strategic partner in existing investments by increasing the transfer of its technological expertise and marketing know-how; 

  

	 	•	 	rationalizing its international portfolio by disposing of minority interests in non-strategic geographical markets. 

  
 Consistent with this strategy, Telecom Italia recently signed preliminary agreements for the
sale of its holdings in Entel Chile (Chile) and Corporacion Digitel (Venezuela) and will continue to seek opportunities to divest non-strategic international activities. 
  
 Telecom Italia might not obtain a satisfactory return on its investments abroad. 
  
 Variations in exchange rates 
  
 The Group has made substantial investments abroad, mainly in US dollars, and has
significantly expanded its activity outside the euro area, especially in Latin America. 
  
 Consequently, fluctuations in the euro’s exchange rate against other currencies could influence the Group’s business and results. The appreciation of the euro with respect to the currencies of countries in which the Group operates
or has made investments would reduce the relative value of the Group’s revenues or assets in those countries and could therefore adversely affect the Group’s results or financial position. The results of business in Latin America in the
last few years have been influenced by the local currencies’ performance vis-à-vis the euro. In particular, in 2004 the strengthening of the euro against the local currencies in Latin America caused a €150 million reduction in the
revenues of the Mobile Business Unit. 
  
 Furthermore, the Group has raised funds
denominated in currencies other than the euro, principally the US dollar, and may continue to do so in the future. The value of such liabilities will be influenced by movements in the currencies of the countries in which the Group operates with
respect to the currency in which the financing is denominated. In general, the Group makes use of various foreign exchange forward transactions, swaps and options to manage the exposure to exchange rate risk on liabilities not denominated in euros.
However, the management of exchange rate risk could prove ineffective, possibly because the necessary swaps and options may not be available on the financial market. 
  
 Variations in interest rates 
  
 The Group’s gross financial debt amounted to €38.8 billion at 31 December 2004. As mentioned, Telecom Italia obtained bank financing to cover part of the
consideration connected with the Tender Offer for Tim ordinary and savings shares and repaid the whole of the first tranche of such financing early on 11 February 2005 (see Section 2.1.1b)). As a consequence of the Tender Offer, it is expected that
in 2005 both the total amount of interest payable and the Group’s exposure relative to borrowings at variable interest rates will increase. The Group has executed derivatives transactions to cover the risk connected with the fluctuation of
interest rates and diversify its borrowing parameters, with a view to reducing the cost of debt and its volatility within predetermined limits. However, fluctuations in interest rates could adversely affect the results of Telecom Italia and the
Group. 
  
 Valuation adjustments 
  
 In recent years the market performance of telecommunications shares, the credit ratings of
telecommunications operators and the revision of Group economic and financial forecasts have led Telecom Italia to make sizable value adjustments for losses on assets (principally differences on consolidation) that had significant negative effects
on the income statement in the 2001 and 2002 fiscal years. 
  
 Although such
effects were much smaller in 2003 and 2004, the possibility cannot be ruled out that the phenomena in question will cause further value adjustments to be made in the future for losses on assets. 
  

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 Ownership structure 
  
 Telecom Italia is not subject to direction and coordination pursuant to Article 2497 et seq. of the Civil Code nor to the control of any
person pursuant to Article 93 of the Consolidated Law. 
  
 As a consequence of the
provision in Telecom Italia’s bylaws requiring the slate voting system to be used for the election of the Board of Directors, in the shareholders’ meeting of 6 May 2004 Olimpia S.p.A. (“Olimpia”), as the largest
shareholder with a holding at the time of approximately 17%, determined the election of 15 of the 19 incumbent directors. 
  
 Marco Tronchetti Provera and Carlo Orazio Buora, respectively Chairman and Managing Director of Telecom Italia, are also, respectively, Chairman and Managing Director of
Pirelli & C. S.p.A., which currently holds approximately 57.66% of the share capital of Olimpia. Marco Tronchetti Provera is also Chairman of Olimpia, while Carlo Orazio Buora is a member of that company’s Board of Directors. 
  
 Olimpia is a holding company, and the operating company in which it invests is Telecom
Italia. Accordingly, should Olimpia be unable to obtain further financing from its own shareholders, present or future, or from other sources, it would be completely dependent on the dividends paid on Telecom Italia shares for the satisfaction of
its own financing needs (including repayment of the existing debt). In such circumstances, Telecom Italia’s decisions regarding the level of dividends to pay to the shareholders could be influenced primarily by the needs of Olimpia. 

 
 However, Telecom Italia’s financial position is independent of that of Olimpia, and
Telecom Italia has no obligation to repay Olimpia’s debt inasmuch as they are two distinct legal persons. 
  
 At 16 March 2005 Olimpia held 21.80% of the ordinary share capital of Telecom Italia. Upon completion and as a consequence of the Merger, Olimpia’s holding in the capital of the post-Merger Telecom Italia will be
diluted and, according to current estimates, could fall to a percentage close to that (approximately 17%) held before the capital increase that Olimpia approved on 22 December 2004 following and in connection with the announced consolidation of the
Telecom Italia Group. 
  
 In any case, upon completion of the Merger no
shareholder is expected to control Telecom Italia. 
  
 Special powers of the
Minister for the Economy and Finance 
  
 Article 22 of Telecom
Italia’s bylaws grant the Minister for the Economy and Finance certain special powers, to be exercised in agreement with the Minister for Productive Activities, pursuant to Article 2 of Law 474 of 30 July 1994. These powers permit the
Minister: (i) to approve the acquisition of holdings equal to at least 3 per cent of Telecom Italia’s share capital represented by shares with voting rights in the ordinary shareholders’ meeting; and (ii) to veto the adoption of certain
resolutions by the extraordinary shareholders’ meeting, including resolutions to merge or divide the Company or to eliminate or amend such special powers. 
  

At the end of the meeting of its Board of Directors on 7 December 2004, Telecom Italia, pursuant to Article 22.b) of its bylaws and Article 2 of Law 474 of 30 July
1994, notified the Minister for the Economy and Finance of the commencement of the plan for the reorganization of the Group. 
  
 The Minister for the Economy and Finance, in agreement with the Minister for Productive Activities, has notified Telecom Italia that he does not consider that the
conditions exist for the exercise of the veto right with respect to the adoption of the Merger resolution by Telecom Italia’s shareholders’ meeting. 
  

However, the clause of Telecom Italia’s bylaws concerning special powers will be retained even after the Merger, Consequently, the subjection of Telecom Italia to
the powers of approval and veto of the Minister for the Economy and Finance could affect its contestability and the execution of major corporate actions. 
  
 International accounting standards 
  
 Until 2004 Telecom Italia drew up its consolidated financial statements in accordance with Italian accounting standards. In June 2002 the Council and the Parliament of
the European Union published a Regulation requiring all companies listed on regulated securities exchanges in the European Union to apply International Financial Reporting Standards (IFRS, previously known as International Accounting Standards, or
IAS) in preparing their consolidated financial statements from 1 January 2005. The difference between the consolidated financial 

  

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statements of Telecom Italia prepared according to IFRS and those prepared according to Italian accounting standards (Italian GAAP) could affect the methods
adopted by the financial community in evaluating Telecom Italia’s results. 
  
 The information reported below was illustrated to financial analysts on 16 March 2005; such information should be considered as preliminary and liable to amendments and has been prepared on the basis of IAS / IFRS currently in force and
following the interpretations currently available. External auditors Reconta Ernst & Young have been engaged to check the data concerning the transition process and such review is presently under way. 
  
 Based on the foregoing, the effects on the 2004 consolidated financial statements arising
from the adoption of IAS / IFRS are as follows: 
  

	 	•	 	an increase in operating income by €0.4 billion (from €7.2 billion to €7.6 billion), net of €0.6 billion of net charges reclassified from extraordinary
items under Italian accounting standards which are no longer allowed under IAS/IFRS; 

  

	 	•	 	an increase in consolidated net income (Parent Company’s interest) by €1 billion (from €0.8 billion to €1.8 billion); 

  

	 	•	 	an increase in consolidated shareholders’ equity (Parent Company’s interest) by €1.2 billion (from €15.2 billion to €16.4 billion);

  

	 	•	 	an increase in net financial debt by €3.3 billion (from €29.5 billion to €32.8 billion). 

  
 In particular, the main impacts can be summarized as follows: 
  

	 	•	 	goodwill arising on consolidation: this item is no longer regularly amortized in the income statement but is subject to an impairment test at least once a year. For the
fiscal year 2004 such change results in an increase of the shareholders’ equity, in particular the consolidated net income, by €1.5 billion, fully attributable to the elimination of the amortization; 

  

	 	•	 	consolidation area: all subsidiaries must be consolidated on the basis of the shares owned even if previously classified as current assets under Italian GAAP; also Special
Purpose Entities set up for specific transactions shall be consolidated. As a consequence, the consolidation of the special-purpose entity TISV (set up for securitization operations purposes) results in an increase in net financial debt by €0.7
billion and no significant impacts on net income and shareholders’ equity; 

  

	 	•	 	sale and lease-back transactions: some real estate sales completed by the Telecom Italia Group in prior years (2000-2003) with simultaneous lease-back contracts over 19-21
years, classified as operating leases according to Italian accounting principles, are classified under IAS/IFRS as sale and financial lease-back transactions. Accordingly, leased assets and the residual amount of the corresponding financial
liability shall be recognized in the balance sheet, while depreciation and interest charges (instead of rentals) are recognized in the income statement and the gain realized at the disposal is deferred over the terms of the lease contracts. The
different accounting treatment of these real estate transactions lead to an increase in net financial debt at the end of 2004 of €1.6 billion, and a decrease in shareholders’ equity of €0.2 billion, including a decrease of €0.1
in net income; 

  

	 	•	 	factoring transactions: the adoption of IAS 39, particularly the provisions regarding the derecognition of financial assets (accounts receivable), leads to a more restrictive
interpretation of the conditions needed for recognizing the sale of accounts receivable and, consequently, an increase in net financial debt by €0.8 billion inasmuch as the proceeds of the sale are considered a borrowing;

  

	 	•	 	provisions for risks and charges: the requirements specified by IFRS entail a more restrictive interpretation of the conditions needed for recognizing these liabilities. In
particular, under IFRS the opening balance sheet at 1 January 2004 reflects a positive adjustment to the opening shareholders’ equity due to the reversal of some provisions for risks and charges recognized under Italian accounting standards.
This different accounting treatment results in a reduction of €0.1 billion in 2004 net income under IFRS, as a consequence of the reversal of the uses of provisions recorded in the same fiscal year in the income statement under Italian
accounting standards; 

  

	 	•	 	revenues: under Italian accounting standards, revenues from activating telephone service and recharging prepaid cards are accounted for immediately in the income statement,
whereas under IFRS they are treated as deferred revenues, as well as the related costs, to be amortized over the expected duration of the customer contract, with a consequent negative effect on the shareholders’ equity as of 31 December 2004 by
€0.3 billion of which €0.1 billion on 2004 net income; 

  
  

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	 	•	 	convertible and exchangeable bonds: under IFRS the value of these compound financial instruments must be split between the debt component and the option component. As regards
bonds convertible into own shares the value of the option is classified in shareholders’ equity while as regards the bonds exchangeable for shares issued by other entities (Group or third parties) it is classified as a financial liability and
measured at fair value at each period end. This different accounting treatment results in a reduction in net financial debt at 31 December 2004, by €0.3 billion, a decrease in net income for 2004 by € 0.1 billion and an increase in
shareholders’ equity by €0.4 billion; 

  

	 	•	 	derivative instruments: under Italian accounting standards these financial instruments are normally treated as off-balance-sheet items and adequately disclosed in the
footnotes to the financial statements, whereas under IFRS they are recognized in the balance sheet at fair value. The different accounting treatment results in a negative impact on shareholders’ equity at 31 December 2004 by €0.1 billion
and an increase in net financial debt by €0.3 billion; 

  

	 	•	 	options on Tim shares: the binding commitment arisen at the end of 2004 to purchase Tim shares in the first months of 2005 (as a financial transaction connected with the
integration between Telecom Italia and Tim) involves consolidating a further interest in Tim and recording a financial liability in the balance sheet at 31 December 2004 under IFRS, with a consequent increase in net financial debt by €0.4
billion, since, under Italian accounting standards, such commitments are treated as off-balance-sheet items; 

  

	 	•	 	treasury shares: under Italian accounting principles treasury shares are recognized as assets and a specific restricted reserve shall be recorded in shareholders’
equity; under IAS/IFRS treasury shares shall be recognized as a reduction of shareholders’ equity. Such different accounting treatment results in a reduction in shareholders’ equity as of 31 December 2004 by €0.4 billion.

  
 Pro forma data 
  
 The main accounting impacts of the Merger are reported in the “Selected consolidated
financial data for the Telecom Italia and Tim groups for the fiscal year 2004” in the Year 2004 pro forma column. In connection with the pro forma consolidated financial data it shall be pointed out that these data have been prepared on the
basis of the Italian accounting standards. For further details see the following section 5. However, in the 2005 consolidated financial statements the Merger will be accounted for in accordance with IAS/IFRS; the main accounting impacts arising from
the application of IAS/IFRS to the Merger are described in a specific section (“IAS/IFRS adoption”) in the paragraph 5.1.3 under the section 5. 
  

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2.  INFORMATION REGARDING THE MERGER 
  
 
2.1  Summary description of the procedures and time limits for the transaction 
  
 
2.1(a)  The transaction: general aspects 
  
 The transaction covered by this Information Document, which will be submitted for approval to the shareholders’ meetings of Telecom Italia and Tim, consists of the merger of Tim with and into Telecom Italia pursuant to Article 2501 et
seq. of the Civil Code. Since the transaction involves companies with securities listed on an Italian regulated securities exchange, it is also subject to the Consolidated Law and the Consob Regulation. 
  
 The Merger is the last step in the plan for the reorganization of the Group headed by Telecom
Italia, which also includes the Tender Offer and the Spin-Off (described in Sections 2.1(b) and 2.1(c) respectively). When the Merger becomes effective, Telecom Italia will succeed to all of Tim’s legal rights and obligations in respect of the
latter’s assets and liabilities, except for those pertaining to the Domestic Mobile Division transferred in the Spin-Off. These rights and obligations are held by Tim Italia, which will be wholly owned by Telecom Italia upon completion of the
Merger. 
  
 On 7 December 2004 the Boards of Directors of Telecom Italia and Tim
approved the guidelines of the Merger and commenced the preliminary work needed to prepare the merger plan to be submitted to their respective shareholders’ meetings for approval. On 23 January 2005, the Boards of Directors of Telecom Italia
and Tim approved the plan for the merger of Tim with and into Telecom Italia (attached herewith as Annex I) and called the extraordinary shareholders’ meetings for 5, 6 and 7 April 2005 (Telecom Italia) and 5 and 6 April 2005 (Tim). The reports
on the merger plan of the Boards of Directors of Telecom Italia and Tim are attached herewith as Annexes II and III, respectively. 
  
 For purposes of the Merger, reference has been made, in accordance with Article 2501-quater of the Civil Code, to the balance sheets of Telecom Italia and Tim at
30 September 2004 (attached herewith as Annexes IV and V). 
  
 For purposes of
issuing the report on the fairness of the exchange ratios, i accordance with Article 2501-sexies of the Civil Code the Milan Court appointed as expert for Telecom Italia the accounting firm of Mazars & Guerard S.p.A. and the Turin Court
appointed as expert for Tim the accounting firm Reconta Ernst & Young S.p.A. These experts issued their respective reports on 28 February 2005 (see Annexes VI and VII). 
  
 The bylaws of Telecom Italia will not be amended as a consequence of the Merger, apart from the amendments described in Section 2.1.2(f).

  
 The intention of Telecom Italia and Tim is to arrange for the Merger to become
effective by the end of June 2005. 
  
 Since the transaction involves the
incorporation into Telecom Italia of a subsidiary, the Merger will result in the cancellation without exchange of the Tim ordinary and savings shares held by Telecom Italia at the effective date of the Merger and the assignment to the holders of Tim
ordinary and savings shares other than Telecom Italia of ordinary and savings shares issued by Telecom Italia. These shares will be assigned on the basis of the exchange ratios described in Section 2.1.2(c). The treasury shares held by Tim will also
be cancelled without exchange in accordance with Article 2504-ter, paragraph 2, of the Civil Code. 
  
 With effect from the 2005 fiscal year, Telecom Italia will prepare its interim and annual consolidated financial statements in accordance with IAS/IFRS, while, for the statutory financial statements of Telecom Italia
S.p.A., the new accounting standards will be applied with effect from the 2006 fiscal year. 
  
 Accordingly, the Merger will result in the application of the following accounting treatments: 
  

	 	•	 	Statutory financial statements of Telecom Italia S.p.A. for the year ending 31 December 2005. For purposes of Italian GAAP, the Merger will be accounted for at book value.
Such treatment gives rise to both a cancellation deficit (the difference between the book value of the Tim shares held by Telecom Italia, including those acquired through the Tender Offer, and the value of the corresponding portion of
shareholders’ equity) and an exchange deficit (the difference between the increase in share capital for the exchange and the portion of Tim shareholders’ equity acquired). The cancellation deficit will be allocated to increase the book
value of Tim assets at the time of the Merger (the equity interests in Tim Italia and Tim International), while the exchange deficit will be allocated to the reduction of the reserves included in Telecom Italia’s shareholders’ equity.

  

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	 	•	 	Consolidated financial statements of the Telecom Italia Group for the year ending 31 December 2005. For purposes of IAS/IFRS currently in force, the Merger will be accounted
for using the purchase method, i.e., by valuing the newly issued shares given in exchange to minority shareholders at their fair value at the effective date of the Merger. The difference between the fair value of the newly issued shares and the
portion of Tim shareholders’ equity acquired through the Merger will be recorded as goodwill. 

  
 Upon completion of the Merger, Telecom Italia’s ordinary and savings shares will continue to be listed on the Mercato Telematico Azionario operated by Borsa Italiana
S.p.A. and on the New York Stock Exchange in the form of ADSs (American Depository Shares, each of which represents ten ordinary or savings shares). By contrast, with effect from 8 March 2005, Telecom Italia’s ordinary shares have been delisted
from the Frankfurt Stock Exchange following the decisions adopted by its Board of Admission. 
  
 Savings shares 
  
 As part of the share
exchange, the Absorbing Company will assign holders of Tim savings shares newly issued savings shares of Telecom Italia. 
  
 It should be noted that, from a formal legal perspective, Telecom Italia savings shares are entitled to a smaller percentage dividend premium compared with ordinary
shares than that to which holders of Tim savings shares are currently entitled compared with Tim ordinary shares. 
  
 In fact, whereas Tim savings shares give their holders, in addition to the right to a preferential dividend of up to 5% of their par value, the right to a premium with
respect to any profit distributed to ordinary shareholders equal to 20% of their par value (€0.06 per share), Telecom Italia savings shares give their holders the right to a preferential dividend of up to 5% of their par value and the right to
a premium with respect to any dividend distributed to ordinary shareholders equal to only 2% of their par value (€0.55 per share). 
  
 Because of these different rights, the resolution approving the Merger Plan will be submitted for approval to the special meeting of Tim savings shareholders called for
6, 7 and 8 April 2005; holders of Tim savings shares who do not vote in favour of the Merger will be entitled to withdrawal rights pursuant to Article 2437, first paragraph, point g), of the Civil Code. For more information on the withdrawal rights,
see Section 2.1(e). 
  
 It should be noted, however, that from a substantive
economic perspective, the exchange will lead to an improvement in the entitlement to profits of Tim savings shareholders in terms of the quantification of their premium, since each Tim savings share with a par value of €0.06 will be exchanged
for more than one Telecom Italia savings share with a par value of €0.55 (on the basis of the exchange ratio of 2.36 Telecom Italia savings shares for each Tim savings share; see Section 2.1.2(c) below), so that the post-exchange dividend
premium for each former Tim savings share will be calculated with reference to a higher total par value of €0.55 x 2.36 = €1.30, instead of €0.06. Therefore, the post-exchange dividend premium for holders of Tim savings shares will
increase as a consequence of the exchange for Telecom Italia savings shares – with respect to the dividend premium compared with ordinary shares – from the current value for each Tim savings share held of 20% x €0.06 = €0.012 to
2% x €1.30 = €0.026. In this way, the right to a smaller premium in relative terms will be more than compensated in absolute terms. 
  
 Convertible bonds issued by Telecom Italia 
  
 On 14 December 2004, Telecom Italia published a notice in the Italian Official Gazette concerning the right of holders of Telecom Italia’s 1.5% 2001-2010 convertible
bonds with redemption premium to exercise their conversion rights under Article 2503-bis, second paragraph, of the Civil Code. 
  
 The above-mentioned bonds are continuously convertible subject to the provision on the suspension of conversion rights contained in Article 6(iv) of the terms and
conditions of the bonds. Under these terms and conditions, conversion rights were suspended from the day after the meeting of the Board of Directors that called the shareholders’ meeting to approve the Merger Plan. However, as announced on 31
December 2004 and specified in notices published in newspapers on 24 January and 25 February 2005, as a result of the addition of the approval of the annual financial statements to the agenda of such shareholders’ meeting, the special provision
under the terms and conditions for the case in which the shareholders’ meeting is called to approve the distribution of a dividend was applied. Accordingly, from 25 February 2005, it was again possible to exercise conversion rights. From the
fifteenth day subsequent to the meeting of the Board of Directors that called the 

  

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shareholders’ meeting to examine the draft financial statements for the year ended 31 December 2004 (held on 24 February 2005), i.e. from 11 March 2005
until the ex dividend date (which it has been proposed should be 18 April 2005), inclusive, the right to exercise conversion rights is again suspended. Pursuant to the terms and conditions of the bonds it will again be possible to exercise
conversion rights as of 18 April 2005. 
  
 
2.1(b)  The Tender Offer 
  
 Pursuant to
Article 102 et seq. of the Consolidated Law, Telecom Italia made a voluntary partial tender offer for Tim ordinary shares and a voluntary tender offer for all Tim savings shares. The Tender Offer, which commenced on 3 January 2005 and terminated on
21 January 2005, represented the first step in the Group’s reorganization plan and must be considered as connected with and serving the purposes of the Merger. 
  
 With a view to the Merger, the Tender Offer was intended to contribute to optimizing the capital structure of the Absorbing Company. Since,
in implementing the Merger, the Tim shares held by Telecom Italia will be cancelled without exchange, Telecom Italia’s acquisition of Tim shares in the Tender Offer has increased the proportion of Tim’s share capital not subject to
exchange. This will have a positive effect on earnings and free cash flow yield per share, to the benefit of all the shareholders of the Company resulting from the Merger. From a financial perspective, instead of issuing equity in exchange for the
shares acquired by Telecom Italia, there is an increase in Telecom Italia’s net debt as a result of the settlement of the obligations arising from the Tender Offer. The cost of this new debt - in terms of after-tax net financial expense - is
lower than the cost - in terms of the expected dividends - which would have been incurred on the equity that would have been in exchange for Tim shares if they had not been purchased in the Tender Offer. 
  
 The Tender Offer was for 2,456,534,241 Tim ordinary shares and 132,069,163 Tim savings shares
at a price of €5.6 for each ordinary share and each savings share. The effectiveness of the Tender Offer was subject, among other things, to the condition that the shares tendered for both classes should reach the threshold of two thirds of the
quantity that was the subject of the offer (without prejudice to the right of Telecom Italia’s Board of Directors to decide to purchase any smaller quantity of ordinary and/or savings shares tendered and to proceed with the reorganization plan
by effecting the Merger. 
  
 In its meeting on 22 December 2004, Tim’s Board
of Directors, taking into account the opinions expressed by the financial advisors – Lazard & Co. S.r.l. (Sole Lead Advisor) and Credit Suisse First Boston, as well as Merrill Lynch International, Milan office, and Studio Casò,
represented by Mr. Angelo Casò, on the recommendation of Tim’s Internal Control Committee – judged the consideration offered by Telecom Italia for Tim’s ordinary and savings shares to be fair and expressed a favorable opinion
on the Tender Offer. 
  
 At the end of the acceptance period, the following shares
had been tendered: 2,639,154,665 ordinary shares (corresponding to approximately 31.2% of Tim’s ordinary share capital and approximately 107.4% of the ordinary shares that were the subject of the ordinary share offer) and 8,463,127 savings
shares (corresponding to approximately 6.4% of Tim’s savings share capital and of the savings shares that were the subject of the savings share offer). Following the proration of the Tim ordinary shares tendered, Telecom Italia therefore owned
7,190,583,124 Tim ordinary shares, corresponding to approximately 84.8% of the company’s ordinary share capital and approximately 85.539% of its total share capital, and 8,463,127 Tim savings shares, corresponding to approximately 6.4% of the
company’s savings share capital and approximately 0.098% of its total share capital. 
  
 Telecom Italia’s Board of Directors assessed the results of the Tender Offer favorably, especially in view of the fact that the Tim ordinary shares tendered exceeded the number of Tim ordinary shares subject to
the Tender Offer, and decided to waive the Tender Offer effectiveness conditions concerning the minimum threshold of acceptances for Tim savings shares, thereby confirming the effectiveness of the Tender Offer, and accepting the purchase of the
smaller quantity of Tim savings shares tendered, and proceeding with the integration process. 
  
 The Tender Offer consideration was paid on 28 January 2005. 
  
 On the basis of the results of the Tender Offer, the total consideration paid by Telecom Italia for the Tim shares tendered was approximately €13.8 billion. Of this amount, €2.5 billion was paid by using
Telecom Italia’s own funds and approximately €11.3 billion was raised through bank financing agreed on 8 December 2004 with a syndicate of banks for up to a maximum of €12 billion (the “Bank Financing”; for more
information see below). Subsequently, on 11 February 2005, using Telecom Italia’s own funds, the first tranche of the Bank Financing, amounting to €2.3 billion, was repaid early and consequently cancelled in full; the portion of the bank
financing remaining to be repaid is therefore equal to €9 billion. 
  

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 It should also be noted that as a result of the post-Tender-Offer exercise of put options under the above-mentioned
contract executed on 21 December 2004, Telecom Italia purchased 42 million additional Tim ordinary shares and therefore owns at the date of this Information Document a total of 7,232,583,124 Tim ordinary shares (including those acquired in the
Tender Offer), corresponding to approximately 85.5% of the company’s ordinary share capital. In addition, as a result of the exercise of the call options under the aforementioned agreement, dated as of 21 December 2004 (for approximately 21
million Tim savings shares), the execution of securities lending agreements (for approximately 37 million Tim savings shares) and the purchase on the market of 5,063,816 Tim savings shares, as of 18 March 2005 Telecom Italia is entitled to vote
approximately 54.16% of the shares entitled to vote in the special meeting of Tim savings shareholders called to approve the Merger resolution. 
  
 Financing of the Tender Offer 
  
 Telecom Italia paid the consideration connected with the Tender Offer by using €2.5 billion of its own funds and drawing on the Bank Financing for approximately
€11.3 billion. The first tranche of the Bank Financing disbursed, amounting to €2.3 billion, was repaid early and consequently cancelled in full. 
  
 Telecom Italia executed the Bank Financing agreement with a syndicate of banks led by JP Morgan plc (Global Coordinator), Mediobanca, MCC, UniCredit Banca Mobiliare
S.p.A. and Banca Intesa S.p.A. (Mandated Lead Arrangers). The Bank Financing provided for up to a maximum of €12 billion in loans and is divided into three repayment tranches of respectively €3 billion, €6 billion and €3 billion
with different maturities (12, 36 and 60 months, with Telecom Italia having the option, at its discretion, to extend the maturities of the first two tranches – provided no event of default occurs and there is no early termination of the Bank
Financing – by 12 months and 9 months, respectively). The Bank Financing is not backed by a pledge or any other form of security and provides for no financial covenants. 
  
 As a result of the disbursement connected with payment of the Tender Offer consideration, the net financial debt of the Telecom Italia
Group, equal to approximately €29.5 billion at 31 December 2004, amounted, excluding the other costs related to the Tender Offer, to just under €43.3 billion. This figure does not take into account the exercise of call options for
approximately 42 million Tim ordinary shares and 21 million Tim savings shares, previously disclosed to the market and amounting to approximately €351 million. It should be noted, however, that following requests to convert Telecom Italia 1.5%
2001-2010 convertible bonds with redemption premium received by 10 March 2005 – the last day before the start of the suspension of conversion rights, which it will again be possible to exercise as of 19 April 2005 – and not yet effected,
the net financial debt will already have been reduced by approximately €2 billion as a consequence of the issuance of the corresponding conversion shares. 
  

The amount borrowed under the Bank Financing for the Tender Offer and not yet repaid, equal to €9 billion, may be refinanced in the capital markets, depending on
market opportunities and conditions, probably over the next two years. The progressive reduction in the debt incurred as a result of the Tender Offer will be made possible primarily by the cash flow that will be generated, which is expected to be in
line with the objectives disclosed to the market in March 2004. 
  
 The increase
in debt following the Tender Offer has not led to a reduction in Telecom Italia’s credit rating (currently Baa2 for Moody’s, BBB+ for Standard & Poor’s, and A- for Fitch). It should be noted that Standard & Poor’s and
Fitch, while confirming their respective ratings, have revised their outlooks from positive to stable and from stable to negative, respectively. The rating agencies arrived at these conclusions on the basis of the maximum estimated consideration
payable in connection with the Tender Offer, equal to approximately €14.5 billion. 
  
 
2.1(c)  The Spin-Off 
  
 On 23 January
2005, the Board Of Directors of Tim approved the Spin-Off whereby the Domestic Mobile Division was transferred to Tim Italia, a company established on 29 December 2004 by means of a unilateral act having its registered office in Milan at 2 Piazza
degli Affari. 
  
 On 24 February 2005, Tim Italia’s extraordinary
shareholders’ meeting approved a capital increase in kind for the Spin-Off, to be paid for with the transfer of the Domestic Mobile Division; the deed of transfer was executed at the same time. The Spin-Off accordingly became effective on 1
March 2005, after the filing with the Milan Company Register on 25 February 2005 of the above-mentioned resolution to increase Tim Italia’s share capital with the contemporaneous transfer of the Domestic Mobile Division. 
  

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 As a result of the Spin-Off, Tim Italia succeeded to the authorizations held by Tim for the provision of mobile
communications services in Italy, and to all the licenses (including those assigned temporarily to Tim at the date of the transfer of the Domestic Mobile Division), numbering systems and/or radio frequencies that were already the subject of a
franchise, license or general authorization, and to the special authorizations following declarations of the commencement of activities. 
  
 By maintaining the autonomy of the Domestic Mobile Division, the Spin-Off is in line with an assessment of what would be desirable from a regulatory and accounting
perspective in the context of the overall reorganization plan and is an efficient way to meet the need for transparency in the relationship between fixed and mobile communications. 
  
 As specified in Section 2.2, the Merger, together with the Spin-Off, will maintain the Domestic Mobile Division under an unlisted, wholly
owned subsidiary of Telecom Italia, thereby creating the conditions that will allow Telecom Italia to best exploit the potential synergies offered by the fully integrated management of the fixed and mobile communications businesses. The new 100%
ownership structure will in fact make it possible to benefit from the operational synergies described in Section 2.2, since the absence of minority shareholders and the fact that TIM Italia is unlisted will ensure the high degree of management and
operational flexibility needed to grasp these opportunities to the full, while meeting competitive and regulatory requirements. 
  
 The above mentioned assessment of what would be desirable from an accounting perspective, was also affected by the current lack of specific accounting rules for the
merger under IAS/IFRS for separate financial statements purposes. 
  
 For Italian
income tax purposes, pursuant to Article 176.1 of the Consolidated Income Tax Law (Presidential Decree No. 917 of 22 December 1986, as amended), the Spin-Off is a tax-neutral transaction and as such will not result in Tim recording capital gains or
losses. 
  
 Domestic Mobile Division 
  
 The Domestic Mobile Division was valued on the basis of Tim’s balance sheet at 31
December 2004, as reported in the draft annual financial statements approved by Tim’s Board of Directors on 24 February 2005, and includes all the assets and liabilities and the legal rights and obligations related in any way to Tim’s
domestic mobile communications business at the effective date of the transfer. In particular, all the employment contracts for employees and independent contractors involved in the Spin-Off have been transferred to Tim Italia. 
  
 At 31 December 2004 the business to be spun-off included: 
  

	A.	assets with a book value of €7,721 million, comprising: (i) tangible fixed assets, amounting to €2,196 million; (ii) intangible fixed assets amounting to €3,364
million; (iii) trade receivables, amounting to approximately €1,349 million; (iv) other receivables and accrued income and prepayments, totaling €768 million; (v) financial receivables and cash, amounting to €24 million; and (vi)
inventories, amounting to €20 million; 

  

	B.	liabilities with a book value of €3,781 million, comprising: (i) trade payables, sundry payables and payables to employees and self-employed workers, and accrued expenses and
deferred income, totaling €3,405 million; (ii) the reserve for employee termination indemnities, amounting to €105 million; (iii) reserves for risks and charges connected with the activity transferred, totaling €134 million; and (iv)
the reserve for deferred taxes, amounting to €137 million. 

  
 The shareholders’ equity of the Domestic Mobile Division at 31 December 2004 amounted to approximately €3,940 million. 
  
 The items transferred at the values obtaining at the effective date of the Spin-Off did not include the following assets and liabilities related primarily to Tim’s
international business, which were reported in Tim’s draft annual financial statements for 2004 at the following values: (i) Tim’s 100% equity interest in TIM International, the holding company for equity investments in foreign companies
engaged in communications activities with a book value, including payments for future increases in capital, of €4,587 million; (ii) the reserves for risks and charges in respect mainly of guarantees issued on behalf of foreign affiliates,
amounting to €211 million; (iii) the guarantees granted and received in relation to the foreign sector, included in the memorandum accounts, for a total of €395 million; (iv) the prepaid taxes, related to the international assets, totaling
€587 million; (v) the balance of the current account held by TIM with Telecom Italia for the amount outstanding at the date of the transfer of the Domestic Mobile Division, equal at 31 December 2004 to €633 million; and (vi) certain other
financial and tax items. 
  

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 For the sake of completeness, column 1 in the table below shows Tim’s reclassified balance sheet at 31 December
2004. Columns 2 and 3 provide details of the company’s assets and liabilities allocated between Tim Italia and the post-Spin-Off Tim, respectively. The assets and liabilities of the post-Spin-Off Tim will be transferred to Telecom Italia as a
result of the Merger. 
  

										
	 Balance sheet data
 (millions of
euro)

	  	 Tim
 at 31.12.2004

	 	 	 Tim Italia
 at 31.12.2004

	 	 	 Post-Spin-
Off Tim
 at 31.12.2004

	 
	 Intangibles, fixed assets and long term investments
	  	10,171	 	 	5,583	 	 	8,528	 
	 Intangible assets:
	  	3,364	 	 	3,364	 	 	—	 
	 Fixed assets
	  	2,196	 	 	2,196	 	 	—	 
	 Long-term investments:
	  	 	 	 	 	 	 	 	 
	 - equity investments and advances on future capital contributions
	  	4,589	 	 	1	 	 	8,528	 
	 - other
	  	22	 	 	22	 	 	—	 
	 Working capital
	  	(1,209	)	 	(1,627	)	 	418	 
	 Inventories
	  	20	 	 	20	 	 	—	 
	 Trade accounts receivable, net
	  	1,347	 	 	1,347	 	 	—	 
	 Other assets
	  	1,154	 	 	663	 	 	491	 
	 Trade accounts payable
	  	(2,683	)	 	(2,683	)	 	—	 
	 Other liabilities
	  	(1,145	)	 	(696	)	 	(449	)
	 Reserves for employee termination indemnities and pensions and similar obligations
	  	(108	)	 	(108	)	 	—	 
	 Deferred tax assets, net of reserve for income taxes
	  	554	 	 	(33	)	 	587	 
	 Other reserves for risks and charges
	  	(342	)	 	(131	)	 	(211	)
	 Capital and/or industrial grants
	  	(6	)	 	(6	)	 	—	 
	 	  	
	
	 	
	
	 	
	

	 Net invested capital
	  	8,962	 	 	3,956	 	 	8,946	 
	 	  	
	
	 	
	
	 	
	

	 Financed by:
	  	 	 	 	 	 	 	 	 
	 Shareholders’ equity:
	  	9,765	 	 	3,940	 	 	9,765	 
	 Share capital
	  	516	 	 	414	 	 	516	 
	 Retained earnings and reserves
	  	6,427	 	 	3,526	 	 	6,427	 
	 Net income for the period
	  	2,822	 	 	—	 	 	2,822	 
	 Medium/long-term debt
	  	—	 	 	—	 	 	—	 
	 Net short-term financial borrowings (liquidity)
	  	(803	)	 	16	 	 	(819	)
	 Short-term borrowings
	  	18	 	 	18	 	 	—	 
	 Liquid assets and short-term financial receivables
	  	(817	)	 	(2	)	 	(815	)
	 Financial accrued expenses (income), prepaid expenses and deferred income, net 
	  	(4	)	 	—	 	 	(4	)
	 	  	
	
	 	
	
	 	
	

	 Total net financial debt (liquidity)
	  	(803	)	 	16	 	 	(819	)
	 	  	
	
	 	
	
	 	
	

	 Total net financing
	  	8,962	 	 	3,956	 	 	8,946	 
	 	  	
	
	 	
	
	 	
	

  
 Certain values in the above table
reflect a classification that differs from that adopted for the appraisal of the Domestic Mobile Division under Article 2343 of the Civil Code, which was based on the classification principles provided for by the Civil Code. 
  
 Tim Italia’s share capital increase 
  
 For purposes of the transfer to Tim Italia, on 12 January 2005, upon Tim’s request, the
President of the Court of Milan appointed Mr. Carlo Pastori, a Milan-based consultant, as the expert responsible for preparing the sworn appraisal report on the value of the Domestic Mobile Division, pursuant to Article 2343 of the Civil Code.

  
 The expert appointed by the Court of Milan submitted the report, signed under
oath on 24 February 2005, on the Domestic Mobile Division pursuant to and for the purposes of Article 2343 of the Civil Code. 
  
 In view of the Spin-Off and taking cognizance of the expert’s sworn appraisal report, in the extraordinary meeting held on 24 February 2005, Tim Italia’s
shareholders resolved to increase the share capital, pursuant to and for the purposes of Article 2440 of the Civil Code, from €120,000.00 to €413,552,203.00, by authorizing the issuance of 413,432,203 shares with a par value of €1
each with normal entitlement to all the rights pertaining thereto and a share premium of €8.53 per share, for a total of €3,526,576,691.59, to be paid exclusively by means of Tim’s contribution of the Domestic Mobile Division.

  

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Table of Contents

 Shareholders of Tim Italia 
  
 Tim Italia is wholly owned by Tim, which also controls Tim International. As a result of the Merger, Telecom Italia will own the entire
share capital of both Tim Italia and Tim International. 
  
 Organizational
structure of Tim Italia 
  
 Tim Italia considers it desirable to maintain an
organizational structure for the Domestic Mobile Division analogous to that existing before the Spin-Off, based on a division between Staff and Line functions. 
  

The Staff functions, which are placed directly under the Managing Director, serve to provide support, direction and control. They consist of Finance & Control,
Human Resources, Legal and Corporate Affairs, Regulatory Affairs, Investor Relations, Security, and Mobile Business Development. 
  
 The Line functions are engaged in the operation and development of the mobile business; they are grouped in three “poles of functional integration” that report
directly to the Managing Director. The three poles are: Marketing & Sales (concerned with handling the marketing mix on an integrated and thus with all the means for increasing revenues and the customer base); Operations (ensures unitary
management of the main cost levers, consistency between technological developments and innovation strategy, and maximizes IT and Network synergy); and Coordination Mobile Business Unit International Operations (the Telecom Italia Group’s center
of authority for the international activities of the mobile business). 
  
 Material agreements 
  
 Apart from the integration process
associated with the Merger, in which the Spin-Off is set, there are no specific agreements between Tim and Tim Italia that are material to the Spin-Off. 
  
 
2.1.1  Description of the companies involved in the transaction 
  
 
2.1.1(a)  Absorbing company 
  
 Name

  
 Telecom Italia S.p.A. 
  
 Registered office 
  
 Milan, 2 Piazza degli Affari (Corporate Headquarters in Rome, 41 Corso d’Italia). 
  
 Identity data 
  
 Telecom Italia is entered in the Milan Company Register. Its registration, tax and VAT number is 00488410010. 
  
 Share capital 
  
 On 14 March 2005, Telecom Italia’s fully paid-up share capital filed with the Company Register was €9,260,014,820,65, divided into
11,040,469,514 ordinary shares and 5,795,921,069 savings shares. Both Telecom Italia’s ordinary shares and its savings shares have a par value of €0.55 each. 
  
 Telecom Italia’s approved share capital (comprising that subscribed and paid up and that which can be issued for the conversion of
convertible bonds and, in accordance with resolutions already adopted by Telecom Italia’s Board of Directors, for the exercise of stock options) is €11,702,411,105. 
  
 The bylaws state that resolutions to increase the share capital by issuing shares for cash may exclude pre-emption rights for up to a
maximum of 10% of the previously existing capital, provided the issue price corresponds to the market value of the shares and this is confirmed in a report prepared by the company’s independent auditors. 
  
 The bylaws also provide that, for five years starting from 6 May 2004, the Directors may make
cash capital increases in one or more tranches, up to total amount of €880,000,000, by issuing up to 1,600,000,000 ordinary shares, all or part of which: (i) are to be offered with pre-emption rights to shareholders and holders of convertible
bonds; or (ii) are to be offered for subscription to employees of Telecom Italia S.p.A. or its subsidiaries, without pre-emption rights, pursuant to the combined effects of Article 2441, last paragraph, of the Civil Code and Article 134.2 of the
Consolidated Law. Resolutions to increase the share capital adopted by the Board of Directors in exercising such powers must set the subscription price (including any premium) and a time 

  

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limit for the subscription of the shares; they may also provide, in the event that the increase approved is not fully subscribed within the time limit
established for each issue, for the capital to be increased by an amount equal to the subscriptions received up to such time. 
  
 The Board of Directors may also issue, in one or more tranches and for up to five years from 6 May 2004, convertible bonds up to a maximum amount of €880,000,000.

  
 Corporate purpose 
  
 The company’s corporate purpose is: 
  

	 	–	the installation and operation, using any technique, method or system, of fixed and mobile equipment and installations, including space systems which use artificial satellites,
radio stations, including shipboard stations, links for maritime wireless communications, and dedicated and/or integrated networks, for the purpose of providing and operating, without territorial restrictions, licensed telecommunications services
for public use and telecommunications services in a free-market environment, including those resulting from technological progress, and the performance of activities directly or indirectly related thereto, including the design, construction,
operation, maintenance and distribution of telecommunications, remote-computing, online and electronic products, services and systems; 

  

	 	–	the performance of activities related to or otherwise serving the pursuit of the corporate purpose, including publishing, advertising, information technology, online and multimedia
activities and, in general, all commercial, financial, property, research, training and consulting activities; 

  

	 	–	the acquisition, provided it is not the company’s principal activity, of equity interests in other companies and undertakings falling within the scope of the corporate purpose
or related, complementary or similar thereto, including companies involved in manufacturing electronic products and insurance; 

  

	 	–	the control and the strategic, technical and administrative and financial coordination of subsidiary companies and undertakings, and the financial planning and management thereof,
with the implementation of all related transactions. 

  
 Activities
reserved to persons entered in a professional register, activities involving dealings with the public covered by Article 106 of Legislative Decree 385/1993, and those which are otherwise prohibited by applicable legislation are expressly excluded.

  
 Governing bodies 
  
 The members of Telecom Italia’s Board of Directors, which was appointed by the ordinary
shareholders’ meeting of 6 May 2004 for three years (i.e. until the approval of the annual report for the year ending 31 December 2006), are as follows: 
  

					
	 Name

	  	 Place and date of birth

	 	 Position

	 Marco Tronchetti Provera(1)
	  	Milan - 18 January 1948	 	Chairman
	 Gilberto Benetton(1)
	  	Treviso - 19 June 1941	 	Deputy Chairman
	 Carlo Orazio Buora(1)
	  	Milan - 26 May 1946	 	Managing Director
	 Riccardo Ruggiero(1)(4)
	  	Naples - 26 August 1960	 	Managing Director
	 Paolo Baratta(1)(3)
	  	Milan - 11 November 1939	 	Director
	 John Robert Sotheby Boas(1)(3)
	  	London - 28 February 1937	 	Director
	 Giovanni Consorte(1)
	  	Chieti - 16 April 1948	 	Director
	 Francesco Denozza(2)(3)
	  	Turin - 5 October 1946	 	Director
	 Domenico De Sole(1)(3)
	  	Rome - 1 January 1944	 	Director
	 Luigi Fausti(1)(3)
	  	Ancona - 9 March 1929	 	Director
	 Guido Ferrarini(2)(3)
	  	Genoa - 8 August 1950	 	Director
	 Jean Paul Fitoussi(2)(3)
	  	La Goulette (Tunisia) - 19 August 1942	 	Director
	 Gianni Mion(1)
	  	Vò (Padua) - 6 September 1943	 	Director
	 Massimo Moratti(1)
	  	Bosco Chiesanuova (VR) - 16 May 1945	 	Director
	 Marco Onado(1)(3)
	  	Milan - 19 April 1941	 	Director
	 Renato Pagliaro(1)
	  	Milan - 20 February 1957	 	Director
	 Pasquale Pistorio(2)(3)
	  	Agira (EN) - 6 January 1936	 	Director
	 Carlo Alessandro Puri Negri(1)
	  	Genoa - 11 July 1952	 	Director
	 Luigi Roth(1)(3)
	  	Milan - 1 November 1940	 	Director

	(1)	Directors elected from the slate presented by Olimpia S.p.A. 

  

	(2)	Directors elected from the slate presented by a group of asset management companies. 

  

	(3)	Independent director. 

  

	(4)	General Manager. 

  

 26 

Table of Contents

 All the members of Telecom Italia’s Board of Directors are domiciled for purposes of the position at the
company’s registered office in Milan, at 2 Piazza degli Affari. 
  
 Among
other things, the ordinary meeting of Telecom Italia’s shareholders called for 5, 6 and April 2005 will enlarge the Board of Directors by increasing the number of directors to twenty-one and appointing two additional directors. The Board has
proposed the appointment of Marco De Benedetti (currently Managing Director of Tim and Tim Italia) and Enzo Grilli (currently an independent director of Tim and director of Tim Italia). 
  
 Telecom Italia does not have an Executive Committee. 
  
 On 6 May 2004, Telecom Italia’s Board of Directors assigned delegated powers to the executive directors and appointed the members of
the Internal Control and Corporate Governance Committee and the Remuneration Committee. 
  
 On 9 September 2004, the Board of Directors formed a Strategy Committee of the Board and named the Chairman of the Internal Control and Corporate Governance Committee, Guido Ferrarini, as the Lead Independent Director with the power to call
separate meetings of the independent directors to discuss matters deemed to be of importance for the functioning of the Board of Directors or the management of the business. 
  
 The members of the various Board committees are shown below. 
  
 Internal Control and Corporate Governance Committee 
  

					
	 Position

	  	 Name

	  	 Place and date of birth

	 Chairman
	  	Guido Ferrarini	  	Genoa - 8 August 1950
	 Member
	  	Francesco Denozza	  	Turin - 5 October 1946
	 Member
	  	Domenico De Sole	  	Rome - 1 January 1944
	 Member
	  	Marco Onado	  	Milan - 19 April 1941

  
 Remuneration Committee

  

					
	 Position

	  	 Name

	  	 Place and date of birth

	 Chairman
	  	Luigi Fausti	  	Ancona - 9 March 1929
	 Member
	  	Paolo Baratta	  	Milan - 11 November 1939
	 Member
	  	Pasquale Pistorio	  	Agira (EN) - 6 January 1936

  
 Strategy Committee 

 

					
	 Position

	  	 Name

	  	 Place and date of birth

	 Member
	  	Marco Tronchetti Provera	  	Milan – 18 January 1948
	 Member
	  	Carlo Orazio Buora	  	Milan – 26 May 1946
	 Member
	  	Pasquale Pistorio	  	Agira (EN) – 6 January 1946
	 Member
	  	Domenico De Sole	  	Rome – 1 January 1944
	 Member
	  	Marco Onado	  	Milan – 19 April 1941

  
 Telecom Italia’s Board of
Auditors was appointed on 26 May 2003 by the shareholders’ meeting of Olivetti S.p.A. (now Telecom Italia, following the merger of the company formerly known as Telecom Italia S.p.A. into Olivetti S.p.A. in 2003) and will remain in office until
the approval of the annual report for the year ending on 31 December 2005. The members are as follows: 
  

					
	 Name

	  	 Place and date of birth

	  	 Position

	 Ferdinando Superti Furga
	  	Milan – 20 January 1932	  	Chairman
	 Rosalba Casiraghi
	  	Milan – 17 June 1950	  	Auditor
	 Paolo Golia
	  	Verona - 29 July 1944	  	Auditor
	 Salvatore Spiniello
	  	Siracusa – 26 April 1951	  	Auditor
	 Gianfranco Zanda
	  	Udine – 4 April 1941	  	Auditor

  

 27 

Table of Contents

 The shareholders’ meeting of 26 May 2003 also appointed the following alternates: Enrico Maria Bignami (born in
Milan on 7 May 1957) and Enrico Laghi (born in Rome on 23 February 1969). 
  
 All
the members of Telecom Italia’s Board of Auditors are domiciled for purposes of their position at the company’s registered office in Milan, at 2 Piazza degli Affari. 
  
 Shares of listed Group companies held directly or indirectly by members of the Board of Directors, the Board of Auditors and the General
Managers of Telecom Italia 
  
 The table below shows the number of shares of
listed Group companies held directly or indirectly by all the persons who in fiscal 2004 or a part thereof were members of the Board of Directors, the Board of Auditors or the General Manager of Telecom Italia. 
  

													
	 Name

	 	 Investee
 company

	 	 Class
 of shares

	 	 Number of shares
 held at the end of
2003
 (or at date
 appointed if later)

	 	Number of
shares bought in
2004

	 	Number of
shares sold in
2004

	 	 Number of shares
held at the end
 of 2003
 (or at
date
appointment
terminated if earlier)

	 Marco TRONCHETTI PROVERA
	 	=	 	=	 	=	 	=	 	=	 	=
	 Gilberto BENETTON
	 	Telecom Italia Mobile	 	Ordinary	 	=	 	1,125,000	 	=	 	1,125,000
	 Carlo Orazio BUORA
	 	=	 	=	 	=	 	=	 	=	 	=
	 Riccardo RUGGIERO(*)
	 	=	 	=	 	=	 	=	 	=	 	=
	 Paolo BARATTA
	 	=	 	=	 	=	 	=	 	=	 	=
	 John Robert SOTHEBY BOAS
	 	=	 	=	 	=	 	=	 	=	 	=
	 Umberto COLOMBO
	 	=	 	=	 	=	 	=	 	=	 	=
	 Giovanni CONSORTE
	 	 Telecom Italia
 Telecom Italia Media
	 	Savings
Ordinary	 	33,008
40,183	 	=
=	 	33,008
40,183	 	=
=
	 Francesco DENOZZA
	 	=	 	=	 	=	 	=	 	=	 	=
	 Domenico DE SOLE
	 	=	 	=	 	=	 	=	 	=	 	=
	 Luigi FAUSTI
	 	Telecom Italia Mobile	 	Ordinary	 	50,000	 	=	 	=	 	50,000
	 Guido FERRARINI
	 	=	 	=	 	=	 	=	 	=	 	=
	 Jean Paul FITOUSSI
	 	=	 	=	 	=	 	=	 	=	 	=
	 Natale IRTI
	 	=	 	=	 	=	 	=	 	=	 	=
	 Gianni MION
	 	 Telecom Italia
 Telecom Italia Mobile
 Telecom Italia Mobile
	 	Savings
Ordinary
Savings	 	=
=
=	 	15,000(1)
3,500(1)
5,000(1)	 	=
=
=	 	15,000
3,500
5,000
	 Pietro MODIANO
	 	=	 	=	 	=	 	=	 	=	 	=
	 Massimo MORATTI
	 	=	 	=	 	=	 	=	 	=	 	=
	 Marco ONADO
	 	Telecom Italia Mobile	 	Savings	 	=	 	4,700	 	=	 	4,700
	 Renato PAGLIARO
	 	=	 	=	 	=	 	=	 	=	 	=
	 Pasquale PISTORIO
	 	Telecom Italia	 	Ordinary	 	1,549,000(2)	 	=	 	=	 	1,549,000
	 Carlo A. PURI NEGRI
	 	=	 	=	 	=	 	=	 	=	 	=
	 Luigi ROTH
	 	 Telecom Italia
 Telecom Italia Mobile
 Telecom Italia Media
	 	Ordinary
Ordinary
Ordinary	 	11,553(1)
14,300(1)
726(1)	 	=
=
=	 	=
=
=	 	11,553
14,300
726
	 Giuseppe SALA(*)
	 	=	 	=	 	=	 	=	 	=	 	=
	 Pier Francesco SAVIOTTI
	 	Telecom Italia Mobile	 	Ordinary	 	10,000	 	=	 	=	 	10,000
	 Rosalba CASIRAGHI
	 	=	 	=	 	=	 	=	 	=	 	=
	 Paolo GOLIA
	 	Telecom Italia Mobile	 	Ordinary	 	=	 	15,555	 	3,555	 	12,000
	 Salvatore SPINIELLO
	 	 Telecom Italia
 Telecom Italia
 Telecom Italia Mobile
	 	Ordinary
Savings
Ordinary	 	82,922
234,458
10,000	 	=
=
=	 	82,922
234,458
10,000	 	=
=
=
	 Ferdinando SUPERTI FURGA
	 	Telecom Italia Mobile	 	Ordinary	 	6,270	 	=	 	2,547	 	3,723
	 Gianfranco ZANDA
	 	=	 	=	 	=	 	=	 	=	 	=

	(*)	General Manager. 

  

	(1)	Shares held indirectly. 

  

	(2)	Of which 660,000 shares are held indirectly. 

  

 28 

Table of Contents

 Activities 
  
 Olivetti S.p.A. (now Telecom Italia S.p.A.) was founded in 1908 at Ivrea, near Turin, as a typewriter manufacturer. The company changed its focus gradually, turning first
into a computer manufacturer and eventually into a telecommunications company. 
  
 In May 1999, Olivetti S.p.A. and its subsidiary, Tecnost S.p.A., successfully completed a cash and stock tender offer for all of Telecom Italia S.p.A.’s ordinary shares. 
  
 In March 2003, plans for the merger of Telecom Italia S.p.A. into Olivetti S.p.A. were announced. The merger plan was approved by the
shareholders of Telecom Italia S.p.A. and Olivetti S.p.A. in meetings held on 24 and 26 May 2003, respectively. Following the merger, which took effect on 4 August 2003, Olivetti S.p.A. adopted Telecom Italia’s corporate purpose and name.

  
 The Telecom Italia Group is at the forefront of the international information
and communication technology sector. As leaders in wireline and mobile communications, internet and media, information technology and R&D, its companies provide integrated and innovative services in Italy and abroad. Moreover, the Telecom Italia
Group also supplies office products and solutions, commercial systems and IT for gaming and lotteries. 
  
 In the domestic market, the Group is both a technology and market leader in the fastest-growing segments (mobile, broadband and data transmission). Its international operations are concentrated mainly in Latin
America, Europe and the Mediterranean basin. 
  
 In particular, at 31 December
2004, the Telecom Italia Group was one of the world’s main wireline operators, with approximately 25.9 million lines (including the equivalent ISDN lines). In addition, through Tim, the Group is the leading mobile operator in Italy, with
approximately 26.3 million subscribers, and one of the most important at the international level, with more than 27.5 million subscribers outside of Italy, through Tim’s subsidiaries and affiliates, resulting in a total of 53.8 million
subscribers. 
  
 Tim (currently Tim Italia, after the Spin-off) is one of the
three mobile operators licensed to provide services using GSM technology and one of the three operators licensed to provide services using DCS 1800 technology. It is also one of the four operators holding a UMTS license to provide third-generation
telephony services in Italy. 
  

 29 

Table of Contents

 Key economic and financial data of the Telecom Italia Group Business Units/Central Functions: 
  

																										
	(millions of euro)	  	 	  	Wireline

	  	Mobile

	  	South
America(1)

	  	Internet
and
Media(2)

	 	  	Olivetti
Tecnost

	  	IT
Market

	  	IT
Group

	 	  	Sub-
total

	  	Other
activities and
eliminations(3)

	 	  	Total
Group

	 Sales and service revenues
	  	Year 2004	  	17,571	  	12,900	  	1,076	  	597	 	  	601	  	729	  	965	 	  	34,439	  	(3,202	)	  	31,237
	 	  	Year 2003	  	17,216	  	11,782	  	1,111	  	1,297	 	  	655	  	891	  	1,100	 	  	34,052	  	(3,202	)	  	30,850
	 Gross operating profit
	  	Year 2004	  	8,426	  	6,052	  	396	  	24	 	  	44	  	65	  	76	 	  	15,083	  	(555	)	  	14,528
	 	  	Year 2003	  	8,255	  	5,502	  	407	  	322	 	  	40	  	84	  	96	 	  	14,706	  	(426	)	  	14,280
	 Operating income (loss) before amortization of differences on consolidation
	  	Year 2004	  	5,207	  	4,166	  	127	  	(60	)	  	22	  	37	  	(67	)	  	9,432	  	(678	)	  	8,754
	 	  	Year 2003	  	4,972	  	3,885	  	153	  	125	 	  	4	  	60	  	(36	)	  	9,163	  	(544	)	  	8,619
	 Operating income
	  	Year 2004	  	5,199	  	4,073	  	121	  	(89	)	  	21	  	36	  	(67	)	  	9,294	  	(2,094	)	  	7,200
	 	  	Year 2003	  	4,969	  	3,786	  	145	  	63	 	  	2	  	58	  	(36	)	  	8,987	  	(2,198	)	  	6,789
	 Industrial investments
	  	Year 2004	  	2,201	  	2,490	  	157	  	62	 	  	15	  	25	  	180	 	  	5,130	  	205	 	  	5,335
	 	  	Year 2003	  	2,302	  	1,957	  	129	  	102	 	  	20	  	30	  	174	 	  	4,714	  	180	 	  	4,894
	 Number of employees at the end of year
	  	31.12.2004	  	50,383	  	20,361	  	5,080	  	1,805	 	  	2,108	  	4,131	  	3,160	 	  	87,028	  	4,337	 	  	91,365
	 	  	31.12.2003	  	50,766	  	18,888	  	4,953	  	2,029	 	  	2,395	  	4,827	  	4,107	 	  	87,965	  	5,222	 	  	93,187

	(1)	The data relates to the Entel Chile group and to the Entel Bolivia group. Beginning 1 March 2004, the company Telecom Italia America Latina and the Argentine branch of Telecom
Italia have been consolidated in Other Activities. The 2003 data has been restated for purposes of comparision. 

  

	(2)	Nuova Seat Pagine Gialle, the beneficiary company of the partial spin-off of Seat Pagine Gialle S.p.A. (now Telecom Italia Media S.p.A.), was sold 8 August 2003. The figures for
2003 include the economic data for the first seven months of the Nuova Seat Pagine Gialle group. 

  

	(3)	The data presented above includes the activities of International Affairs, TILAB, the centralized group services and central functions, the financial companies, the company
Telecom Italia America Latina and the Argentine branch of Telecom Italia. 

  

 30 

Table of Contents

 Wireline 
  
 The Wireline Business Unit operates on a national level as the consolidated market leader in wireline telephone and data services and call centers, for final (retail)
customers and other (wholesale) providers. On an international level, Wireline develops fiber optic networks for wholesale customers (in Europe and South America), as well as innovative broadband services in key European metropolitan areas.

  
 At 31 December 2004, the Business Unit was organized as follows: 

 

					
	 Wireline

	 Telecom Italia Wireline

	  	 National subsidiaries

	  	 International subsidiaries

	 Wireline TLC services:
 •     Retail Telephone
 •     Internet
 •     Data Business

•     V.A.S. Phone and Data
 •     National Wholesale
	  	 Loquendo S.p.A.
 Path.Net S.p.A.
 Telecontact Center S.p.A.
	  	 BBNED Group
 Latin American Nautilus Group
Mediterranean Nautilus Group
 Med-1 Group
 Telecom Italia
Deutschland Holding GmbH
 —HanseNet Telekommunikation GmbH

	 	  	 Telecom Italia Sparkle Group
 •     Telecom Italia Sparkle S.p.A.
 —  Intelcom San Marino S.p.A.
 —  Telefonia Mobile Sammarinese S.p.A.
 —  Pan European Backbone (includes Telecom Italia France)
 —  Telecom Italia Sparkle of North America Inc.

  
 Mobile 
  
 The Mobile Business Unit (Tim Group) operates in the sector of national and international
mobile telecommunications. Its international presence is concentrated in South America and in the Mediterranean Basin. 
  
 At 31 December 2004, the Business Unit was organized as follows: 
  

							
	 Mobile

	 National subsidiaries

	  	 Major international subsidiaries

	  	 Major affiliated

	 	  	 Mobile South America

	  	 Other subsidiaries

	  	 
	 	  	 TIM International N.V

	 Tim—Telecom Italia Mobile S.p.A.
  
 Tim Italia S.p.A. (*)
	  	 Tim Brazil Group
  
 •Tim Group Participaçoes (Brazil)
 •TIM Celular S.A. (Brazil)
 —  Maxitel S.A. (Brazil)
 •CRC Ltda (ex Starcel Ltda)
(Brazil)
 TIM Perù S.A.C.
 Corporacion Digitel C.A. (Venezuela) (**)
 Blah! S.A.
	  	TIM Hellas Telecommunications S.A. (Greece)	  	AVEA I.H.A.S. (Turkey)

	(*)	Not operational as of 31 December 2004. 

  

	(**)	On 5 November 2004, a preliminary agreement was signed to sell the equity interest held in Corporacion Digitel C.A. 

  
 South America 
  
 With effect from 1 March 2004, the former Latin American Operations structure has been disbanded and the Telecom Italia Latam structure took
over the role of the “delocalized” Corporate function, in keeping with the strategic policies of the Group to consolidate and develop its presence in Latin America. 
  

 31 

Table of Contents

 In the meantime, the Wireline and Mobile Business Units, with no change in the corporate control structure, are
responsible for the results of the subsidiaries in Latin America. 
  
 The table
below provides an overview of the Latin American operations at 31 December 2004: 
  

							
	 South America

	 SUBSIDIARIES

	  	 AFFILIATES

	 Wireline

	  	 Mobile

	  	 Wireline

	  	 Mobile

	 Entel Chile Group(*):
 • Americatel Corp. USA
 • Americatel Centroamerica
 • Entel Servicios Telefonicos
 • Americatel Perù
  
 Entel Bolivia Group:
 • Entel Bolivia—wireline
 • Datacom
	  	 Entel Chile Group(*):
 • Entel Telefonia Personal
 —  EntelPCS
 —  EntelTelefonia Movil
  

Entel Bolivia Group:
 • Entel Bolivia—Mobile
	  	 Telecom Argentina Group:
 • Telecom Argentina
 —  Publicom
 —  MicroSistemas
 —  TelecomArg. USA
	  	 Telecom Argentina Group:
 • Telecom Personal
 –  Nucleo

	(*)	On 25 January 2005, a preliminary agreement was executed for the sale of the equity interest in the Entel Chile Group. 

  
 Internet and Media 
  
 The Internet and Media Business Unit operates in the following segments: 
  

	 	•	 	Internet: in the management of access services (ISP) with Tin.it, in the management and development of the Virgilio portals with Matrix, and in web services, were it occupies
a leadership position in the Italian market; 

  

	 	•	 	Television: with La7 and MTV, in the production and broadcasting of editorial content through the television transmission networks entrusted under concession and in the
marketing of advertising space in TV programming; 

  

	 	•	 	Office Products & Services: in the distribution of products, services and solutions for the office through the Buffetti retail network. 

  
 At 31 December 2004, this Business Unit was organized as follows (main consolidated
companies/areas are shown below): 
  

									
	 Internet and Media

	 INTERNET

	  	 TV

	  	 NEWS

	  	 OFFICE PRODUCTS

	  	 OTHER ACTIVITIES

	 Tin.it
 Matrix
	  	 La7
 MTV
	  	TM News	  	Gruppo Buffetti Sk Direct	  	 Databank (*)
 Televoice (**)

	(*)	On 14 March 2005 Telecom Italia Media completed the sale of 100% of Databank to Centrale dei Bilanci S.r.l. and to Cerved Business Information S.p.A 

 

	(**)	On 16 December 2004, Telecom Italia Media signed an agreement with Comdata (Altair Group) for the sale of 100% of Televoice S.p.A., a company which operates in the call center
and telemarketing and teleselling sector. The transaction was finalized on 3 January 2005. 

  
 Olivetti Tecnost 
  
 The Olivetti
Tecnost Group Business Unit operates through the Office Products Division in the sector of ink-jet products for the office, digital printing systems and the development and production of products associated with silicon technology (ink-jet
print-heads and MEMS). Through the Systems Division it provides specialized applications for the banking field and commerce and information systems for gaming and lottery management. In addition, the group collaborates with Nuove Iniziative Canavese
in document management services and fixed and cell phone repaires. 
  
 The
reference market of the Business Unit is focused mainly in Europe and Asia. 
  

 32 

Table of Contents

 At 31 December 2004, Olivetti Tecnost was structured as follows (the main companies are indicated): 
  

	
	 Olivetti Tecnost Group

	 Olivetti Tecnost S.p.A.
  
 •Olivetti I-Jet S.p.A.
 •Innovis S.p.A.
 •Cell-Tel S.p.A.
 •Wirelab S.p.A.
 •Olivetti Tecnost International B.V. (foreign sales companies)

  
 Information Technology Market

  
 The Telecom Italia IT Market Business Unit brings together all the
information technology companies and activities of the Group directed to the external market. The Business Unit, as a whole, is among the ICT - Information Communication Technology - leaders at national level, the largest Italian-owned ICT group,
the foremost in providing solutions for the public administrations and transportation companies, and one of the top five supplying solutions for banks. 
  
 On 24 February 2005, after reviewing bids by interested parties, Telecom Italia entered into a preliminary agreement with the COS Group for the sale of its controlling
interest in Finsiel (79.5%) on the basis of an enterprise value of approximately €164 million. Thus, in the 2004 consolidated financial statements, Finsiel’s value was adjusted to reflect the expected selling price, which resulted in the
allocation of €27 million to a reserve for writedowns of investments. In addition, this transaction made it possible to record deferred tax assets in the amount of €38 million arising from the €115 million write-down of this
shareholding in fiscal year 2002. Overall, the 2004 consolidated accounts reflected a net positive effect of €11 million relating to this divestiture. 
  
 At 31 December 2004, this Business Unit was organized as follows (main consolidated companies are shown): 
  

	
	 Information Technology Market

	 Finsiel Group:
  
 •Finsiel S.p.A.
 •Banksiel S.p.A.
 •Insiel S.p.A.
 •Tele Sistemi Ferroviari S.p.A.
  
 Eustema S.p.A.

  
 Information Technology Group

  
 The Information Technology Group Function is responsible for
coordination, technological innovation and service information technology activities within the Telecom Italia Group. The function focuses on the core business of TLC, pursuing objectives such as the increment, the efficiency and the improvement of
quality and innovation, with the aim of implementing economies of scale and achieving advancements in terms of performance. 
  
 On 9 September 2004, Telecom Italia’s Board of Directors examined and approved the plan for merger of the wholly-owned subsidiaries IT Telecom S.p.A. and Epiclink
S.p.A. into Telecom Italia. The merger (which did not entail a capital increase by the acquiring company) had been approved on 11 October 2004 by the Boards of Directors of the three companies. The merger is effective from 31 December 2004, and for
accounting and tax purposes from 1 January 2004. In addition, on 15 December 2004, effective from 30 December 2004, IT Telecom S.p.A. conferred its Data Center business segment to IT Telecom S.r.l., a new company set up on 12 November 2004.

  
 This plan falls under a broader reorganization of the Information Technology
Group area. Bringing the activities of these two subsidiaries into Telecom Italia will make it possible to rationalize the use of resources and technological expertise and will lead to an important simplification of the operational, administrative
and corporate management processes. 
  

 33 

Table of Contents

 After the merger, the reorganization of the Information Technology area was completed with a new organizational model
which calls for the allocation of IT activities according to the following organization chart: 
  

											
	 Information Technology Group
     

	 	  	 	  	 	  	 	  	 	  	 
	 BU Wireline
	  	Corporate Central Functions	  	IT Telecom S.r.l.

  
 
2.1.1(b)  Company to be Absorbed 
  
 Name 
  
 Tim S.p.A. (in abbreviated form, also TIM S.p.A. or
T.I.M. S.p.A.). 
  
 Registered office 
  
 Turin, 6 Via Cavalli (Corporate Headquarters in Rome, 152 via Pietro De Francisci).

  
 Identity data 
  
 Tim is entered in the Turin Company Register. Its registration, tax and VAT number is
06947890015. 
  
 Share capital 
  
 On 17 February 2005, Tim’s fully paid-up share capital filed with the Company Register
was €516,532,330.74 divided into 8,476,803,016 ordinary shares and 132,069,163 savings shares. Both Tim’s ordinary shares and its savings shares have a par value of €0.06 each. 
  
 Tim’s approved share capital (comprising that subscribed and paid up and that which can
be issued in accordance with resolutions already adopted by Tim’s Board of Directors for the exercise of stock options) is €519,174,511.91. 
  
 The bylaws state that resolutions to increase the share capital by issuing shares for cash may exclude pre-emption rights for up to a maximum of 10% of the previously
existing capital, provided the issue price corresponds to the market value of the shares and this is confirmed in a report prepared by the firm appointed to audit the accounts. 
  
 The extraordinary meeting of Tim’s shareholders held on 4 May 2004 granted the Board of Directors the power (which to date it has not
exercised) to make cash capital increases in one or more tranches up to total amount of €51,000,000.00 by issuing up to 850,000,000 ordinary shares, all or part of which are to be offered with pre-emption rights to shareholders or for
subscription to employees of Tim or the companies it controls or is controlled by, with the exclusion of pre-emption rights, within the limits set by Article 134.2 of the Consolidated Law. 
  
 Tim holds 897,835 treasury ordinary shares. 
  
 Corporate purpose 
  
 The Company’s principal purpose is the installation and operation – without any territorial limitation – of systems for the
provision and operation of telecommunication services, especially mobile telecommunication services, either under license or in free market conditions, and the carrying out of all other activities related or connected therewith, including the
design, production, operation and marketing of products, services and systems in the fields of telecommunications, remote data processing and electronics (but with the exclusion of activities reserved to registered professionals). 
  
 The Company may also carry out any and all commercial, industrial, financial, investment and
real estate transactions deemed to be useful for achieving the corporate purpose; to this end, the Company may also acquire, either directly or indirectly, interests and holdings in other companies and businesses. 
  

 34 

Table of Contents

 Governing bodies 
  
 Following the resignation of one director, the members of Tim’s Board of Directors, which was appointed by the ordinary shareholders’ meeting of 4 May 2004 for
one year (i.e. until the approval of the annual report for the year ending 31 December 2004), are as follows: 
  

					
	 Name

	  	 Place and date of birth

	  	Position

	 Carlo Orazio Buora
	  	Milan - 26 May 1946	  	Chairman
	 Gianni Mion
	  	Vò (Padua) - 6 September 1943	  	Deputy Chairman
	 Marco De Benedetti
	  	Turin - 9 September 1962	  	Managing Director
	 Carlo Angelici(1)
	  	Rome - 9 April 1945	  	Director
	 Carlo Bertazzo
	  	Monselice (Padua) - 24 September 1965	  	Director
	 Lorenzo Caprio(1)
	  	Milan - 19 November 1957	  	Director
	 Giorgio Della Seta Ferrari Corbelli Greco
	  	Florence - 2 January 1936	  	Director
	 Enzo Grilli(1)
	  	Casarza Ligure (Genoa) - 7 October 1943	  	Director
	 Attilio Leonardo Lentati(1)
	  	Milan - 26 March 1937	  	Director
	 Gioacchino Paolo Ligresti(1)
	  	Milan - 26 March 1969	  	Director
	 Giuseppe Lucchini
	  	Brescia - 2 July 1952	  	Director
	 Pierfrancesco Saviotti
	  	Alessandria - 16 June 1942	  	Director
	 Paolo Savona(1)
	  	Cagliari - 6 October 1936	  	Director
	 Rodolfo Zich(1)
	  	Turin - 15 July 1939	  	Director

	(1)	Independent director. 

  
 All the members of Tim’s Board of Directors are domiciled for purposes of their position at the company’s registered office in Turin, at 6 Via Cavalli. 
  
 The ordinary meeting of Tim’s shareholders called for 5 and 6 April will resolve, among
other things, on the renewal of the Board of Directors, which will cease to exist once the Merger becomes effective. 
  
 On 15 March 2005, Telecom Italia submitted the following slate of candidates for appointment to the Board of Directors and proposed that the number of directors be 14.

  

			
	 Name

	  	 Place and date of birth

	 Carlo Orazio Buora
	  	Milan - 26 May 1946
	 Marco De Benedetti
	  	Turin - 9 September 1962
	 Carlo Angelici
	  	Rome - 9 April 1945
	 Carlo Bertazzo
	  	Monselice (Padua) - 24 September 1965
	 Lorenzo Caprio
	  	Milan - 19 November 1957
	 Giorgio Della Seta Ferrari Corbelli Greco
	  	Florence - 2 January 1936
	 Enzo Grilli
	  	Casarza Ligure (Genoa) - 7 October 1943
	 Attilio Leonardo Lentati
	  	Milan - 26 March 1937
	 Gioacchino Paolo Ligresti
	  	Milan - 26 March 1969
	 Giuseppe Lucchini
	  	Brescia - 2 July 1952
	 Gianni Mion
	  	Vò (Padua) - 6 September 1943
	 Pierfrancesco Saviotti
	  	Alessandria - 16 June 1942
	 Paolo Savona
	  	Cagliari - 6 October 1936
	 Rodolfo Zich
	  	Turin - 15 July 1939

  
 Tim does not have an Executive
Committee. 
  
 On 4 May 2004, Telecom Italia’s Board of Directors assigned
delegated powers to the executive directors and appointed the members of the Internal Control Committee and the Remuneration Committee. 
  
 The members of the various Board committees are shown below. 
  
 Internal Control Committee 
  

					
	 Position

	  	 Name

	  	 Place and date of birth

	 Chairman
	  	Paolo Savona	  	Cagliari - 6 October 1936
	 Member
	  	Carlo Angelici	  	Rome - 9 April 1945
	 Member
	  	Lorenzo Caprio	  	Milan - 19 November 1957

  

 35 

Table of Contents

 Remuneration Committee 
  

					
	 Position

	  	 Name

	  	 Place and date of birth

	 Chairman
	  	Enzo Grilli	  	Casarza Ligure (Genoa) -7 October 1943
	 Member
	  	Attilio Leonardo Lentati	  	Milan - 26 March 1937
	 Member
	  	Rodolfo Zich	  	Turin - 15 July 1939

  
 Tim’s Board of Auditors was
appointed by the ordinary shareholders’ meeting on 12 April 2002 for the three years 2002-04. The members are as follows: 
  

					
	 Name

	  	 Place and date of birth

	  	 Position

	 Pietro Adonnino
	  	Rome - 6 November 1929	  	Chairman
	 Enrico Laghi
	  	Rome - 23 February 1969	  	Auditor
	 Gianfranco Zanda
	  	Udine - 4 April 1941	  	Auditor

  
 The same shareholders’ meeting
also appointed the following alternates: Alfredo Malguzzi (born at Lerici – La Spezia on 31 August 1962) and Antonio Mastrapasqua (born in Rome on 20 September 1959). 
  
 All the members of Tim’s Board of Auditors are domiciled for purposes of their position at the company’s registered office in
Turin, at 6 Via Cavalli. 
  
 The ordinary meeting of Tim’s shareholders
called for 5 and 6 April will resolve, among other things, on the renewal of the Board of Auditors, which will also cease to exist once the Merger becomes effective. 
  
 On 15 March 2005, Telecom Italia submitted the following slate of candidates for appointment to the Board of Auditors. 
  
 Auditors 
  

			
	 Name

	  	 Place and date of birth

	 Pietro Adonnino
	  	Rome - 6 November 1929
	 Enrico Laghi
	  	Rome - 23 February 1969
	 Gianfranco Zanda
	  	Udine - 4 April 1941

  
 Alternates 
  

			
	 Name

	  	 Place and date of birth

	 Alfredo Michele Malguzzi
	  	 Lerici (SP) - 31 August 1962

	 Antonio Mastrapasqua
	  	 Rome - 20 September 1959

  
 Activities 
  
 Tim, together with the group of which it is the parent company, is one of the leading
international groups operating in the telecommunications services sector, and more specifically in mobile telecommunications under license or in free market conditions. Its activities include the design, implementation, management and sale of
telecommunications, information and communication technology and electronic systems. Tim’s main international markets are in South America and the Mediterranean basin. 
  

 36 

Table of Contents

 The following tables provide selected historical statement of income and cash flow data for the Tim Group and Tim S.p.A.,
as reported in the annual financial statements for 2004 and 2003. 
  
 Tim Group

  

					
	 Statement of income and cash flow data
 (millions of euro)

	  	2004

	  	2003

	 Sales and service revenues
	  	12,900	  	11,782
	 Gross operating profit
	  	6,052	  	5,502
	 Operating income before amortization of differences on consolidation
	  	4,166	  	3,885
	 Operating income
	  	4,073	  	3,786
	 Income before income taxes
	  	4,302	  	4,207
	 Consolidated net income before minority interests
	  	2,446	  	2,456
	 Consolidated net income: Parent Company’s interest
	  	2,353	  	2,342
	 Consolidated cash flow(1)
	  	4,255	  	3,998
	 Free cash flow from operations(2)
	  	3,974	  	3,746

	1.	Consolidated net income (loss) before minority interests plus amortization and depreciation. 

  

	2.	Calculated as follows: Operating Income + Amortization and Depreciation – Industrial Investments – Change in Operating Working Capital. 

  

							
	 Balance sheet data
 (millions of
euro)

	  	At 31
December
2004

	 	 	 At 31
December
 2003

	 
	 Intangibles, fixed assets and long term investments
	  	9,862	 	 	9,276	 
	 Working capital
	  	(1,932	)	 	(2,407	)
	 Net invested capital
	  	7,930	 	 	6,869	 
	 Financed by:
	  	 	 	 	 	 
	 Consolidated shareholders’ equity:
	  	8,247	 	 	7,803	 
	 •     Parent company’s interest
	  	7,660	 	 	7,295	 
	 •     Minority interest
	  	587	 	 	508	 
	 Consolidated net financial debt:
	  	(317	)	 	(934	)
	 •     Medium/long-term
	  	385	 	 	585	 
	 •     Short-term
	  	(702	)	 	(1,519	)

  

					
	 Per share data
 (in
euro)

	  	2004

	  	2003

	 Consolidated net income from ordinary activities: Parent company’s interest(1)(4) per:
	  	 	  	 
	 Ordinary share
	  	0.2521	  	0.2289
	 Savings share
	  	0.2641	  	0.2409
	 Consolidated net income: Parent Company’s(4) interest per:
	  	 	  	 
	 Ordinary share
	  	0.2736	  	0.2732
	 Savings share
	  	0.2856	  	0.2852
	 Cash flow(2) per share
	  	0.4951	  	0.4668
	 Free cash flow from operations(3) per share
	  	0.4624	  	0.4374
	 Consolidated shareholders’ equity per share: Parent Company’s interest
	  	0.8913	  	0.8517
	 (*)   Number of shares (at 31 December) for the computation of the data per share:
	  	 	  	 
	 Ordinary
	  	8,462,512,633	  	8,433,106,881
	 net of treasury shares
	  	897,835	  	897,835
	 Savings
	  	132,069,163	  	132,069,163

	(1)	Consolidated net income from ordinary activities attributable to parent company’s interest was calculated on the basis of the share of the consolidated net income from
ordinary activities attributable to the parent company, net of the applicable income taxes determined in accordance with the tax rate applicable for 2004. 

  

	(2)	Consolidated net income (loss) before minority interests plus amortization and depreciation. 

  

	(3)	Calculated as follows: Operating Income + Amortization and Depreciation – Industrial Investments – Change in Operating Working Capital. 

  

	(4)	This indicator was calculated considering the bylaws provision requiring dividends on savings shares to exceed those on ordinary shares by an amount equivalent to 20% of the par
value of the shares (€0.012). 

  

 37 

Table of Contents

 Tim S.p.A. 
  

					
	 Statement of income and cash flow data
 (millions of euro)

	  	2004

	    	2003

	 Sales and service revenues
	  	9,943	    	9,469
	 Gross operating profit
	  	5,347	    	5,035
	 Operating income
	  	4,147	    	3,863
	 Income before taxes
	  	4,489	    	3,852
	 Net income
	  	2,822	    	2,322
	 Cash flow(1)
	  	3,962	    	3,405
	 Free cash flow from operations(2)
	  	4,127	    	4,201

	1.	Net income plus amortization and depreciation. 

  

	2.	Calculated as follows: Operating Income + Amortization and Depreciation – Industrial Investments – Change in Operating Working Capital. 

  

							
	 Balance sheet data
 (millions of
euro)

	  	At 31
December
2004

	 	 	At 31
December
2003

	 
	 Intangibles, fixed assets and long term investments
	  	10,171	 	 	9,161	 
	 Working capital
	  	(1,209	)	 	(1,622	)
	 Net invested capital
	  	8,962	 	 	7,539	 
	 Financed by:
	  	 	 	 	 	 
	 Shareholders’ equity:
	  	9,765	 	 	8,957	 
	 •      Share capital
	  	516	 	 	514	 
	 •      Reserves and retained earnings
	  	6,427	 	 	6,121	 
	 •      Net income for the period
	  	2,822	 	 	2,322	 
	 Net financial debt
	  	(803	)	 	(1,418	)
	 •      Of which short-term
	  	(803	)	 	(1,418	)

  

					
	 Per share data
 (in
euro)

	  	2004

	  	2003

	 Net income from ordinary activities per(1) (4):
	  	 	  	 
	 Ordinary share
	  	0.2990	  	0.2755
	 Savings share
	  	0.3110	  	0.2875
	 Net income per (4):
	  	 	  	 
	 Ordinary share
	  	0.3282	  	0.2709
	 Savings share
	  	0.3402	  	0.2829
	 Cash flow (2) per share
	  	0.4610	  	0.3975
	 Free cash flow from operations per share(3)
	  	0.4802	  	0.4905
	 Shareholders’ equity per share
	  	1.1362	  	1.0457
	 (*)   Number of shares (at 31 December) for the computation of the data per share:
	  	 	  	 
	 Ordinary
	  	8,462,512,633	  	8,433,106,881
	 net of treasury shares
	  	897,835	  	897,835
	 Savings
	  	132,069,163	  	132,069,163

	(1)	Net income from ordinary activities was calculated net of the applicable income taxes determined in accordance with the tax rate for 2004. 

  

	(2)	Net income (loss) plus amortization and depreciation. 

  

	(3)	Calculated as follows: Operating Income + Amortization and Depreciation – Industrial Investments – Change in Operating Working Capital. 

  

	(4)	Consolidated net income per share was calculated considering the bylaws provisions requiring dividends on savings shares to exceed those on ordinary shares by an amount
equivalent to 20% of the par value of the shares (€0.012). 

  
 
2.1.2  Procedures, terms and conditions applying to the transaction 
  
 
2.1.2(a)  Values assigned to Telecom Italia and Tim, with reference also to expert appraisals 
  
 For the valuations used to determine the exchange ratios, the Boards of Directors of Telecom Italia and Tim were assisted by financial advisors of international standing:
JPMorgan Chase Bank N.A. (“JPMorgan”), Mediobanca 

  

 38 

Table of Contents

 
– Banca di Credito Finanziario S.p.A. (“Mediobanca”) and MCC S.p.A. – Capitalia Gruppo Bancario (“MCC”) as Lead
Advisor, for Telecom Italia; Lazard & Co. S.r.l. as Sole Lead Advisor and Credit Suisse First Boston for Tim. 
  
 In addition, in line with international best practice and acting on the recommendation of its Internal Control and Corporate Governance Committee, Telecom Italia engaged
Goldman Sachs International (“Goldman Sachs”). Likewise, acting on the recommendation of its Internal Control Governance Committee, Tim also engaged Merrill Lynch International, Milan office, and Studio Casò, represented by
Mr. Angelo Casò. 
  
 For details on the values assigned by the Boards’
of Directors of Telecom Italia and Tim to the companies involved in the Merger, see the two Boards, respective reports on the merger plan, which were approved on 23 January 2005 and are attached herewith as Annexes II and III. For details on the
valuation methods applied in determining the exchange ratios, in addition to the above-mentioned reports, see Section 2.1.2(b). 
  
 
2.1.2(b)  Valuation methods applied in determining the exchange ratios 
  
 In reaching their conclusions, the Boards of Directors of Telecom Italia and Tim acknowledged that, among a number of available valuation methods, each of its financial advisors used those valuation methods deemed
more appropriate considering the activities of both the Absorbing Company and the Company to be Absorbed, and that, in spite of the different methods adopted, all the financial advisors reached mutually consistent conclusions. Accordingly, the
Boards of Directors of Telecom Italia and Tim, after carefully analyzing the valuations put forward by their respective advisors, approved the valuation methods they had applied. 
  
 A summary is provided below of the material contained in the reports of the Boards of Directors attached herewith as Annexes II and III.
Reference is made to these documents and to the fairness and valuation opinions of the individual advisors and to the summary description of each advisor’s analysis (Annexes VIII-XV). 
  
 Valuation methods applied 
  
 The aim of the valuation of the companies participating in a merger is to obtain values that
are meaningfully comparable. 
  
 Consistent with this objective, and in accordance
with standard practice, a uniform measure must be adopted for the whole valuation process in order to protect the interests of the shareholders of Telecom Italia and Tim, respectively. This does not necessarily mean that identical valuation methods
must be used for all the companies directly or indirectly involved in a merger, but rather that the same approach to valuation must be adopted. 
  
 Accordingly, the exchange ratio was established by applying valuation methodologies that are commonly used in Italy and internationally for transactions of this kind and
for businesses active in the communications sector. In particular, account was taken of the comparative valuation of the companies involved and priority was given to the homogeneity and comparability of the criteria applied rather than a simple
estimate of the equity value of each company on a stand-alone basis. 
  
 In this
perspective, the valuations were undertaken considering the two companies on a stand-alone basis and therefore without considering the strategic, operational and financial synergies expected from the Merger or the control premiums and minority
discounts associated with the holding of equity interests. 
  
 The advisors of
Telecom Italia’s Board of Directors used the following fundamental methods: 
  

	 	•	 	for the valuation of Tim, the “Discounted Cash Flow” or “DCF” method; 

  

	 	•	 	for the valuation of Telecom Italia, the Sum-of-the-Parts method, valuing each sector of activity with the method considered best suited to the specific situation. In particular,
the valuation of the principal assets (Telecom Italia and Tim) was based on the Discounted Cash Flow method, while the remaining assets were valued using, depending on the circumstances, the market-price method, the market multiples method, balance
sheet values, the Discounted Cash Flow method and/or the values published in analysts’ research reports on such activities, where available. 

  

The exchange ratios obtained by applying the above methods were tested using the market-price valuation method. 
  

 39 

Table of Contents

 The advisors of Tim’s Board of Directors valued the two companies involved in the Merger using both the market-price
method and the Sum-of-the-Parts method, the latter primarily through the application of the discounted cash flow or DCF methodology to the various business units. The valuation process was further supported by considering financial analysts’
target prices for the Telecom Italia and Tim shares and making reference to market multiples for comparable companies. 
  
 In summary, the Discounted Cash Flow method determines the value of a company or an economic activity as a whole. It is based on the assumption that the value of a
company or an economic activity is equal to the present value of future cash flows. Under this method, the value of the economic capital of a company or an economic activity is equal to the sum of the discounted value of the expected cash flows and
the terminal value of the company or the economic activity, less the net financial debt and minority interests and possibly other adjustments. 
  
 In applying the Discounted Cash Flow method, reference was made to the cash flows from operations for the main activities based on the update, for the period 2004-2007,
of the business and financial plans approved and disclosed to the market in March 2004. The plans were developed by management in accordance with the strategic, operating and financial objectives of the Group. 
  
 The Sum-of-the-Parts method is commonly used to value companies operating in a wide variety
of sectors. Under this method, the value of a company’s economic capital is calculated as the sum of the values of its separate units, as economic entities that can be valued independently, suitably adjusted to take into account the
company’s financial position, proportional net debts and minority interests, where material, and other factors such as off-balance-sheet items and potential tax benefits. 
  
 The market-price valuation method, which consists in considering the ratio of the prices expressed by the stock market for the companies
involved in the merger, is considered particularly significant in the case in question, given the high market value and liquidity of the shares of both Telecom Italia and Tim. In fact, in such circumstances, the prices established by the financial
markets provide a meaningful baseline for purposes of a comparison of the profitability, soundness, growth prospects and risk profile of the companies from the perspective of investors and thus for the ratio between the values of the companies
involved in the merger. In applying this method, it is necessary to strike a balance between the need to mitigate the volatility of daily share prices by considering a sufficiently long period and the need to use recent data that are indicative of
the market values of the companies in question. 
  
 Results obtained -
valuations used by Telecom Italia 
  
 Tim 
  
 Applying the DCF method, Telecom Italia’s advisors obtained the following minimum, mean
and maximum values per Tim ordinary share, before payment of the dividend (ex dividend 18 April 2005), €5.32, €5.58 and €5.84. The corresponding figures per Tim savings share were calculated on the basis of the average market discount
of the last month, the last three months and the last six months before 3 December 2004, as well as the discount on the last day of trading of Telecom Italia and Tim shares before the announcement of the transaction (3 December 2004), resulting in
the application of a discount of approximately zero (minimum €5.31, mean €5.58 and maximum €5.84). The table below shows the minimum, mean and maximum values per Tim ordinary and savings share adjusted to take account of the dividend
for the fiscal year 2004, assumed to be in line with that paid last year. 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Values per Tim ordinary share (€)
	  	5.07	  	5.33	  	5.58
	 Values per Tim savings share (€)
	  	5.05	  	5.31	  	5.57

  
 Telecom Italia 
  
 Applying the Sum-of-the-Parts fundamental method, the following minimum, mean and maximum
values were obtained per Telecom Italia ordinary share, before payment of the dividend, expected in April 2005: €2.99, €3.22 and €3.44. In this case the discount applied to obtain the value of the savings share was between
approximately 26% and 27%, resulting in a minimum of €2.21, a mean of €2.37 and a maximum of €2.52 per share. The table 

  

 40 

Table of Contents

 
below shows these minimum, mean and maximum values per Telecom Italia ordinary and savings share adjusted for payment of the dividend for the fiscal year
2004, assumed to be in line with that paid last year. 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Values per Telecom Italia ordinary share (€)
	  	2.89	  	3.12	  	3.34
	 Values per Telecom Italia savings share (€)
	  	2.09	  	2.25	  	2.41

  
 The following table shows the range of
the estimates of the exchange ratios calculated as the quotient of the estimated value per Tim ordinary and savings share and the estimated value per Telecom Italia ordinary and savings share using the minimum and maximum values of the respective
ranges. 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Telecom Italia ordinary shares per Tim ordinary share
	  	1.67	  	1.71	  	1.75
	 Telecom Italia savings shares per Tim savings share
	  	2.31	  	2.36	  	2.42

  
 The results of the Tender Offer are
not deemed to have had an effect on the exchange ratios, since the Tender Offer was made on terms consistent with the valuations used to determine them. In fact, in the context of the valuation of Telecom Italia, the acquisition of the Tim shares
tendered in the Tender Offer determines an increase in the value of the equity interest in Tim substantially equivalent to the increase in Telecom Italia’s net financial debt, which, moreover, has remained at a level consistent with Telecom
Italia’s current rating. The overall effect of the Tender Offer has therefore left the value of Telecom Italia’s equity substantially unchanged. 
  
 The Board of Directors, in the light of the information provided by JPMorgan, Mediobanca, and MCC, as well as Goldman Sachs, and after considering the results of the
application of the above-mentioned valuation methods, reached a conclusion with regard to the ratio existing between the economic values of the two companies participating in the Merger. This conclusion was then compared with that reached by the
Board of Directors of Tim, in taking into consideration the information provided by its own advisors. 
  
 Results obtained – valuations used by Tim 
  
 Applying the market-price valuation method, Tim’s advisors considered the prices of Telecom Italia and Tim shares over various periods both prior to the announcement of the Merger (3 December 2004) and prior to the first rumors
concerning the transaction (the week of 16-19 November 2004), in order to focus on the values of the two companies expressed by market prices excluding possible announcement effects. In the subsequent period, both the market prices and the trading
volumes showed anomalies and discontinuities compared with their long-term trends. 
  
 From the analysis of the shares’ performance, the 1, 2, 3, 6 and 12-month weighted average prices were calculated (both excluding and including the impact of payment of the dividend, assumed to be in line with that paid last year),
together with the corresponding exchange ratios. 
  

													
	 Market prices
 (ordinary
shares)

	  	 Stock market value
 not adjusted
 for dividend

	  	 Ratio
 (X)*

	  	 Stock market value
 adjusted
 for dividend

	  	 Ratio
 (X)*

	  	TI (€)

	  	Tim (€)

	  	  	TI (€)

	  	Tim (€)

	  
	 Weighted averages
	  	 	  	 	  	 	  	 	  	 	  	 
	 16/11/2004
	  	2.82	  	4.81	  	1.71	  	2.71	  	4.55	  	1.68
	 1 month
	  	2.70	  	4.68	  	1.73	  	2.59	  	4.42	  	1.71
	 2 months
	  	2.63	  	4.56	  	1.73	  	2.52	  	4.30	  	1.70
	 3 months
	  	2.58	  	4.50	  	1.74	  	2.48	  	4.25	  	1.71
	 6 months
	  	2.55	  	4.51	  	1.77	  	2.45	  	4.25	  	1.74
	 12 months
	  	2.54	  	4.52	  	1.78	  	2.44	  	4.27	  	1.75

 Source: Datastream 
  

	*	Rounding may lead to differences. 

  

 41 

Table of Contents

													
	 Market prices
 (savings
shares)

	  	 Stock market value
not adjusted
      for dividend     

	  	 Ratio
 (X)*

	  	 Stock market value
adjusted
        for dividend       

	  	 Ratio
 (X)*

	  	TI (€)

	  	Tim (€)

	  	  	TI (€)

	  	Tim (€)

	  
	 Weighted averages
	  	 	  	 	  	 	  	 	  	 	  	 
	 16/11/2004
	  	2.05	  	4.78	  	2.33	  	1.94	  	4.51	  	2.33
	 1 month
	  	2.01	  	4.62	  	2.30	  	1.89	  	4.35	  	2.30
	 2 months
	  	1.95	  	4.53	  	2.32	  	1.84	  	4.26	  	2.32
	 3 months
	  	1.92	  	4.48	  	2.34	  	1.80	  	4.22	  	2.34
	 6 months
	  	1.86	  	4.45	  	2.39	  	1.75	  	4.18	  	2.39
	 12 months
	  	1.84	  	4.45	  	2.42	  	1.72	  	4.18	  	2.43

	Source:	Datastream 

	*	Rounding may lead to differences. 

  
 With reference instead to the Sum-of-the Parts method, the following ranges for the values of the ordinary and savings shares were specified; they confirm the relative
values obtained by using the market-price valuation method. In the same way as for the latter method, the values per share and the corresponding exchange ratios were calculated both excluding and including the impact of payment of the dividend,
assumed to be in line with that paid last year. 
  

													
	 	  	 Values per share
 not adjusted for dividend

	  	 Values per share
 adjusted for dividend

	 	  	 Telecom
Italia
 (€)

	  	Tim (€)

	  	Ratio (X)

	  	 Telecom
Italia
 (€)

	  	 Tim
 (€)

	  	Ratio
(X)

	 Value per ordinary share
	  	2.97-3.28	  	5.26-5.50	  	1.68-1.77	  	2.86-3.17	  	5.1-5.25	  	1.65-1.75
	 Value per savings share
	  	2.18-2.41	  	5.26-5.50	  	2.29-2.41	  	2.06-2.29	  	4.99-5.24	  	2.29-2.42

  
 In this case as well, and on the basis
of the same considerations as those set out above, the results of the Tender Offer for Tim ordinary and savings shares are deemed not to have had an effect on the exchange ratios. 
  
 Taking into account the valuations put forward by its advisors, Tim’s Board of Directors established the relative values of the
companies involved in the Merger for the purpose of determining the exchange ratios. 
  
 The exchange ratios derived for the ordinary and savings shares by applying the foregoing methods are summarized below: 
  

					
	 METHOD
 (ORDINARY SHARES)

	  	 EXCHANGE RATIO
 NOT ADJUSTED 
 FOR
DIVIDEND (X)

	  	 EXCHANGE RATIO
 ADJUSTED FOR
 DIVIDEND (X)

	 Market-price method
	  	 	  	 
	 – 16 November 2004
	  	1.71	  	1.68
	 Weighted averages:
	  	 	  	 
	 – 1 month
	  	1.73	  	1.71
	 – 2 months
	  	1.73	  	1.70
	 – 3 months
	  	1.74	  	1.71
	 – 6 months
	  	1.77	  	1.74
	 – 12 months
	  	1.78	  	1.75
	 	  	
	  	

	 Sum-of-the-Parts method
	  	1.68-1.77	  	1.65-1.75
	 	  	
	  	

			
	 METHOD
 (SAVINGS SHARES)

	  	 EXCHANGE RATIO
 NOT ADJUSTED
 FOR
DIVIDEND (X)

	  	 EXCHANGE RATIO
 ADJUSTED FOR
 DIVIDEND
(X)

	 Market-price method
	  	 	  	 
	 – 16 November 2004
	  	2.33	  	2.33
	 Weighted averages:
	  	 	  	 
	 – 1 month
	  	2.30	  	2.30
	 – 2 months
	  	2.32	  	2.32
	 – 3 months
	  	2.34	  	2.34
	 – 6 months
	  	2.39	  	2.39
	 – 12 months
	  	2.42	  	2.43
	 	  	
	  	

	 Sum-of-the-Parts method
	  	2.29-2.41	  	2.29-2.42
	 	  	
	  	

  

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2.1.2(c)  Determination of the exchange ratios 
  
 The Boards of Directors of Telecom Italia and Tim, taking into account the valuations referred to above and the discussions regarding the determination of the exchange ratios and in the light of valuations of their respective financial
advisors, established the relative values of the companies involved in the Merger for the purpose of determining the exchange ratios. 
  
 At the end of the valuation process and the comparison between the results obtained, the Board of Directors of Telecom Italia and the Board of Directors of Tim determined
that: 
  

	(i)	the exchange ratio on the basis of which the assignment of the ordinary shares of Telecom Italia will be made is: 

  
 1.73 Telecom Italia ordinary shares, with a par value of €0.55 per
share 
 for each 
 1
Tim ordinary share, with a par value of €0.06; 
  

	(ii)	the exchange ratio on the basis of which the assignment of the savings shares of Telecom Italia will be made is: 

  
 2.36 Telecom Italia savings shares, with par value of €0.55 per share

 for each 
 1 Tim
savings share, with a par value of €0.06. 
  
 The above exchange ratios
have been verified by the experts appointed under Article 2501-sexies of the Civil Code, namely the accounting firm Reconta Ernst & Young S.p.A., appointed by the Turin Court, for Tim, and the accounting firm of Mazars & Guerard
S.p.A., appointed by the Milan Court, for Telecom Italia, for purposes of issuing the reports required by law. The reports of these experts are attached herewith as Annexes VI and VII. 
  
 
2.1.2(d)  Procedure for assigning Telecom Italia shares and their entitlement date 
  
 The newly issued shares earmarked for the exchange will be assigned to the persons entitled thereto at the effective date of the Merger through the authorized
intermediaries participating in the Monte Titoli S.p.A. central securities depository. 
  
 Tim shares held in certificated form may only be exchanged upon delivery of such shares to an authorized intermediary for deposit with the central securities depository on a dematerialized basis. 
  
 The authorized intermediaries will provide Tim minority shareholders with a service
permitting the number of newly issued shares to which shareholders are entitled on the basis of the exchange ratios to be rounded up or down to the nearest whole number, at market prices and at no cost in terms of expenses, stamp duty or
commissions. 
  
 
2.1.2(e)  Withdrawal rights 
  
 Withdrawal rights pursuant to Article 2437, first paragraph, point a), of the Civil Code 
  
 As the Absorbing Company, Telecom Italia’ bylaws concerning the company’s purpose will not be amended since they do not differ significantly from Tim’s
bylaws with respect to either the activities the company can engage in or the related business risk. Furthermore, Telecom Italia’s corporate purpose allows the company to own equity interests in operating companies. Accordingly, it will not be
necessary, as a result of the Merger, to make any amendments to Telecom Italia’s bylaws concerning the company’s purpose, so that from this perspective the Merger will not give rise to withdrawal rights pursuant to Article 2437, first
paragraph, point a), of the Civil Code. 
  
 Withdrawal rights pursuant to
Article 2437, first paragraph, point g), of the Civil Code 
  
 In the
share exchange, holders of Tim savings shares will be assigned newly issued Telecom Italia savings shares in accordance with the exchange ratios referred to above. 
  
 As mentioned earlier, from a formal legal perspective, Telecom Italia savings shares are entitled to a smaller dividend premium compared to
Telecom Italia ordinary shares than that to which holders of Tim savings shares 

  

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are currently entitled compared to Tim ordinary shares. In fact, Tim savings shares, as well as entitling their holders to a preferential dividend of up to
5% of their par value, entitle them to a premium with respect to any profit distributed to ordinary shareholders equal to 20% of their par value of €0.06, whereas Telecom Italia savings shares, while they also entitle their holders to a
preferential dividend of up to 5% of their par value, entitle them to a premium with respect to any dividend distributed to ordinary shareholders equal to 2% of their par value of €0.55. 
  
 Since, as a result of the Merger, in the exchange, holders of Tim savings shares will receive
Telecom Italia savings shares that entitle holders to a percentage dividend premium that is smaller than that of the Tim savings shares cancelled, the special meeting of Tim savings shareholders (the “Special Meeting”) has been
called – for 6, 7 and 8 April on the first, second and third call, respectively – to approve, pursuant to Article 145.1b) of the Consolidated Law, the resolution adopted by the extraordinary meeting of Tim ordinary shareholders concerning
the plan for the merger of Tim with and into Telecom Italia. 
  
 Because of the
different dividend premium rights attaching to the Telecom Italia savings shares that will be assigned in exchange to the existing holders of Tim savings shares, the latter will be entitled – if they do not vote in favor of the resolution by
means of which the Special Meeting will approve the resolution of the extraordinary meeting of Tim shareholders concerning the Merger – to withdrawal rights pursuant to Article 2437, first paragraph, point g), of the Civil Code, since the share
exchange would modify their rights. 
  
 It should be noted, however, that from a
substantive economic perspective, in addition to the above-mentioned change in the dividend premium in relative terms, the Merger will lead to an improvement in absolute terms in the entitlement to profits of Tim savings shareholders with respect to
their premium compared with the dividend paid to Tim ordinary shares. In fact, as a result of the Merger, more than one Telecom Italia savings share with a par value of €0.55 will be assigned for each Tim savings share with a par value of
€0.06, on the basis of the exchange ratio specified above (see Section 2.1.2(c)), so that the post-exchange dividend premium for each former Tim savings share will be calculated with reference to a higher total par value of €0.55 (par
value) x 2.36 (exchange ratio) = €1.30 instead of €0.06. Consequently, the post-exchange dividend premium for holders of Tim savings shares for each Tim savings share held, currently equal to 20% x €0.06 = €0.012, will increase
as a consequence of the exchange for Telecom Italia savings shares to 2% x €1.30 = €0.026. 
  
 Procedures for the exercise of withdrawal rights by Tim savings shareholders 
  
 The exercise of withdrawal rights to which Tim savings shareholders are entitled is governed by Article 2437-bis et seq. of the Civil Code. 
  
 Withdrawal rights may be exercised by entitled savings shareholders for all or a part of the
shares held by sending a registered letter to Tim S.p.A., to the attention of Funzione Affari Legali e Societari, Via Pietro De Francisci n. 152, Roma 00165, within fifteen days of the filing with the Company Register of the resolutions of the Tim
extraordinary and special meetings concerning the Merger (the “Filing”). The Filing will be announced by means of a public notice. 
  
 For purposes of withdrawal rights, persons will be deemed to have such entitlement who, having acquired Tim savings shares on the stock exchange, have also received them
before the opening of the extraordinary meeting of Tim ordinary shareholders; the status of Tim savings shareholder must be documented on the date of the extraordinary meeting of Tim ordinary shareholders and continue until the date on which the
withdrawal rights are exercised. 
  
 The declaration of withdrawal must indentify
the intermediary with whom the shares for which withdrawal rights are being exercised are deposited and a statement to the effect that they are free from pledges and other encumbrances in favor of third parties. Shareholders must also attach an
appropriate certification, issued by an authorized intermediary pursuant to the provisions governing dematerialized financial instruments deposited with a central securities depository. If shareholders who have exercised their withdrawal rights by
the fifteenth day from the Filing date are unable to attach such certification to the declaration of withdrawal, they must transmit it – by sending another registered letter to the above-mentioned Tim address – not later than the third
working day subsequent to the fifteenth day from the Filing date. 
  
 If the Tim
savings shares are pledged or encumbered in favor of third parties, withdrawing shareholders must accompany the declaration of withdrawal – under penalty of its invalidity – with a declaration from the pledgee 

  

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or such other person in whose favour the shares are encumbered in which such persons give their irrevocable consent to Tim to pay for the shares for which
withdrawal rights are exercised in accordance with the instructions of the withdrawing shareholders. 
  
 As provided for by Article 2437-bis of the Civil Code and the applicable regulations, when certifications are issued the shares in question will be blocked by the intermediary until the relevant savings shares
are transferred according to the settlement procedures described hereinbelow, which will be performed at the latest by the effective date of the Merger. 
  
 Withdrawing Tim savings shareholders will be entitled to be paid for the shares for which withdrawal rights have been exercised from the effective date of the Merger; the
redemption price is equal to €4.84 per share. 
  
 Tim will announce all the
additional information necessary for the exercise of withdrawal rights in timely fashion through the publication of notices. 
  
 Procedures for the settlement of Tim savings shares for which withdrawal rights have been exercised 
  
 The payment procedure for the Tim shares for which withdrawal rights have been exercised
will be effected, in accordance with Article 2437-quater of the Civil Code, by means of a rights offering of such shares to all Tim ordinary and savings shareholders, other than the withdrawing savings shareholders, in proportion to the
shares they hold (the “Offering”). Tim shareholders who exercise their purchase rights, provided they make a contemporaneous application, will have the right of pre-emption for the purchase of Tim savings shares that have not been
taken up at the closing of the Offering. 
  
 If the number of Tim savings shares
for which purchase rights have not been exercised in the Offering is less than the number applied for by the Tim shareholders who have exercised pre-emption rights, the shares will be assigned to applicants on a pro rata basis. 
  
 Consistent with its interest in purchasing all of Tim’s savings shares, as evidenced by
the Tender Offer, Telecom Italia intends to exercise all its purchase rights and its pre-emption rights in respect of any shares not taken up in the Offering. Consequently, at the close of the Offering Tim savings shares that have not been taken up
will not be placed on regulated securities exchanges pursuant to Article 2437-quater, fourth paragraph, of the Civil Code. Like the other Tim savings shares held by Telecom Italia, any savings shares purchased by Telecom Italia under the
withdrawal procedure will be cancelled without exchange as a result of the Merger in accordance with Article 2504-ter, second paragraph, of the Civil Code. 
  
 Markets in which the Offering is made 
  
 The Offering will be made in Italy and will be addressed without distinction and at the same conditions to all Tim ordinary and savings shareholders, other than the Tim
savings shareholders who have withdrawn, in proportion to the number of shares they hold. 
  
 The Tim savings shares that are the subject of the Offering (and the related purchase rights) have not been and are not intended to be registered under the US Securities Act of 1933, as amended, and may not be offered
or sold into the United States of America except pursuant to an applicable exemption. The Tim savings shares that are the subject of the Offering (and the related purchase rights) are intended to be made available within the United States of America
pursuant to an exemption from the registration requirements of the US Securities Act of 1933. The rights to purchase the Tim savings shares that are the subject of the Offering may not be transferred or sold by U.S. shareholders except in an
“offshore transaction” pursuant to Regulation S under the US Securities Act of 1933. 
  
 The Offering will not constitute an offering of securities in any country (collectively the “Other Countries”) in which the Offering is not permitted in the absence of a specific authorization in
compliance with the provisions of applicable law or an exemption from such provisions. 
  
 Tim shareholders not resident in Italy or the United States may not be able to exercise the right to purchase the Tim shares that are the subject of the Offering nor be able to exercise the consequent pre-emption rights pursuant to the
local law which may be applicable to them. Accordingly, Tim shareholders who intend to accept the Offering should obtain specific advice before taking any action. If Tim should find that the exercise of purchase rights for Tim savings shares by Tim
savings shareholders who have not exercised their withdrawal rights may violate laws and/or regulations in the Other Countries, it reserves the right not to permit the exercise thereof. 
  

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 Tim will announce all necessary information relevant to the Offering through the publication of notices in the
international press too. 
  
 Offering period 
  
 Acceptance of the Offering will be permitted within a time limit of not less than 30 days
from the date of the filing of the Offering with the Turin Company Register, which will be announced by means of a public notice. 
  
 Settlement price of the Tim savings shares for which withdrawal rights have been exercised 
  
 The settlement price of the shares to be redeemed to Tim savings shareholders who have exercised their withdrawal rights, equal to
€4.84, has been determined pursuant to Article 2437-ter of the Civil Code with reference exclusively to the arithmetic mean of the closing prices in the six months preceding the date of publication of the notice calling the extraordinary
meeting of Tim shareholders concerning the Merger. 
  
 Manner of accepting the
Offering 
  
 Tim will announce the manner of accepting the Offering and any
additional information regarding the same in the notice that will be filed with the Turin Company Register pursuant to Article 2437-quater of the Civil Code and through the publication of a suitable notice in at least one daily newspaper with
national circulation and in he U.S. edition of the Financial Times. 
  
 Italian Tax regime 
  
 For Italian income tax purposes,
pursuant to Article 47.7 of Presidential Decree 917/1986 (the “Consolidated Income Tax Law”), any difference between the amount payable to natural persons who exercise withdrawal rights and the subscription or purchase price paid by
any such person for shares cancelled by the company constitutes taxable investment income. However, it should be noted that, according to an interpretation issued by the Italian tax authorities (Revenue Agency circular no. 26/E dated 16 June 2004)
such rule applies only to withdrawals entailing the cancellation of shares. By contrast, an investor (including – where applicable – the investee company) who purchases shares for a consideration from withdrawing shareholders would not
qualify for the same tax treatment. Therefore, it is clear that – in light of the withdrawal procedures available to Tim’s savings shareholders – the gain accruing to persons intending to exercise their withdrawal rights would be
considered as other income pursuant to Article 67 of the Consolidated Income Tax Law. 
  
 In particular, since these are savings shares, withdrawing shareholders will record a capital gain on the sale of a non-qualifying shareholding, pursuant to article 67.1, point c bis) of the Consolidated Income Tax Law, determined by the
difference between the price received and the acquisition cost, inclusive of the tax paid at the time of purchase. If the price received is lower than the acquisition cost incurred, withdrawing shareholders will record a capital loss. Any such loss
can be offset against any capital gain of the same nature in the same fiscal year and, pursuant to Article 68.5 of the Consolidated Income Tax Law, can be carried forward up to the fourth year therefrom. Capital gains, other than those deriving from
the operation of commercial enterprises, by natural persons resident in Italy for tax purposes which result from a sale for a consideration of non-qualifying shareholdings, are subject to a flat-rate tax of 12.5% in lieu of income tax, pursuant to
Article 5.2 of Legislative Decree 461/1997. In particular, investors may opt for one of the following regimes for the payment of such flat-rate tax: 
  

	(1)	Income-tax-return regime (Article 5 of Legislative Decree 461/1997). 

  
 In this case, taxpayers are required to report and pay the tax and include all required information on their yearly income tax return. This is the default choice if the
taxpayer does not opt for one of the regimes under (2) and (3) below. 
  
 (2)
Segregated-accounts regime (Article 6 of Legislative Decree 461/1997). 
  
 If
taxpayers opt for this regime, the tax is calculated and paid on every sale where a capital gain is recorded by the intermediary with which the shares are held in custody or deposited in a securities account. 
  

	(3)	Asset-management regime (Article 7 of Legislative Decree 461/1997). 

  
 Taxpayers who opt for this regime must have an asset management account with a licensed financial intermediary. Under this regime, at the end of every fiscal year, the
intermediary applies a 12.5% tax in lieu of 

  

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income tax on the incremental value of the investment for the reporting period. Therefore, gains on the sale of non-qualifying shareholdings are not taxed
individually, but are subject to the above-mentioned 12.5% tax to the extent that they contribute to the increase in the value of the assets under management during the fiscal year. 
  
 
2.1.2(f)  Amendments to the bylaws 
  
 Telecom Italia’s bylaws will not be modified in connection with the Merger, apart from Article 5 concerning the company’s share capital. This will be amended to take into account the increases in capital needed both for the
issuance of new ordinary and savings shares to be assigned in the exchange to holders of Tim ordinary and savings shares, on the basis of the exchange ratios referred to in Section 2.1.2(c), and for the exercise of stock options under plans already
approved by Tim. 
  
 The maximum increase in Telecom Italia’s share capital
for the purposes of the share exchange, 
  

	 	–	considering the maximum amount by which Tim’s existing share capital may be increased, among other things, as a consequence of the exercise of stock options granted and still
valid, and 

  

	 	–	on the basis of the exchange ratios indicated in Section 2.1.2(c), 

  
 will be €1,420,690,865.55, through the issuance of a maximum of 2,291,344,587 new Telecom Italia ordinary shares and a maximum of 291,729,714 new Telecom Italia
savings shares, all with a par value of €0.55 per share. The maximum amount of the increase in Telecom Italia’s share capital for purposes of the share exchange has been calculated without considering the Tim ordinary and savings shares
held by Telecom Italia as a result of the Tender Offer or Tim’s treasury shares, which will not be exchanged in the Merger. 
  
 Article 5 of Telecom Italia’s bylaws will also be amended to take into account the increases in capital for Tim’s stock option plans. Telecom Italia will take
over these plans and issue a number of new ordinary shares for their implementation, adjusted on the basis of the exchange ratio adopted for the Merger, while the exercise price of each option will remain unchanged. 
  
 As a result, the owners of Tim stock options will have the right to purchase, at the
predetermined price, not the original number of ordinary shares of Tim but the larger number of ordinary shares of Telecom Italia, as the company resulting from the Merger, determined on the basis of the exchange ratio of 1 to 1.73. The unit price
of ordinary shares deriving from the exercise of stock options will therefore be that determined for each plan by dividing the original price by 1.73. 
  
 In more detail, Telecom Italia will approve an overall maximum increase in capital, divided into the following tranches: 
  

	a)	an increase of up to €11,705,656.05 for the exercise of stock options granted by Tim under its “2000-2002 Stock Option Plans”, to be implemented by 31 December 2008
through the issuance of up to 21,283,011 Telecom Italia ordinary shares with a par value of €0.55 per share, to be offered to the holders of the above-mentioned stock options on the basis of the exchange ratio adopted for Tim shareholders for
purposes of the Merger at a price of €6.42 for each option held (i.e., €3.710983 for each newly issued share); 

  

	b)	an increase of up to €1,132,285 for the exercise of stock options granted by Tim under its “2001-2003 Stock Option Plans”, to be implemented by 31 December 2005
through the issuance of up to 2,058,700 Telecom Italia ordinary shares with a par value of €0.55 per share, to be offered to the holders of the above-mentioned stock options on the basis of the exchange ratio adopted for Tim shareholders for
purposes of the Merger at a price of €8.671 for each option held (i.e., €5.012139 for each newly issued share); 

  

	c)	an increase of up to €474,798.50 for the exercise of stock options granted by Tim under its “2001-2003 Supplementary Plans”, to be implemented by 31 December 2005
through the issuance of up to 863,270 Telecom Italia ordinary shares with a par value of €0.55 per share, to be offered to the holders of the above-mentioned stock options on the basis of the exchange ratio adopted for Tim shareholders for
purposes of the Merger at a price of €7.526 for each option held (i.e., €4.350289 for each newly issued share); 

  

	d)	an increase of up to €22,150,920 for the exercise of stock options granted by Tim under its “2002-2003 Stock Option Plans”, to be implemented by 31 December 2008
through the issuance of up to 40,274,400 Telecom Italia ordinary shares with a par value of €0.55 per share, to be offered to the holders of the above-mentioned stock options on the basis of the exchange ratio adopted for Tim shareholders for
purposes of the Merger at a price of €5.67 for each option held (i.e., €3.277457 for each newly issued share); 

  

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	e)	an increase of up to €3,192,173.05 for the exercise of stock options granted by Tim under its “2003-2005 Stock Option Plans”, to be implemented through the issuance
of up to a total of 5,803,951 Telecom Italia ordinary shares with a par value of €0.55 per share, by 31 December 2008 for the first lot, by 31 December 2009 for the second lot and by 31 December 2010 for the third lot. The shares will be
offered to the holders of the above-mentioned stock options on the basis of the exchange ratio adopted for Tim shareholders for purposes of the Merger at a price of €5.07 for each option held (i.e., €2.930636 for each newly issued share).

  
 The amendments to the bylaws described above will come into
force on the effective date of the Merger pursuant to Article 2504-bis of the Civil Code and as provided for in the merger plan, to which the new bylaws are attached (see Annex I attached herewith). 
  
 
2.1.2(g)  Date from which Tim’s transactions will be attributed to Telecom Italia and recorded, for Italian tax purposes as well, in its accounts 
  
 Pursuant to Article 2504-bis, second paragraph, of the Civil Code, the Merger will be
effective from the date of the last filing of the merger deed required by Article 2504 of the Civil Code, or from such later date as may be specified in the merger deed itself. 
  
 The Telecom Italia shares issued in the exchange will have normal entitlement to all the rights appertaining thereto and will therefore have
equivalent rights to the Telecom Italia shares outstanding at the time of issuance. 
  
 For purposes of Telecom Italia’s financial statements, in accordance with the combined effect of Articles 2504-bis, third paragraph, and 2501-ter, first paragraph, point 6, of the Civil Code, the transactions effected by
Tim will be attributed to and recorded in Telecom Italia’s accounts as of 1 January of the year in which the Merger becomes effective, or 1 January 2005, in accordance with the planned timetable for the Merger. The same date will apply to the
tax effects, pursuant to Article 172.9 of the Consolidated Income Tax Law. 
  
 Accordingly, as of the effective date of the Merger, Telecom Italia will assume all of Tim’s assets, rights and obligations, except for those of the Domestic Mobile Division transferred in the Spin-Off. 
  
 
2.1.2(h)  Italian tax effects 
  
 Tax
neutrality 
  
 For income tax purposes, pursuant to Article 172.1 of the
Consolidated Income Tax Law, the Merger is tax neutral and therefore does not constitute a realization or a distribution of capital gains and losses on the assets of the merged or incorporated companies, including inventories and goodwill.

  
 Merger goodwill 
  
 Concerning the position of Telecom Italia, merger goodwill is not recognized as income for
tax purposes, and thus there is no tax impact. 
  
 Tax-deferred reserves

  
 The tax-deferred reserves reported in Tim’s latest financial
statements and existing at the effective date of the Merger will be treated in accordance with the specific provisions of Article 172.5 of the Consolidated Income Tax Law and, if appropriate, will be re-established. 
  
 Income taxes 
  
 On the effective date of the Merger, Telecom Italia will succeed to all of Tim’s rights and obligations in relation to income taxes. In
addition, since, for accounting purposes (with regard to the annual financial statements) and tax purposes, the effects of the Merger will be retroactive to 1 January of the year in which it becomes effective, there will be no separate tax period
between the closing date of Tim’s last fiscal year and the effective date of the Merger. 
  
 Registration fee 
  
 The merger deed is
subject to a registration fee of €129.11, pursuant to Article 4.b) of the first part of the schedule attached to Presidential Decree No. 131 of 22 December 1986. 
  

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 Italian tax effects on shareholders 
  
 Pursuant to Article 172 of the Consolidated Income Tax Law, the exchange of Tim shares for Telecom Italia shares does not constitute a
realization or a distribution of capital gains or losses, or a source of income, as the transaction merely involves the replacement in shareholders’ portfolios of Tim shares by Telecom Italia shares. Accordingly, the tax basis in the Tim shares
will be transferred to the shares obtained in the exchange. 
  
 Shareholders
resident in countries outside Italy are urged to consult their own tax advisors about the tax effects of the Merger in their own jurisdictions. 
  
 The Spin-Off 
  
 The Spin-Off prior to the Merger, whereby Tim transferred the Domestic Mobile Division to Tim Italia (see Section 2.1(c)), is tax neutral and, as such, it will not give rise to taxable capital gains or tax-deductible
capital losses. 
  
 
2.1.3  Expected major shareholdings and control of the post-Merger Telecom Italia 
  
 At 16 March 2005, the shareholders of Telecom Italia with an interest in that company’s ordinary share capital of more than 2% on the basis of the shareholder
register and the disclosures of major shareholdings pursuant to Article 120 of the Consolidated Law were as follows: 
  

							
	 Shareholders

	  	 Type of holding

	  	Number of
ordinary shares
held

	  	% of the ordinary
share capital

	 Olimpia S.p.A.
	  	Direct	  	2,407,345,359	  	21.80
	 Brandes Investment Partners LLC
	  	Fund(a)	  	372,896,243	  	3.38
	 Assicurazioni Generali S.p.A.
	  	Direct and indirect(b)	  	363,640,564	  	3.29
	 Hopa S.p.A.
	  	Direct and indirect(c)	  	361,364,703	  	3.27
	 JP Morgan Chase and Co.
	  	Direct(d)	  	249,411,198	  	2.26

	(a)	Disclosure pursuant to Article 121.3 of the Consob Regulation. 

  

	(b)	The list of companies through which the shares are held is available on the Internet at www.consob.it. 

  

	(c)	Shares held through the subsidiary company Holinvest S.p.A. 

  

	(d)	Of which 72,894,581 held as temporary purchaser/borrower. 

  
 As things stand, Telecom Italia is not subject to the control of any person within the meaning of Article 93 of the Consolidated Law. As a consequence of the provision in
Telecom Italia’s bylaws requiring the slate voting system to be used for the election of the Board of Directors, in the shareholders’ meeting of 6 May 2004 Olimpia, with a holding at the time of approximately 17%, determined the election
of 15 of the 19 incumbent directors (10 of whom qualify as independent) since it was found to own a little more than half (51%) of the capital represented in the meeting. 
  
 The following table summarizes the expected composition of Telecom Italia shareholders with holdings in excess of 2% of the ordinary share
capital, assuming (i) that no Telecom Italia or Tim stock options are exercised and that no Telecom Italia convertible bonds are converted subsequent to the former becoming exercisable again and the latter becoming convertible again, between the ex
dividend date and the effective date of the Merger, and (ii) that Telecom Italia’s interest in Tim’s capital does not change and remains equal to 7,232,583,124 ordinary shares. 
  
 The table is based exclusively on information in the Telecom Italia shareholder register or disclosed by shareholders pursuant to Article
120 of the Consolidated Law. 
  

					
	 Shareholders

	  	Number of ordinary
shares held

	  	% of the ordinary
share capital

	 Olimpia S.p.A.
	  	2,407,345,359	  	18.25
	 Brandes Investment Partners LLC
	  	372,896,243	  	2.83
	 Assicurazioni Generali S.p.A.
	  	363,640,564	  	2.76
	 Hopa S.p.A.
	  	361,364,703	  	2.74

  
 Upon completion of the Merger, no
shareholder is expected to control Telecom Italia within the meaning of Article 93 of the Consolidated Law. 
  

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2.1.4  Effects of the Merger on shareholders’ agreements falling within the scope of Article 122 of the Consolidated Law involving shares of the companies participating in the Merger 
  
 Notices have been published in the Italian press containing extracts of the following
agreements: 
  

	 	–	agreement between Pirelli S.p.A. (now Pirelli & C. S.p.A.) and Edizione Holding S.p.A. – Edizione Finance International S.A., executed on 7 August 2001 and subsequently
amended; 

  

	 	–	agreement between Pirelli S.p.A. (now Pirelli & C. S.p.A), UniCredito Italiano S.p.A. and Intesa BCI S.p.A (now Banca Intesa S.p.A.), executed on 14 September and subsequently
amended; 

  

	 	–	agreement between Pirelli S.p.A. (now Pirelli & C. 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. and Hopa S.p.A., executed on 2 February 2003 and subsequently amended. 

  
 The parties to the shareholders’ agreements falling within the scope of Article 122 of the Consolidated Law that concern the companies participating in the Merger have not made any notification concerning the
possible effects of the Merger on such agreements. 
  
 The extracts of these
shareholders’ agreements are available on Consob’s website (www.consob.it) and are attached herewith (see Annex XVII). 
  
 
2.2  Reasons for and purposes of the transaction 
  
 
2.2.1  Reasons for and purposes of the transaction with specific regard to operating objectives 
  
 The Merger, together with the associated Tender Offer and Spin-Off, is intended to satisfy a series of business needs, prompted by the progressive convergence between
fixed and mobile telecommunications platforms. The incorporation of Tim into Telecom Italia is intended to promote the creation of a business model and organizational strategy appropriate to expected market developments and the defense of the
creation of value. 
  
 To capture the benefits made available by the integration
of platforms and services, at a time of significant technological discontinuity, it is desirable to undertake a corporate structural reorganization that will permit the unitary governance of business processes that a situation of partial control
does not fully allow. In fact, the “strong” path of corporate integration by means of the Merger will make it possible to overcome the constraints inherent in the existing ownership structure, notwithstanding the scope for coordination
typical of a group structure. That structure is conditioned by the existence of two sets of shareholders in the market, whose interests have to be pursued separately as regards strategic investments and business plans. Only complete integration can
overcome these limitations, by eliminating conflicts and simultaneously promoting the most efficient distribution of costs and benefits between the parent company and the subsidiary. 
  
 The changes under way in the market pose new challenges for the Telecom Italia Group, but they also offer new opportunities if they are
appropriately faced. 
  
 The demand for telecommunications services is growing,
driven by the spread of broadband in wireline business and by the new services supplied in the mobile segment. In particular: 
  

	 	–	communications on fixed networks have enriched the supply of traditional “voice” and “data” services by adding innovative services (e.g., supply of paid
contents) made possible by XDSL technology and fiber optics; 

  

	 	–	communications on the new-generation mobile networks (GPRS, EDGE and UMTS) now afford mobility not only for voice services but also for data, Internet and media services.

  
 Alongside these recent developments, additional elements of
discontinuity in technology and the market are leading towards a progressive attenuation of the traditional distinctions between the different business areas. 
  

Some trends in technologies are facilitating interaction between the different networks (fixed and mobile, voice and data) and between the supply of telecommunications
services and that of adjacent sectors, such as information technology, media and consumer electronics, offering operators the opportunity to develop new services and make the technical management and development of network infrastructures more
efficient. 
  

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 In particular, the convergence between fixed and mobile is generated by: 
  

	 	•	 	the spread of the IP protocol for the transport of voice, data and video on fixed and mobile networks; 

  

	 	•	 	the creation of the Unlicensed Mobile Access standard (UMA) for seamless access from mobile terminals via both cellular networks and wireless fixed networks based on IP;

  

	 	•	 	the use of the Session Initiation Protocol (SIP) for the provision of multimedia content equally on fixed and mobile networks; 

  

	 	•	 	the unification of the control platform for interactive multimedia services; 

  

	 	•	 	the availability of new broadband technologies for wireless access to fixed networks (Wi-Fi, WiMax); and 

  

	 	•	 	the spread of advanced multi-standard terminals (PSTN/Wi-Fi/GSM/UMTS) for seamless access to fixed and mobile services. 

  
 On the demand side, customers increasingly feel the need to use the services made possible by
the new technologies seamlessly, regardless of where they are. In particular, business customers require solutions for access to their own intranet and to corporate applications with the fixed or mobile network available at any given moment, and
consumers are interested in the creation of multimedia portals with access from both fixed and mobile networks to enjoy digital content (music, film, etc.). 
  
 The developments described above will radically change the business models in the information and communication technology market. Accordingly, the leading players will
need to alter the organizational and operating structure of the different business areas in order to take advantage of the opportunities offered, with a view to counterbalancing the effects of the saturation of demand for traditional telephone
services and the related erosion of prices and margins. 
  
 The leading operators
in the Italian and European telecommunications market are preparing to respond to the latest technological and market developments on three main fronts: 
  

	 	–	better coordination and distribution of customer relations between the various segments (integration of sales channels and responsibilities for specific segments, brand management);

  

	 	–	strengthening of certain critical functions for comparative advantage (IT and network technological choices; management of research; procurement; content acquisition and management;
and coordination of supply policies); and 

  

	 	–	programs to recoup efficiency by exploiting synergies across the different business areas (common management of IT and network infrastructures, convergent evolution of applications
platforms, and common content acquisition and management). 

  
 In
this setting, the Telecom Italia Group already ranks in the top tier among European competitors in all business areas in terms of growth, profitability and product innovation. This is the result of the substantial investments made in technological
innovation, which today provide the Group with a network infrastructure considered future-proof, ready to host and handle the portfolio of new generation products and services. 
  
 As mentioned above, however, the evolution of the market and the defense of the creation of value also require an adaptation of current
business models and organizational strategies, an objective that the merger between Tim and Telecom Italia is intended to promote. 
  
 In particular, from a business perspective, it will be possible to anticipate the roadmap for the launch of new services, due to the integrated management of the
introduction of innovative network technologies and architectures, and at the same time to improve efficiency in the operation of the fixed and mobile network business areas, above all through the coordination of common processes in the management
and development of the networks and IT platforms. 
  
 The following additional
advantages will also be pursued through the Merger: 
  

	 	–	to optimize financial and cash flows within the Group by managing Group debt more efficiently and making better use of financial leverage. At the same time, Telecom Italia’s
current shareholders will have access to all the cash flow generated by the mobile communications business; 

  

	 	–	 to enable Telecom Italia to optimize, in conjunction with the Tender Offer, its own financial structure and to reduce the weighted average cost of capital employed
compared with its current cost. In fact, 

  

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from a financial perspective, the equity that is not issued will in effect be replaced, as a result of the settlement of the obligations arising from the
Tender Offer, by an increase in Telecom Italia’s net debt. The cost of this new debt – in terms of after-tax net financial expense – is lower than the cost – in terms of the expected dividends – which would have been
incurred on the equity that would otherwise have been issued in exchange for the Tim shares purchased in the Tender Offer. The consequent reduction in the weighted average cost of capital will foster the realization of the full value potential of
the post-Merger Telecom Italia’s shares and thus the creation of value for shareholders. 

  

	
2.2.2	Plans prepared by the companies participating in the Merger with regard to the business prospects and possible restructuring and/or reorganization

  
 As mentioned above, the Merger serves to promote the adaptation
of the Group’s business models and organizational strategy to the evolution of the market and the defense of the creation of value for shareholders. 
  
 Working Groups have been formed to ensure effective governance of the evolution of the post-Merger business and organizational structure. Their objective is to identify
specific areas offering scope for efficiency gains in activities, processes and products in the fixed and mobile sectors, to draw up an action plan and to prepare estimates of the economic and financial benefits in the three years 2005-07 and
beyond. 
  
 The activity of the Working Groups is coordinated by the “Telecom
2007” Steering Committee, in which the Group’s top management participates. The Committee provides guidance and control over the development of the overall plan by ensuring the observance of specific responsibilities. 
  
 The operational and organizational restructuring will be based on three guidelines: a market
plan aimed at increasing the effectiveness of customer relations; an efficiency plan for the rationalization of internal and external structures; and an organizational development plan. 
  
 The actions primarily relate to the following business areas: 
  

	 	–	Networks and Information Technology; 

  

	 	–	Customer Operations; 

  

	 	–	Supply of Innovative Services and Sales Channels; and 

  

	 	–	Procurement. 

  
 In general, the measures, evaluated and implemented in compliance with applicable sector and antitrust legislation, will make it possible to: 
  

	a.	accelerate the adoption of innovative network technologies and architectures for the provision of convergent services; 

  

	b.	develop single platforms for fixed and mobile networks for the supply of multimedia content and value-added services; 

  

	c.	integrate network elements and IT infrastructures that are currently separate and achieve unitary management of the future development of fixed and mobile network infrastructures,
software platforms for the management of network functions, and software architectures and applications for the management of the business; 

  

	d.	reduce reliance on outsourcers in some areas of the technical management of networks and IT platforms; 

  

	e.	offer convergent innovative services; and 

  

	f.	exploit the scope for efficiency gains in logistics and facility management through integrated management of the related processes. 

  
 In detail, the main projects under consideration are as follows: 
  
 Networks and Information Technology 
  
 Common management of network engineering and of the operation and maintenance of the
technical platforms will make it possible to accelerate the pace of innovation and render the whole infrastructure more efficient. The solutions identified are critical to the expansion of the products portfolio with the focus on convergent services

  

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and applications made possible by broadband and to increase the profitability of the different business areas through an improvement of the cost structure in
the creation and supply of services. 
  
 The main actions identified in this area
relate to: 
  

	 	–	the planning of the Next Generation Network, a single IP transport network capable of providing voice, data and multimedia content services in transparent fashion with respect to
the fixed and mobile access networks, which will nonetheless remain separate; 

  

	 	–	the creation of joint fixed and mobile platforms for the provision of value-added services and multimedia content; 

  

	 	–	the joint development, operation and maintenance of network information systems; 

  

	 	–	the internalization of part of the network technical maintenance and operating activities now being outsourced; 

  

	 	–	the development of a roadmap for the evolution towards multistandard WiFi/mobile terminals; and 

  

	 	–	the integration of IT infrastructures (consolidation and specialization of the Group Data Centers, creation of a Group-wide platform for the management of digital content,
integration of Group company data networks, integration of desktop management services, integration of centers for the management of security on Group data networks and for the market). 

  
 Customer Operations 
  
 Customer care and the management of software platforms supporting the business will benefit
from the scope for rationalizing processes common to fixed and mobile activities. 
  
 The main actions identified in this area relate to: 
  

	 	–	the creation of integrated architectures and platforms for IT applications used in the management of the business (e.g., billing, credit management and customer management) and,
consequently, their evolution over time according to a common roadmap; 

  

	 	–	efficiency gains in back-office activities and customer care; 

  

	 	–	efficiency gains in the supply of customer information services based on directories (directories of subscribers, restaurants, hotels, etc); and 

  

	 	–	increases in customer care efficiency and service levels by adoption of the best practices developed in Telecom Italia and Tim. 

  
 Supply of Innovative Services and Sales Channels 
  
 Efficiency gains are expected in the development of value-added services – core voice
services are not involved – and in the distribution channels. In particular, a new product line is being studied that brings together contents and services for use in a way that is simple, uniform and independent of the terminal and access
network. 
  
 The main actions identified in this area relate to: 
  

	 	–	the development of homogeneous value-added services for the consumer market (e.g., seamless access to mail, interoperability of fixed and mobile services, and standardization of
mimicking) and for the business market (e.g., mobile use of corporate applications by means of an extended enterprise model); 

  

	 	–	the development of a multimedia portal accessible from fixed and mobile network terminals and enhancement of Group contents and brands; and 

  

	 	–	the adoption of commercial best practices developed within the business units and rationalization of the activities in support of sales, while keeping fixed and mobile network
offers separate, in order to increase the effectiveness of sales channels and their efficiency where they overlap. 

  
 Procurement 
  
 The Telecom Italia Group centralized the management of procurement processes some time ago. The Merger will make it possible to realize further improvements in the cost structure through more efficient and effective
supervision of logistics and internal services. 
  

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 The main actions identified in this area relate to: 
  

	 	–	the optimization of distribution logistics for commercial products by integrating the management of supplies, infrastructures and physical flows, and the maintenance and repair of
equipment and terminals; 

  

	 	–	the exploitation of synergies between network operating structures and the evaluation of make-or-buy options; 

  

	 	–	the elimination of duplication and the harmonization of service standards in Facility Management and General Services; and 

  

	 	–	the extension to foreign affiliates of best practices in product logistics, network activities and internal services. 

  
 *        *        * 
  
 The above-mentioned projects will give rise in the three years 2005-07 to significant economic and financial benefits, which are expected to be disclosed to the market on the day when Telecom Italia extraordinary
shareholders’ meeting takes place. Subsequently, on 8 April 2005 they will be presented to the financial community, together with the three-year objectives for revenues, operating results and total cash flow generation. 
  
 The Telecom Italia Steering Committee will monitor the progress of the operational and
organizational reorganization, checking the operational results and economic impacts against the plans and forecasts, and will assist in the identification of new areas for integration and the creation of value. 
  
 
2.3  Documents made available to the public and the places in which they can be consulted 
  
 This Information Document and the documents referred to in Article 2501-septies, first paragraph, points 1), 2) and 3), of the Civil Code and Article 70.1 of the
Consob Regulation have been made available to the public. They can be consulted by anyone who applies: at Telecom Italia’s registered office at 2 Piazza degli Affari, Milan; at Tim’s registered office at 6 Via Cavalli, Turin, and at the
latter’s corporate headquarters at 152 Via Pietro De Francisci, Rome; and at Borsa Italiana’s registered office. English translations of the above-mentioned documents are also available at the office of Telecom Italia North America Inc.,
745 Fifth Avenue, New York, NY 10151. The appraisal report prepared in connection with the Spin-Off pursuant to Article 2343 of the Civil Code is also available at the Tim offices referred to above. 
  
 This Information Document and the documents filed pursuant to Article 2501-septies,
first paragraph, points 1), 2) and 3), of the Civil Code have also been posted on the websites of Telecom Italia and Tim, at respectively www.telecomitalia.it and www.investor.tim.it. 
  

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3.  SIGNIFICANT EFFECTS OF THE TRANSACTION 
  
 
3.1  Significant effects of the transaction on the key factors that influence and characterize the activity of the companies participating in the Merger and the types of business engaged in 
  
 The Merger will not lead to changes in the types of business engaged in. It is intended to
satisfy a series of business needs prompted by the progressive convergence between fixed and mobile telecommunications platforms. The incorporation of Tim into Telecom Italia is intended to promote the creation of a business model and organizational
strategy appropriate to expected market developments and the defense of the creation of value. For more information, see Section 2.2. 
  
 
3.2  Implications of the transaction for the strategies concerning business and financial dealings between Group companies or the centralized supply of services 
  
 The Merger will not lead to significant changes in the business and financial dealings
between companies belonging to the group headed by the post-Merger Telecom Italia or in the centralized supply of services 
  

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4.  TIM’S OPERATING, FINANCIAL AND CASH FLOW DATA 
  
 
4.1  Comparative tables of the TIM Group’s reclassified consolidated income statements and balance sheets for financial years 2004 and 2003 with explanatory notes 
  
 A comparison of the TIM Group’s reclassified consolidated income statements and balance
sheets for financial years 2003 and 2004 is provided below, together with explanatory notes. 
  
 
4.1.1  TIM Group’s reclassified consolidated income statements and balance sheets for financial years 2004 and 2003 with explanatory notes 
  

							
	 Consolidated income statement
 (millions of
euro)

	  	2004

	 	  	2003

	 
	 A. Sales and service revenues
	  	12,900	 	  	11,782	 
	 	  	
	
	  	
	

	 Increases in capitalized internal construction costs
	  	43	 	  	2	 
	 	  	
	
	  	
	

	 B. Standard Production Value
	  	12,943	 	  	11,784	 
	 	  	
	
	  	
	

	 Raw materials and outside services(*)
	  	(6,228	)	  	(5,660	)
	 	  	
	
	  	
	

	 C. Value added
	  	6,715	 	  	6,124	 
	 	  	
	
	  	
	

	 Labour costs(*)
	  	(663	)	  	(622	)
	 	  	
	
	  	
	

	 D. Gross operating profit
	  	6,052	 	  	5,502	 
	 	  	
	
	  	
	

	 Amortization of other intangibles and depreciation of fixed assets
	  	(1,716	)	  	(1,443	)
	 Other valuations adjustments
	  	(68	)	  	(138	)
	 Provision to reserve for risks and charges
	  	(15	)	  	(21	)
	 Net other income (expense)
	  	(87	)	  	(15	)
	 	  	
	
	  	
	

	 E. Operating income before amortization of differences on consolidation
	  	4,166	 	  	3,885	 
	 	  	
	
	  	
	

	 Amortization of differences on consolidation
	  	(93	)	  	(99	)
	 	  	
	
	  	
	

	 F. Operating income
	  	4,073	 	  	3,786	 
	 	  	
	
	  	
	

	 Net financial income (expenses)(**)
	  	(11	)	  	8	 
	 Net investment income (expenses)
	  	(1	)	  	(4	)
	 	  	
	
	  	
	

	 G. Income before extraordinary items and income taxes
	  	4,061	 	  	3,790	 
	 	  	
	
	  	
	

	 Net extraordinary income (expenses)
	  	241	 	  	417	 
	 	  	
	
	  	
	

	 H. Income before income taxes
	  	4,302	 	  	4,207	 
	 	  	
	
	  	
	

	 Income taxes
	  	(1,856	)	  	(1,751	)
	 	  	
	
	  	
	

	 I. Net income before minority interest
	  	2,446	 	  	2,456	 
	 	  	
	
	  	
	

	 Minority interest
	  	(93	)	  	(114	)
	 	  	
	
	  	
	

	 L. Net income (parent company’s interest)
	  	2,353	 	  	2,342	 
	 	  	
	
	  	
	

	(*)	Reduced by related cost recoveries. 

  

	(**)	Includes value adjustments to financial assets other than equity investments. 

  
 Notes to the reclassified consolidated income statements for financial years 2004 and 2003 
  
 RESULTS OF OPERATIONS 
  
 The consolidated net income of the Tim Group for 2004 was €2,446 million, of which €93 million was attributable to minority
interests, resulting in net income of €2,353 million. 
  
 In 2003 the Tim
Group had net income before minority interest of €2,456 million, of which €114 million was attributable to minority interests. 
  
 Net income for 2003 reflected the combined effects of the reversal of the liabilities and reserves established for the telecommunication license fee of €543 million
and writedowns and provisions of €191 million in relation to Digitel, resulting in a positive after-tax contribution of €348 million. 
  

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 Excluding extraordinary items, as described in the notes to the balance of extraordinary income and expense, and the
related tax effect (for a total of €62 million), net income before minority interest for 2004 amounted to €2,237 million (€2,144 million after minority interest). 
  
 Excluding extraordinary items, net income before and after minority interests for the period increased by 6.1% and 7.5%, respectively.

  
 More specifically: 
  
 Sales and service revenues for 2004 amounted to €12,900 million, an increase of 9.5%
from the comparable figure for 2003 (€11,782 million). Excluding the negative effect of changes in the exchange rates on Latin American subsidiaries, organic growth would have been 10.9%. 
  
 International activities contributed €2,995 million, a 27.4% increase due mainly to the
performance of TIM Brasil, which had consolidated revenues of €1,818 million, an increase of 43% compared to 2003 (49.9% at constant exchange rates). 
  
 Gross operating profit for 2004 amounted to €6,052 million (€5,502 in 2003), a 10% increase over the comparable figure for the preceding year. Excluding the
effect of changes in the exchange rates, gross operating profit rose by 10.7%. Such growth was due both to the positive performance of existing activities and to the progressive reduction of the negative impact of start-up costs of the GSM service
in Brazil. 
  
 Gross operating margin was 46.9% in 2004 (46.7% in 2003).

  
 More specifically, gross operating profit was affected by: 
  

	 	•	 	the cost of raw materials and outside services, amounting to €6,228 million, an increase of €568 million (or 10%) from the comparable figure for 2003. This increase was
mainly due to the start-up of the GSM service in Brazil and the higher costs associated with growing business volumes. Raw materials and outside services amounted to 48.3% of total revenues in 2004 (48% in 2003); 

  

	 	•	 	labor costs, totaling €663 million, increased by €41 million, or 6.6%, compared with the previous year. This item amounted to 5.1% of revenues in 2004, compared with 5.3%
in 2003. At 31 December 2004, staff numbered 20,361 (18,888 at 31 December 2003). 

  
 Amortization and depreciation for 2004 amounted to €1,809 million (€1,542 million in 2003), as shown in the table below: 
  

								
	 (millions of euro)

	  	2004

	  	2003

	  	Change
in
absolute
terms

	 
	 Intangible assets
	  	847	  	596	  	251	 
	 of which goodwill arising on consolidation differences
	  	93	  	99	  	(6	)
	 Fixed assets
	  	962	  	946	  	16	 
	 Total amortization and depreciation
	  	1,809	  	1,542	  	267	 

  
 In January 2004 Tim S.p.A. began
amortizing its UMTS license (included in intangible assets), previously amortized only for tax purposes in Telecom Italia’s financial statements. Amortization for the year amounted to €134 million. 
  
 Writedowns in financial year 2004 amounted to €68 million and mainly related to
adjustments to bring accounts receivable into line with their expected realizable value. In particular, they referred to: 
  

	 	•	 	TIM S.p.A. (€42 million); 

  

	 	•	 	TIM Brasil Group (€19 million); 

  

	 	•	 	TIM Hellas (€5 million); 

  

	 	•	 	TIM Perù (€1 million). 

  
 Provisions added to the reserves for risks and charges amounted to €15 million in 2004, a decrease of €6 million compared to the previous year. They referred
mainly to €7 million set aside by TIM Hellas, €5 million by the TIM Brasil Group and €3 million by TIM S.p.A. 
  

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 Other expense exceeded other income by €87 million in 2004 (€15 million in 2003). This change was due mainly to
an increase of €40 million in receivables written off by the Brazilian subsidiaries TIM Participaçoes, TIM Celular and Maxitel, as a result of refining and standardizing the accounting treatment of the allowances for bad debts and of the
payment of higher indirect taxes (up €20 million), particularly by the TIM Brasil Group. 
  
 Operating income for 2004 amounted to €4,073 million (€3,786 million in 2003), a 7.6% increase. The organic growth rate compared with 2003 was 7.5%. 
  
 The operating margin was 31.6% in 2004 (32.1% in the previous year), reflecting, in addition
to the impact of the amortization of the UMTS license of €134 million, or 1% of revenues, the inherent increase in depreciation associated with the development of technical and service infrastructures, particularly the GSM network in Brazil.

  
 The table below shows the details of financial and investment income and
expense: 
  

										
	 (millions of euro)

	  	2004

	 	 	2003

	 	 	Change
in
absolute
terms

	 
	 Financial income
	  	196	 	 	290	 	 	(94	)
	 Financial expense
	  	(207	)	 	(282	)	 	75	 
	 Investment income (expense), net
	  	(1	)	 	(4	)	 	3	 
	 	  	
	
	 	
	
	 	
	

	 Total
	  	(12	)	 	4	 	 	(16	)
	 	  	
	
	 	
	
	 	
	

  
 The deterioration of the balance of
financial income and expense reflected mainly the impact of the time lag between the effect of inflation accounting and the exchange rate differences recorded by Digitel, partially offset by the improvement in TIM S.p.A.’s investment income.

  
 Financial income decreased principally as a result of Digitel’s decrease
in revenue attributable to exchange rate differences (down €35 million), reduced interest income (down €31 million), and lower income on foreign exchange transactions (down €7 million) and hedging contracts (down €4 million).

  
 Financial expense decreased mainly due to lower expenses on hedging contracts
(down €39 million) and lower interest expenses (down €52 million), partially offset by an increase in foreign exchange expenses (up €31 million). 
  

Income before extraordinary items and taxes amounted to €4,061 million in 2004 (€3,790 million in 2003), an increase of 7.2%. 
  
 Extraordinary income exceeded extraordinary expense by €241 million in 2004. This amount
included extraordinary income related mainly to the release of the reserve for risk and charges established for the Brazilian subsidiary TIM Celular (€109 million) and to the repayment to TIM S.p.A. of the first annual instalment (paid in 2000)
of the telecommunication contribution (under Article 20 of Law 448/1998) plus legal interest accrued thereon (€210 million). On the other hand, Tim S.p.A. incurred extraordinary expenses of €41 million (including €23 million related
to corporate reorganization and €18 million for restructuring costs) and wrote off €7 million of Blah!’s goodwill in light of this company’s downsizing. Other extraordinary expenses for the Group amounted to €30 million.

  
 The €176 million decrease from the previous year’s positive balance
of €417 million was due mainly to last year’s reversal of the liability and reserves established for the telecommunication contribution in 2000-2002 and reported at year-end 2002 (€543 million), which was partly offset by the
€191 million in writedowns and provisions in relation to Digitel. 
  
 Income
taxes for 2004, amounting to €1,856 million, increased by €105 million compared to 2003, mainly as a result of TIM S.p.A.’s higher taxable income. 
  

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4.1.2  TIM Group’s reclassified consolidated financial statements at 31 December 2004 and 2003 with explanatory notes 
  

							
	 Consolidated balance sheet
 (millions of euro)

	  	At 31 December 2004

	 	 	At 31 December 2003

	 
	 A. Intangibles, fixed assets and long-term investments
	  	9,862	 	 	9,276	 
	 Intangible assets
	  	 	 	 	 	 
	 -        differences on consolidation
	  	671	 	 	734	 
	 -        other intangible assets
	  	4,785	 	 	4,516	 
	 Fixed assets
	  	4,354	 	 	3,908	 
	 Long-term investments:
	  	 	 	 	 	 
	 -        equity investments and advances on future capital contributions
	  	11	 	 	12	 
	 -        other
	  	41	 	 	106	 
	 	  	
	
	 	
	

	 B. Working capital
	  	(1,932	)	 	(2,407	)
	 Inventories
	  	89	 	 	97	 
	 Trade accounts receivable, net
	  	1,941	 	 	1,731	 
	 Other assets
	  	1,352	 	 	758	 
	 Trade accounts payable
	  	(3,734	)	 	(2,713	)
	 Other liabilities
	  	(1,332	)	 	(1,941	)
	 Reserve for employee termination indemnities and pensions and similar obligations
	  	(111	)	 	(95	)
	 Deferred tax assets, net of the reserve for income taxes
	  	587	 	 	1,020	 
	 Other reserves for risks and charges
	  	(718	)	 	(1,256	)
	 Capital and/or investment grants
	  	(6	)	 	(8	)
	 	  	
	
	 	
	

	 C. Net invested capital (A+B)
	  	7,930	 	 	6,869	 
	 	  	
	
	 	
	

	 Financed by:
	  	 	 	 	 	 
	 D. Shareholders’ equity:
	  	8,247	 	 	7,803	 
	 •       Parent company’s interest
	  	7,660	 	 	7,295	 
	 •       Minority interests
	  	587	 	 	508	 
	 E. Medium/long-term debt
	  	385	 	 	585	 
	 F. Net short-term financial borrowings (liquidity)
	  	(702	)	 	(1,519	)
	 Short-term borrowings
	  	259	 	 	257	 
	 Liquid assets and short-term financial receivables
	  	(974	)	 	(1,778	)
	 Financial accrued expenses (income), prepaid expenses and deferred income, net
	  	13	 	 	2	 
	 Total net financial debt (liquidity) (E+F)
	  	(317	)	 	(934	)
	 	  	
	
	 	
	

	 G. Total net financing (D+E+F)=C
	  	7,930	 	 	6,869	 
	 	  	
	
	 	
	

  
 Explanatory notes to the TIM
Group’s reclassified consolidated balance sheets at 31 December 2004 and 2003 
  
 FINANCIAL STRUCTURE AND CASH FLOW 
  
 Intangibles, fixed assets and long-term investments at year-end 2004, amounting to €9,862 million, increased by €586 million compared to year-end 2003. 
  
 Details are as follows: 
  

	 	•	 	Intangible assets amounted to €5,456 million at year-end 2004 (€5,250 million at 31 December 2003). The increase was due mainly to investments totaling €964 million,
amortization of €847 million and €10 million of translation differences determined by adverse changes in exchange rates. 

  

	 	•	 	Fixed assets totaled €4,354 million at year-end 2004 (€3,908 million at 31 December 2003). The increase was due principally to investments totaling €1,621 million,
amortization totaling €962 million and the negative effect of translation differences amounting to €15 million; 

  

	 	•	 	 Long-term investments amounted to €52 million at year-end 2004 (€118 million at 31 December 2003). The reduction was due mainly to the repayment of part
of the financial receivable from Telecom Italia Finance. As described more extensively in the notes to the Group’s financial statements, the carrying value of the equity investment in Avea (formerly TT&TIM) has been written off, while the
receivable 

  

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from Is-TIM, which had also been written off, have been converted into shares of Is-TIM as part of the merger with Aycell. Furthermore, at 31 December 2004,
the book value of the equity investment in Avea was kept at zero since, in the case of non-cash contributions to a joint venture, International Accounting Standards (IAS 31 and its interpretations) require transactions to be reported at pre-existing
book values. 

  
 Investments totaled €2,602 million in 2004
(€2,017 million in 2003). The table below provides a breakdown: 
  

								
	 (millions of euro)

	  	2004

	  	2003

	  	 Change in
 absolute
 terms

	 
	 Industrial investments
	  	2,490	  	1,957	  	533	 
	 Differences on consolidation
	  	95	  	7	  	88	 
	 Financial investments
	  	17	  	53	  	(36	)
	 	  	
	  	
	  	
	

	 Total investments
	  	2,602	  	2,017	  	585	 
	 	  	
	  	
	  	
	

  
 In 2004, industrial investments
focused on the technology necessary to expand the network and to develop platforms to support the offering of innovative services, mainly in Italy (€1,469 million) and Brazil (€819 million, in particular for the rollout of the GSM
network). 
  
 Working capital was a negative €1,932 million (compared with a
negative €2,407 million at 31 December 2003). 
  
 The €475 million
improvement from a year earlier was mainly due to the following: 
  

	 	•	 	the increase of €210 million in accounts receivable, which was attributable mainly to the companies of the TIM Brasil Group (TIM Celular €99 million, TIM
Participaçoes €47 million, Maxitel €20 million), to Tim S.p.A. (€30 million) and to TIM Hellas (€12 million), primarily as a result of the launch of new services and higher revenues, particularly in Brazil;

  

	 	•	 	the increase of €1,021 million in trade accounts payable, from €2,713 million at the end of 2003 to €3,734 million at the end of 2004, which was attributable mainly
to Tim S.p.A. (€602 million) and the TIM Brasil Group (€427 million); 

  

	 	•	 	the decrease of €609 million in other liabilities, attributable mainly to Tim S.p.A.; 

  

	 	•	 	the decrease of €433 million in deferred tax assets, net of the reserve for income taxes, attributable to Tim S.p.A.; 

  

	 	•	 	the decrease of €538 million in the reserve for risks and charges, attributable mainly to Tim S.p.A. (€316 million) as a result of the use of the reserve for technological
upgrading, to Tim International (€83 million) and to the release of the reserve for risks established for the Brazilian subsidiary TIM Celular (€109 million). 

  
 Shareholders’ equity amounted to €8,247 million at year-end 2004 (€7,803 million at year-end 2003), of which €7,660
million was attributable to Tim (€7,295 million at 31 December 2003) and €587 million to minority interests (€508 million at 31 December 2003). 
  

							
	 (millions of euro)

	  	2004

	 	 	2003

	 
	 At beginning of year
	  	7,803	 	 	5,779	 
	 Net income attributable to the parent company and minority interests
	  	2,446	 	 	2,456	 
	 Dividends and reserves distributed to minority interests paid by:
	  	(2,222	)	 	(429	)
	 Tim S.p.A.
	  	(2,200	)	 	(410	)
	 Other (Tele Nordeste Celular, Tele Celular Sul, TIM Hellas)
	  	(22	)	 	(19	)
	 Shareholders’ contributions
	  	157	 	 	0	 
	 Net translation adjustments and other changes
	  	63	 	 	(3	)
	 	  	
	
	 	
	

	 At end of year
	  	8,247	 	 	7,803	 
	 	  	
	
	 	
	

  
 The increase in shareholders’
equity, net of dividend payments amounting to €2,222 million, was due mainly to the net income for 2004 and the management’s subscription of new shares under stock option plans. 
  
 At 31 December 2004, the Tim Group had a positive financial position of €317 million. This represented a decrease of €617 million
compared to 31 December 2003, primarily due to the impact of the dividend payments, which were partially compensated by the significant cash flows for the year. 
  

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 The table below summarizes the composition of gross
financial debt (which does not include short-term financial accruals, prepayments and deferrals of €13 million): 
  

																	
	 (millions of euro)

	  	At 31.12.2004

	  	At 31.12.2003

	  	Euro

	  	%

	  	Foreign
currency

	  	%

	  	Total

	  	%

	  	Total

	  	%

	 Medium/long-term debt
	  	194	  	82	  	191	  	47	  	385	  	60	  	585	  	69
	 Short-term financial borrowings
	  	42	  	18	  	217	  	53	  	259	  	40	  	257	  	31
	 	  	
	  	
	  	
	  	
	  	
	  	
	  	
	  	

	 Total
	  	236	  	100	  	408	  	100	  	644	  	100	  	842	  	100
	 	  	
	  	
	  	
	  	
	  	
	  	
	  	
	  	

  

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4.1.3  Tim Group’s cash flow for financial years 2004 and 2003 and net financial position at 31 December 2004 and 2003 
  

										
	 Consolidated statement of cash flow
 (millions of euro)

	 	 	 	 	2004

	 	 	2003

	 
	 A. Net financial debt (liquidity), at beginning of year
	  
	 	934	 	 	(1,922	)
	 Operating income
	  
	 	4,073	 	 	3,786	 
	 Depreciation of fixed assets and amortization of intangible assets
	  
	 	1,809	 	 	1,542	 
	 Investments in fixed assets and intangible assets
	  
	 	(2,490	)	 	(1,957	)
	 Proceeds from disposal of intangible assets and fixed assets
	  
	 	8	 	 	6	 
	 Change in operating working capital and other changes
	  
	 	574	 	 	369	 
	 B. Free cash flow from operations
	  
	 	3,974	 	 	3,746	 
	 Investments in long-term investments and differences on consolidation
	  
	 	(112	)	 	(60	)
	 Proceeds from sale/redemption value of other intangible assets, fixed assets and
long-term investments
	   
	 	64	 	 	58	 
	 Change in non-operating working capital and other changes
	  
	 	(2,478	)	 	(459	)
	 C.
	  
	 	(2,526	)	 	(461	)
	 D. Net cash flows before distribution of income/reserves and contributions by shareholders
	 	(B+C	)	 	1,448	 	 	3,285	 
	 E. Distribution of income/reserves
	  
	 	(2,222	)	 	(429	)
	 F. Contributions by shareholders
	  
	 	157	 	 	—	 
	 G. Net change in net financial debt
	 	(D+E+F	)	 	(617	)	 	2,856	 
	 H. Net financial debt (liquidity) at end of year
	 	(A+G	)	 	317	 	 	934	 

  
 Free cash flow from operations
amounted to €3,974 million in 2004, an increase of €228 million from 2003 (€3,746 million). It was equal to 30.8% of revenues. 
  
 
4.2  Auditors’ opinion on the consolidated financial statements for 2004 and 2003 
  
 The comparative data shown in the tables in Section 4.1 of this Information Document have been derived from the Tim Group’s consolidated financial statements for the
years ended 31 December 2004 and 31 December 2003, which were audited by Reconta Ernst & Young S.p.A. 
  
 Reconta Ernst & Young S.p.A. rendered an unqualified opinion on the Tim Group’s consolidated financial statements for the years ended 31 December 2004 and 31 December 2003. 
  

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5.  PRO FORMA FINANCIAL DATA OF THE ABSORBING COMPANY 
  
 Introduction 
  
 This Section contains the
pro forma consolidated reclassified financial data as of and for the year ended 31 December 2004 of the Absorbing Company which give retroactive effect to the Merger described in the merger plan approved by the Boards of Directors of Tim and
Telecom Italia on 23 January 2005, reported in summary in Section 2 and attached to this Information Document as Annex I. 
  
 The pro forma consolidated reclassified financial data as of and for the year ended 31 December 2004 were prepared by making appropriate pro forma adjustments to the
historical consolidated financial statements of Telecom Italia, to give effect to the Merger transaction, as outlined below. 
  
 The consolidated financial statements of Telecom Italia as of and for the year ended 31 December 2004 and the consolidated financial statements of Tim as of and for the
year ended 31 December 2004 were audited by Reconta Ernst & Young S.p.A., which issued its audit reports on 16 March 2005. 
  
 The pro forma consolidated reclassified financial data follow the schemes adopted by Telecom Italia and Tim for the presentations of their consolidated financial data.

  
 The pro forma consolidated reclassified financial data have been obtained on
the basis of: 
  

	i.	the historical consolidated financial data of Telecom Italia which include also the historical consolidated financial data of Tim; 

  

	ii.	the pro forma adjustments reflecting the Tender Offer, the Merger and the related transactions envisaged to complete the Merger. 

  
 The pro forma consolidated reclassified financial data were prepared by making appropriate
pro forma adjustments to the historical consolidated financial data, to give retroactive effect to the significant aspects of the Merger transaction. In detail, in accordance with Consob Communication No. DEM/1052803 of 5 July 2001, the effects of
the Merger have been shown retroactively in the pro forma consolidated balance sheet as if the Merger had taken place on 31 December 2004 and in the pro forma consolidated income statement as if it had taken place on 1 January 2004. 
  
 The pro forma adjustments made to the consolidated historical financial statements and the
scope and assumptions upon which they are based are described in detail in this Section, in paragraphs 5.1.1, 5.1.2 and 5.1.3. 
  
 With respect to the accounting policies adopted by Telecom Italia and Tim in preparing their historical consolidated financial statements, reference is made to the notes
to the respective consolidated financial statements as of and for the year ended 31 December 2004. It should be noted that such financial statements are prepared in accordance with Legislative Decree 9 April 1991, No. 127 which introduced in Italy
the VII EEC Directive with respect to the consolidated financial statements and in accordance with the rules of the Civil Code for the preparation of statutory financial statements, modified by Legislative Decree 17 January 2003, No. 6 and
subsequent amendments, where applicable for analogy or specifically related to the consolidated financial statements (“Italian GAAP”), which differ from the international accounting principles IAS/IFRS. 
  
 Telecom Italia will prepare its consolidated financial statements as of and for the year
ending 31 December 2005 in accordance with IAS/IFRS. At completion of the Merger, such transaction will then be accounted for, in the consolidated financial statements as of and for the year ending 31 December 2005, in accordance with the
international accounting principles, as described in Section 2. 
  
 Reconta Ernst
& Young S.p.A. examined the pro forma consolidated reclassified financial data as of and for the year ended 31 December 2004 in accordance with the criteria recommended by CONSOB in its Recommendation No. DEM/1061609 of 9 August 2001 for the
examination of the pro forma consolidated financial data and issued the report on the reasonableness of the assumptions and of the methodology adopted for the preparation of the pro forma consolidated financial data. The independent auditors’
examination report on the pro forma consolidated financial data at 31 December 2004, issued on 23 March 2005, is attached as Annex XVI to this Information Document. 
  

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 In order to interpret the pro forma data correctly, it is necessary to bear the following in mind: 
  

	i)	since the pro forma data are prepared based on assumptions, if the Merger had taken place at the dates referred to for the purpose of preparing the pro forma consolidated financial
data, instead of the date at which it will actually take place, the results that are presented therein would not be necessarily obtained; 

  

	ii)	the pro forma data do not reflect forecast data since they are prepared to represent only the effects of the Tender Offer and of the Merger that can be identified and measured,
without considering the potential impact of changes in management policies and operational decisions made as a consequence of the Merger. 

  
 Further, in view of the difference between the scopes of pro forma and historical financial statements and the fact that the effects of the Merger are calculated
differently for the balance sheet and the income statement, the two pro forma statements need to be read and examined separately, without attempting to establish accounting relationships between them. 
  

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5.1  Pro forma consolidated balance sheet at 31 December 2004 and pro forma consolidated income statement for the year ended 31 December 2004 
  
 Pro forma consolidated balance sheet at 31 December 2004 of the Telecom Italia Group 
  

																												
	 	  	 	  	 	 	 	 	 	 	Adjustments

	 	 	 	 
	 	  	 (Euro million)

	  	 	 	 	Historical
data

	 	 	Tender
Offer

	  	 Put/Call
options
 on Tim
shares

	  	Consolidation of
Tim shares from
tender offer and
Put/Call options

	 	 	Tim dividend
distribution
to third parties

	 	 	 Cancellation
of Tim
 treasury shares

	 	 	Merger
effect

	 	 	Pro forma
data

	 
	 A
	  	 INTANGIBLES, FIXED ASSETS AND LONG-TERM INVESTMENTS
	  	 	 	 	 	 	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	  	 Intangible assets:
	  	 	 	 	 	 	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	  	 – Differences on consolidation
	  	 	 	 	25,637	 	 	 	  	 	  	12,062	 	 	 	 	 	 	 	 	 	 	 	37,699	 
	 	  	 – Other intangible assets
	  	 	 	 	7,237	 	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	7,237	 
	 	  	 Fixed assets
	  	 	 	 	17,717	 	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	17,717	 
	 	  	 Long-term investments:
	  	 	 	 	 	 	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	  	 – Equity Investments and advances on future capital contributions
	  	 	 	 	1,064	 	 	13,804	  	351	  	(14,155	)	 	 	 	 	 	 	 	 	 	 	1,064	 
	 	  	 – Other
	  	 	 	 	802	 	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	802	 
	 	  	 	  	 	 	 	
	
	 	
	  	
	  	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 	  	 	  	 	 	 	52,457	 	 	13,804	  	351	  	(2,093	)	 	 	 	 	 	 	 	 	 	 	64,519	 
	 	  	 	  	 	 	 	
	
	 	
	  	
	  	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 B
	  	 WORKING CAPITAL
	  	 	 	 	 	 	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	  	 Inventories
	  	 	 	 	435	 	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	435	 
	 	  	 Trade accounts receivable, net
	  	 	 	 	6,666	 	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	6,666	 
	 	  	 Other assets
	  	 	 	 	2,646	 	 	 	  	 	  	 	 	 	 	 	 	(5	)	 	 	 	 	2,641	 
	 	  	 Trade accounts payable
	  	 	 	 	(7,057	)	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	(7,057	)
	 	  	 Other liabilities
	  	 	 	 	(5,436	)	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	(5,436	)
	 	  	 Reserves for employee termination indemnities and pensions and similar obligations
	  	 	 	 	(1,364	)	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	(1,364	)
	 	  	 Capital and/or investment grants
	  	 	 	 	(209	)	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	(209	)
	 	  	 Deferred tax assets net of reserve for income taxes
	  	 	 	 	3,246	 	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	3,246	 
	 	  	 Other reserves for risks and charges
	  	 	 	 	(1,998	)	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	(1,998	)
	 	  	 	  	 	 	 	
	
	 	
	  	
	  	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 	  	 	  	 	 	 	(3,071	)	 	 	  	 	  	 	 	 	 	 	 	(5	)	 	 	 	 	(3,076	)
	 	  	 	  	 	 	 	
	
	 	
	  	
	  	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 C
	  	 NET INVESTED CAPITAL
	  	(A+B	)	 	49,386	 	 	13,804	  	351	  	(2,093	)	 	 	 	 	(5	)	 	 	 	 	61,443	 
	 	  	 	  	 	 	 	
	
	 	
	  	
	  	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 	  	 Financed by:
	  	 	 	 	 	 	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 D
	  	 SHAREHOLDERS’ EQUITY
	  	 	 	 	 	 	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	  	 Parent Company’s interest
	  	 	 	 	15,172	 	 	 	  	 	  	 	 	 	 	 	 	(3	)	 	718	 	 	15,887	 
	 	  	 Minority interest
	  	 	 	 	4,689	 	 	 	  	 	  	(2,093	)	 	(376	)	 	(2	)	 	(718	)	 	1,500	 
	 	  	 	  	 	 	 	
	
	 	
	  	
	  	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 	  	 	  	 	 	 	19,861	 	 	 	  	 	  	(2,093	)	 	(376	)	 	(5	)	 	—	 	 	17,387	 
	 	  	 	  	 	 	 	
	
	 	
	  	
	  	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 E
	  	 MEDIUM/LONG-TERM DEBT
	  	 	 	 	36,535	 	 	9,000	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	45,535	 
	 	  	 	  	 	 	 	
	
	 	
	  	
	  	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 F
	  	 NET SHORT-TERM FINANCIAL BORROWINGS (LIQUIDITY)
	  	 	 	 	 	 	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	  	 Short-term borrowings
	  	 	 	 	2,027	 	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	2,027	 
	 	  	 Liquid assets and short-term financial receivables
	  	 	 	 	(9,878	)	 	4,804	  	351	  	 	 	 	376	 	 	 	 	 	 	 	 	(4,347	)
	 	  	 Financial accrued expenses (income), prepaid expenses and deferred income, net
	  	 	 	 	841	 	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	841	 
	 	  	 	  	 	 	 	
	
	 	
	  	
	  	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 	  	 	  	 	 	 	(7,010	)	 	4,804	  	351	  	 	 	 	376	 	 	 	 	 	 	 	 	(1,479	)
	 	  	 	  	 	 	 	
	
	 	
	  	
	  	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 G
	  	 TOTAL NET FINANCIAL DEBT
	  	(E+F	)	 	29,525	 	 	13,804	  	351	  	 	 	 	376	 	 	 	 	 	 	 	 	44,056	 
	 	  	 	  	 	 	 	
	
	 	
	  	
	  	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 H
	  	 TOTAL NET FINANCING
	  	(D+G	)	 	49,386	 	 	13,804	  	351	  	(2,093	)	 	—	 	 	(5	)	 	 	 	 	61,443	 
	 	  	 	  	 	 	 	
	
	 	
	  	
	  	
	
	 	
	
	 	
	
	 	
	
	 	
	

  

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 Pro forma consolidated income statement for the year ended 31 December 2004 of the Telecom Italia Group

  

																				
	 	  	 	  	 	 	 	Adjustments

	  	Pro
forma
data

	 
	 	  	 (Euro million)

	  	Historical
data

	 	 	 Tender
 Offer

	 	 	 Put/Call options
 on Tim shares

	 	 	Amortization of
differences
on consolidation

	 	 	 Minority
 interest

	  
	 A
	  	 SALES AND SERVICE REVENUES
	  	31,237	 	 	 	 	 	 	 	 	 	 	 	 	  	31,237	 
	 	  	 Change in inventories of work in process, semi-finished and finished goods
	  	(6	)	 	 	 	 	 	 	 	 	 	 	 	  	(6	)
	 	  	 Change in inventory of contract work in progress
	  	(6	)	 	 	 	 	 	 	 	 	 	 	 	  	(6	)
	 	  	 Increases in capitalized internal construction costs
	  	742	 	 	 	 	 	 	 	 	 	 	 	 	  	742	 
	 	  	 Operating grants
	  	12	 	 	 	 	 	 	 	 	 	 	 	 	  	12	 
	 	  	 	  	
	
	 	
	
	 	
	
	 	
	
	 	
	  	
	

	 B
	  	 STANDARD PRODUCTION VALUE
	  	31,979	 	 	 	 	 	 	 	 	 	 	 	 	  	31,979	 
	 	  	 Raw materials and outside services(1)
	  	(13,414	)	 	 	 	 	 	 	 	 	 	 	 	  	(13,414	)
	 	  	 	  	
	
	 	
	
	 	
	
	 	
	
	 	
	  	
	

	 C
	  	 VALUE ADDED
	  	18,565	 	 	 	 	 	 	 	 	 	 	 	 	  	18,565	 
	 	  	 Labour cost(1)
	  	(4,037	)	 	 	 	 	 	 	 	 	 	 	 	  	(4,037	)
	 	  	 	  	
	
	 	
	
	 	
	
	 	
	
	 	
	  	
	

	 D
	  	 GROSS OPERATING PROFIT
	  	14,528	 	 	 	 	 	 	 	 	 	 	 	 	  	14,528	 
	 	  	 Amortization of other intangibles and depreciation of fixed assets
	  	(5,092	)	 	 	 	 	 	 	 	 	 	 	 	  	(5,092	)
	 	  	 Other valuations adjustments
	  	(280	)	 	 	 	 	 	 	 	 	 	 	 	  	(280	)
	 	  	 Provision to reserves for risks and charges
	  	(81	)	 	 	 	 	 	 	 	 	 	 	 	  	(81	)
	 	  	 Net other income (expenses)
	  	(321	)	 	 	 	 	 	 	 	 	 	 	 	  	(321	)
	 	  	 	  	
	
	 	
	
	 	
	
	 	
	
	 	
	  	
	

	 E
	  	 OPERATING INCOME BEFORE AMORTIZATION OF DIFFERENCES ON CONSOLIDATION
	  	8,754	 	 	 	 	 	 	 	 	 	 	 	 	  	8,754	 
	 	  	 Amortization of differences on consolidation
	  	(1,554	)	 	 	 	 	 	 	 	(635	)	 	 	  	(2,189	)
	 	  	 	  	
	
	 	
	
	 	
	
	 	
	
	 	
	  	
	

	 F
	  	 OPERATING INCOME
	  	7,200	 	 	 	 	 	 	 	 	(635	)	 	 	  	6,565	 
	 	  	 Net financial income (expenses)(2)
	  	(1,952	)	 	(401	)	 	(7	)	 	 	 	 	 	  	(2,360	)
	 	  	 Net investment income (expenses)
	  	118	 	 	 	 	 	 	 	 	 	 	 	 	  	118	 
	 	  	 	  	
	
	 	
	
	 	
	
	 	
	
	 	
	  	
	

	 G
	  	 INCOME BEFORE EXTRAORDINARY ITEMS AND INCOME TAXES
	  	5,366	 	 	(401	)	 	(7	)	 	(635	)	 	 	  	4,323	 
	 	  	 Net extraordinary income (expenses)
	  	(410	)	 	 	 	 	 	 	 	 	 	 	 	  	(410	)
	 	  	 	  	
	
	 	
	
	 	
	
	 	
	
	 	
	  	
	

	 H
	  	 INCOME BEFORE INCOME TAXES
	  	4,956	 	 	(401	)	 	(7	)	 	(635	)	 	 	  	3,913	 
	 	  	 Income taxes
	  	(3,054	)	 	132	 	 	3	 	 	 	 	 	 	  	(2,919	)
	 	  	 	  	
	
	 	
	
	 	
	
	 	
	
	 	
	  	
	

	 I
	  	 NET INCOME BEFORE MINORITY INTEREST
	  	1,902	 	 	(269	)	 	(4	)	 	(635	)	 	 	  	994	 
	 	  	 Minority interest
	  	(1,121	)	 	 	 	 	 	 	 	 	 	 	1,101	  	(20	)
	 	  	 	  	
	
	 	
	
	 	
	
	 	
	
	 	
	  	
	

	 L
	  	 NET INCOME (PARENT COMPANY’S INTEREST)
	  	781	 	 	(269	)	 	(4	)	 	(635	)	 	1,101	  	974	 
	 	  	 	  	
	
	 	
	
	 	
	
	 	
	
	 	
	  	
	

	(1)	Reduced by related cost recoveries. 

  

	(2)	Includes value adjustments to financial assets, other than equity investments. 

  

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5.1.1  Description of the pro forma adjustments to the historical consolidated reclassifed data as of 31 December 2004 and for the year ended 31 December 2004 
  
 Pro forma adjustments to the historical consolidated reclassified balance sheet data as
of 31 December 2004: 
  

	1.	the column “Tender Offer” represents the disbursement of Euro 13,804 million, initially through the utilization of the Financing for Euro 11,300 million (of which Euro
2,300 million early reimbursed), and through the utilization of a portion of the liquidity of Telecom Italia, for Euro 2,504 million; 

  

	2.	the column “Put/Call options on Tim shares” represents the disbursement of Euro 351 million for the purchase of Tim ordinary and savings shares at the price of Euro 5.57,
through the utilization of a portion of the liquidity of Telecom Italia; 

  

	3.	the column “Consolidation of Tim shares from Tender Offer and Put/Call options” represents the consolidation of Tim shares acquired through the Tender Offer and the
exercise of the put and call options which determines an increase of the line item “Differences on consolidation” of Euro 12,062 million; 

  

	4.	the column “Tim dividend distribution to third parties” represents the portion of the estimated dividend on the net result of Tim for the year 2004 to be paid to third
parties (parties resulting different from the companies belonging to the Telecom Italia Group) after the completion of the Tender Offer and the exercise of the call and put options; 

  

	5.	the column “Cancellation of Tim treasury shares”; 

  

	6.	the column “Merger effect” represents the effect of the Merger, resulting in a decrease in minority interest, following the exchange of shares owned by the residual Tim
minority shareholders. 

  
 Pro forma adjustments to the
historical consolidated reclassified income statement data for the year ended 31 December 2004: 
  

	1.	the column “Tender Offer” reports the financial expenses deriving from the utilization of the Financing, in addition to the lower financial income deriving from the
utilization of a portion of the liquidity of Telecom Italia as if such utilization started on 1 January 2004; such net financial expenses, equal to Euro 401 million, include the costs for the availability of the Financing for an amount of Euro 24
million; 

  

	2.	the column “Put/Call options on Tim shares” reports the lower financial income deriving from the utilization of a portion of the liquidity of Telecom Italia, equal to Euro
7 million, as if such utilization started on 1 January 2004; 

  

	3.	the column “Amortization of differences on consolidation” represents the amortization of the differences on consolidation arising from the Tender Offer and the exercise of
the put and call options on the Tim shares for Euro 635 million. Amortization is computed over a period of 19 years, corresponding to estimated residual useful life of the differences on consolidation accounted for with respect to the merger
Olivetti – Telecom Italia; 

  

	4.	the column “Minority interest” represents the effect of the Merger on minority interest, equal to a decrease in minority interest of Euro 1,101 million.

  
 
5.1.2  Purpose of the presentation of the pro forma consolidated reclassified financial data 
  
 The purpose of the presentation of the pro forma consolidated reclassified financial data is to give retroactive effect to the significant aspects of the Merger
transaction and to the accessory transactions, by making appropriate pro forma adjustments to the historical consolidated financial data. In detail, the effects of the Merger have been shown retroactively in the pro forma consolidated balance sheet
as if the Merger had taken place on 31 December 2004 and in the pro forma consolidated income statement as if it had taken place on 1 January 2004. 
  
 
5.1.3  Assumptions for the preparation of the pro forma consolidated financial data 
  
 Tender Offer 
  
 The Tender Offer, which commenced on 3 January 2005 and was completed on 21 January 2005, represented the first stage of the Group’s reorganization program and must be considered connected with and functional to
the Merger. 
  
 At the end of the Tender Offer acceptance period and following the
proration of the Tim ordinary shares tendered, Telecom Italia acquired No. 2,456,501,605 Tim ordinary shares and, accordingly, owns No. 7,190,583,124 Tim 

  

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ordinary shares, representing approximately 84.8% of total ordinary shares and approximately 83.539% of total share capital of Tim; in addition, Telecom
Italia owns No. 8,463,127 Tim savings shares, representing approximately 6.4% of total savings shares and approximately 0.098% of total share capital of Tim. 
  
 On the basis of the results of the Tender Offer, the total cash disbursement of Telecom Italia for the purchase of the Tim shares amounted to approximately Euro 13.8
billion. This disbursement has been made utilizing, for Euro 2.5 billion, a portion of the liquidity of Telecom Italia and, for Euro 11.3 billion, the Financing. Following the early repayment of the first tranche of the Financing (and in turn, its
full cancellation) for Euro 2.3 billion, the portion of the Financing to be reimbursed is equal to Euro 9 billion. Further details are provided for in paragraph 2.1(b). 
  
 The Tender Offer has been settled on 28 January 2005. 
  
 Summary of the Merger transaction 
  
 As summarised in Section 2 and described in the reports of the Boards of Directors of Telecom Italia and Tim of 23 January 2005 (attached to this Information Document as
Annexes II and III), under the proposed Merger transaction Tim will be incorporated into Telecom Italia, pursuant to articles 2501 and following of the Civil Code; prior to the Merger, Tim spun-off its mobile communications business in Italy. For
further details see paragraph 2.1(c). 
  
 The Merger will result in the
cancellation without exchange of the Tim ordinary and savings shares held by Telecom Italia at the effective date of the Merger and the assignment to holders of Tim ordinary and savings shares other than Telecom Italia of ordinary and savings shares
issued by the Absorbing Company. Such assignment will be based on the exchange ratios described in paragraph 2.1.2(c) equal, respectively, to No. 1.73 Telecom Italia ordinary share, par value Euro 0.55, for each Tim ordinary share, par value Euro
0.06, and to No. 2.36 Telecom Italia savings shares, par value Euro 0.55, for each Tim savings share, par value Euro 0.06. No cash settlements will be made. The treasury shares owned by Tim will not be exchanged, pursuant to article
2504-ter, paragraph 2, of the Civil Code. 
  
 Call and put options

  
 Following the exercise of the call and put options communicated to the
market on 21 December 2004, Telecom Italia exercised, after the closing of the Tender Offer, call options for 21 million Tim savings shares. Further, following the exercise of the put options under the above mentioned contract, Telecom Italia
acquired additional 42 million Tim ordinary shares and, accordingly, owns, on the date of this Information Document, a total of No. 7,232,583,124 Tim ordinary shares (including those acquired in the Tender Offer), equal to approximately 85.5%
of the share capital. Additional details are provided for in paragraph 2.1(b). 
  
 Assumptions for the preparation of the pro forma consolidated reclassified financial data 
  
 The pro forma consolidated reclassified financial data have been prepared on the basis of the following assumptions, as if such assumptions had occured on 31 December 2004 with respect to the pro forma consolidated
reclassified balance sheet and on 1 January 2004 with respect to the pro forma consolidated reclassifed income statement: 
  

	a)	the purchase of ordinary and savings shares of Tim in the Tender Offer; 

  

	b)	the purchase of ordinary and savings shares of Tim through the exercise of the call and put options; 

  

	c)	the execution of the Bank Financing agreement and use of the proceeds for the Tender Offer; 

  

	d)	the utilization of a portion of Telecom Italia liquidity for the Tender Offer and for the exercise of the call and put options; 

  

	e)	the consolidation of the Tim shares acquired through the Tender Offer and the exercise of the call and put options; 

  

	f)	the estimate of the portion to be paid to third parties with respect to the Tim dividend to be distributed on the net result of the year 2004; 

  

	g)	the cancellation of the treasury shares of Tim; 

  

	h)	the effect of the Merger with a decrease in the portions of shareholders’ equity and net result attributable to minority interest following the exchange of the Tim shares owned
by the residual minority shareholders; 

  

	i)	the tax effects, with respect to the income statement data, of the pro forma adjustments. 

  

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 Withdrawal right 
  
 As described in Section 2, the holders of Tim savings shares who will not approve the Merger in their special shareholders’ meeting, will have the right of
withdrawal in accordance with article 2437, paragraph 1, letter g) of the Civil Code, due to the fact that, because of the exchange of shares, their rights will be modified. For further details see paragraph 2.1.2 (e). 
  
 For the preparation of the pro forma consolidated reclassified financial data, no pro forma
adjustments have been made with respect to the effects of the withdrawal, because, based on the current market price of the savings shares, the exercise of such right is not economically favorable to the holders of such shares; the exercise of the
withdrawal right, if any, would not determine any significant effect. 
  
 Costs associated to the Merger and other related transactions 
  
 The costs associated to the Merger and other related transactions have been estimated to be approximately Euro 245 million (of which Euro 42 million included in the extraordinary costs of the 2004 income statement); for such costs, which
relate principally to consulting fees, legal opinions, fairness opinions, etc., no pro forma adjustments have been accounted for, since they are non recurring costs. 
  
 Furthermore, Telecom Italia entered into securities lending agreements for approximately No. 37 million Tim savings shares. For the costs to
be incurred for such contracts in 2005, equal to approximately Euro 14 million, no pro forma adjustments have been accounted for, since they are non recurring costs. 
  
 Convertible bonds issued by Telecom Italia 
  

No pro forma adjustments were made for the effects of the requests to convert into shares the “Telecom Italia 1.5% 2001-2010 convertible notes with redemption
premium” described below, because these convertible notes are continuously convertible and the decision to exercise the conversion by the noteholders is not directly connected with the Merger. 
  
 On 14 December 2004 Telecom Italia published on the Italian Official Gazzette the notice
concerning the rights of holders of “Telecom Italia 1.5% 2001-2010 convertible notes with redemption premium” to exercise their conversion rights under article 2503-bis, second paragraph, of the Civil Code. Further details are provided for
in paragraph 2.1(a). 
  
 Subsequent to 31 December 2004, based on the requests for
the exercise of the conversion of the notes received within 10 March 2005 (last day, before the closing of the window for the exercise of the conversion; the window will re-open on 19 April 2005), net financial debt will decrease by approximately
Euro 2 billion. 
  
 *      *      * 
  
 Adoption of IAS/IFRS 
  
 Starting in 2005, Telecom Italia will
prepare its interim and annual consolidated financial statements in accordance with IAS/IFRS. In this respect it should be noted that if the pro forma consolidated reclassified financial data for the year ended 31 December 2004 had been prepared in
accordance with IAS/IFRS, the following differences, among others, would have been determined: 
  

	 	•	 	an increase in “differences on consolidation (goodwill)” and shareholders’ equity, given that, under IAS/IFRS, newly-issued shares exchanged for shares held by
minority shareholders are entered at fair value (purchase method) instead of at par value (as was done to prepare the pro forma consolidated data in accordance with the Italian accounting principles illustrated above); 

  

	 	•	 	the elimination of the “amortization of differences on consolidation (goodwill)”, since under IAS/IFRS goodwill is no longer amortized on a regular basis but is tested for
impairment. 

  

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5.2  Historical and pro forma financial data per share 
  

					
	 	  	Telecom Italia Group

	 (in Euro)

	  	Year 2004
(historical)

	  	Year 2004
(pro forma)(°)

	 Per share data(*)
	  	 	  	 
	 Consolidated net income from ordinary activities (Parent Company’s interest) per(1)(2):
	  	 	  	 
	 Ordinary share
	  	0.0753	  	0.0763
	 Savings share
	  	0.0863	  	0.0873
	 Consolidated net income (Parent Company’s interest) per(2):
	  	 	  	 
	 Ordinary share
	  	0.0448	  	0.0493
	 Savings share
	  	0.0558	  	0.0603
	 Consolidated shareholders’ equity (Parent Company’s interest) per share
	  	0.9473	  	0.8641
	 Dividend per:
	  	 	  	 
	 Ordinary share
	  	0.1093	  	—
	 Savings share
	  	0.1203	  	—
	 Cash flow(3) per share
	  	0.5337	  	0.4500
	 	  	
	  	

	 (*) Number of shares (at 31 December) for the computation of the data per share:
	  	 	  	 
	 Ordinary shares
	  	10,220,792,202	  	12,348,570,253
	 Net of treasury shares
	  	101,208,867	  	101,208,867
			
	 Savings shares
	  	5,795,921,069	  	6,038,071,314

	(°)	The pro forma column is based on the assumption described under paragraph 5.1.3. 

  

	(1)	Consolidated net income from ordinary activities attributable to the parent company was calculated on the basis of the share of the consolidated net income from ordinary
activities attributable to the parent company, net of the applicable income taxes determined in accordance with the tax rate applicable for 2004. 

  

	(2)	This indicator was calculated considering the bylaws provision requiring dividend on savings shares to exceed dividend on ordinary shares by an amount equivalent to 2% of the par
value of the shares (Euro 0.0110). 

  

	(3)	Consolidated net income before minority interest plus amortization and depreciation. 

  
 
5.3  Independent auditors’ report on examination of pro forma consolidated financial information 
  
 The report of Reconta Ernst & Young S.p.A. on the examination of the pro forma consolidated financial data as of and for the year ended 31 December 2004 of the
Telecom Italia Group (carried out in accordance with the criteria recommended by CONSOB in Recommendation No. DEM/1061609 of 9 August 2001 for the examination of pro forma data), is attached to this Information Document (Annex XVI). 
  

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6.  OUTLOOK FOR THE ABSORBING COMPANY AND FOR THE GROUP IT HEADS 
  
 
6.1  General indications regarding business since the close of the 2004 fiscal year 
  
 On 24 February 2004, the Boards of Directors of Telecom Italia and Tim approved their draft financial statements for the year ended 31 December 2004 and their respective
consolidated financial statements for the 2004 fiscal year. 
  
 Since the close of
the 2004 fiscal year, there have been no new significant events concerning the performance of the Group. Net financial debt has increased as a result of the Tender Offer by approximately €13.8 billion, partly offset by the conversion of Telecom
Italia 1.5% 2001-2010 convertible bonds with redemption premium. 
  
 
6.2  Information permitting a reasonable forecast of the results for the current year 
  
 As of the 2005 fiscal year, Telecom Italia will prepare its interim and consolidated annual financial statements under IAS/IFRS. 
  
 The main changes compared with the financial statements prepared in accordance with Italian
accounting standards relate to goodwill, securities transactions, securitizations and factoring. Compared with the financial statements for the year ended on 31 December 2004 prepared in accordance with Italian accounting standards, consolidated net
income pertaining to Telecom Italia on the basis of IAS/IFRS increases by €1 billion (from €0.8 billion to €1.8 billion), primarily as a consequence of the elimination of the amortization of goodwill, while net financial debt
increases from €29.5 billion to €32.8 billion, primarily as a consequence of the different accounting treatment of property sale and lease-back transactions in the period 2000-03, of securitizations and factoring (the credit rating
agencies had already taken these effects into account in their revisions of Telecom Italia’s credit rating). This information must be understood as preliminary and subject to change. It was prepared under the IAS/IFRS adopted to date and in the
light of the interpretations currently available. The accounting firm Reconta Ernst & Young has been engaged to verify the figures prepared during the transition to the new standards and this activity is still under way. 
  
 An increase in consolidated net income pertaining to Telecom Italia in 2005 is also deemed
possible as a result of the reduction in Tim shareholders other than Telecom Italia. Net debt will increase as a result of the payment of the Tender Offer consideration (approximately €13.8 billion) and will be reduced by the cash flow from
operations and the proceeds of the disposals already announced (Digitel Venezuela, Entel Chile and the Finsiel group). 
  

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ANNEXES 
  

			
		
	I.	  	Merger plan referred to in Article 2501-ter of the Civil Code, with attached a copy of the post-Merger Telecom Italia’s bylaws.
		
	II.	  	Report prepared by the directors of Telecom Italia S.p.A. pursuant to Article 2501-quinquies of the Civil Code.
		
	III.	  	Report prepared by the directors of Telecom Italia Mobile S.p.A. pursuant to Article 2501-quinquies of the Civil Code.
		
	IV.	  	Balance sheet of Telecom Italia S.p.A. at 30 September 2004 pursuant to Article 2501-quater of the Civil Code.
		
	V.	  	Balance sheet of Telecom Italia Mobile S.p.A. al 30 September 2004 pursuant to Article 2501-quater of the Civil Code.
		
	VI.	  	Report prepared by the accounting firm Mazars & Guerard S.p.A. pursuant to Article 2501-sexies of the Civil Code.
		
	VII.	  	Report prepared by the accounting firm Reconta Ernst & Young S.p.A. pursuant to Article 2501-sexies of the Civil Code.
		
	VIII.	  	(a) Fairness Opinion, (b) Confirmation Letter and (c) summary description of the analyses carried out by JPMorgan Chase Bank N.A..
		
	IX.	  	(a) Fairness Opinion, (b) Confirmation Letter and (c) summary description of the analyses carried out by Mediobanca Banca di Credito Finanziario S.p.A..
		
	X.	  	(a) Fairness Opinion, (b) Confirmation Letter and (c) summary description of the analyses carried out by MCC S.p.A. - Capitalia Gruppo Bancario.
		
	XI.	  	(a) Fairness Opinion and (b) summary description of the analyses carried out by Goldman Sachs.
		
	XII.	  	(a) Fairness Opinion, (b) Confirmation Letter and (c) summary description of the analyses carried out] by Lazard & Co. S.r.l.
		
	XIII.	  	(a) Valuation Opinion, (b) Confirmation Letter and (c) summary description of the analyses carried out] by Credit Suisse First Boston.
		
	XIV.	  	(a) Fairness Opinion, (b) Confirmation Letter and (c) summary description of the analyses carried out] by Merrill Lynch International (Milan Branch)
		
	XV.	  	(a) Fairness Opinion, (b) Confirmation Letter and (c) summary description of the analyses carried out] by Mr. Angelo Casò (Studio Casò).
		
	XVI.	  	Report by the accounting firm Reconta Ernst & Young S.p.A. on the pro forma balance sheets and income statements of Telecom Italia S.p.A.
		
	XVII.	  	 Shareholders’ agreements published pursuant to Article 122 of Legislative decree n. 58/1998.

  

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 ANNEX I 
  
 PLAN FOR THE MERGER BY INCORPORATION 
  
 OF TELECOM ITALIA MOBILE S.P.A. 
  
 INTO TELECOM ITALIA S.P.A. 
  
 (under Article 2501-ter of the Italian Civil Code) 
  
 THIS IS AN ENGLISH TRANSLATION OF
THE ORIGINAL ITALIAN DOCUMENT 
  
 January 23, 2005 
  
 The Telecom
Italia securities referred to herein that will be issued in connection with the merger described herein have not been, and are not intended to be, registered under the U.S. 
 Securities Act of 1933 (the Securities Act) and may not be offered or sold, directly or indirectly, in or into the United States except pursuant to an applicable exemption. The Telecom Italia
securities are intended to be made available within the United States in connection with the merger pursuant to an exemption from the registration requirements of the Securities Act. 
 The merger described herein relates to the securities of two foreign (non-U.S.) companies. The merger in which TIM ordinary shares and savings shares will be converted into Telecom Italia
shares is subject to disclosure requirements of a foreign country that are different from those of the United States. Financial statements included in the document, if any, will be prepared in accordance with foreign accounting standards that may
not be comparable to the financial statements of United States companies. 
 It may be difficult for you to enforce your rights and any
claim you may have arising under the U.S. federal securities laws, since Telecom Italia and TIM are located in Italy, and some or all of their officers and directors may be residents of Italy or other foreign countries. You may not be able to sue a
foreign company or its officers or directors in a foreign court for violations of the U.S. securities laws. It may be difficult to compel a foreign company and its affiliates to subject themselves to a U.S. court’s judgment. 
 You should be aware that Telecom Italia may purchase securities of TIM otherwise than under the merger, such as in open market or privately negotiated
purchases. Disclosure of such purchases will be made in accordance with, and to the extent required by, Telecom Italia’s disclosure obligations under Italian law. 

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 PLAN FOR THE MERGER BY
INCORPORATION 
  
 OF
TELECOM ITALIA MOBILE S.P.A. 
  
 INTO TELECOM ITALIA S.P.A. 
  
 [under Article 2501-ter of the Italian Civil Code (“Civil Code”)] 
  

	1.	Companies participating in the Merger. 

  
 Absorbing Company 
  
 TELECOM ITALIA S.P.A. 
  
 Telecom Italia S.p.A. (“Telecom Italia” or the “Absorbing Company”), with its registered office at 2
Piazza degli Affari, Milan, fully paid-up share capital of € 8,868,946,358.25, divided into 10,329,435,946 ordinary shares with a par value of €0.55 per share and 5,795,921,069 savings shares with a par value of €0.55 per share, tax
code and Milan Company Register number: 00488410010. 
  
 Company to be Absorbed

  
 TELECOM
ITALIA MOBILE S.P.A. 
  
 Telecom
Italia Mobile S.p.A., also known in abbreviated form as “T.I.M. S.p.A.” or “Tim S.p.A.” (“Tim” or the “Company to be Absorbed”), with its registered office at 6 Via Cavalli, Turin, fully paid-up
share capital of € 515,728,777.86 divided into 8,463,410,468 ordinary shares with a par value of €0.06 per share and 132,069,163 savings shares with a par value of €0.06 per share, tax code and Turin Company Register number:
06947890015, a company subject to the direction of and coordination by Telecom Italia S.p.A.. 
  
 In the context of the plan for the reorganization of the Telecom Italia Group, of which the Merger is a part, it is intended that, before the Merger, Tim will spin off its mobile communications business in Italy into
Tim Italia S.p.A., a company established by means of a unilateral act by Tim and wholly owned by Tim. As a consequence of the Merger, Telecom Italia will succeed Tim in respect of Tim’s assets and liabilities and will thus acquire direct
ownership of 100% of the capital of Tim Italia S.p.A., the company to which Tim’s domestic communications business will have been transferred. 
  

	2.	Bylaws of the Absorbing Company and amendments thereto as a consequence of the Merger. 

  
 In connection with the Merger and as regards the bylaws of Telecom Italia, it is to be noted that Telecom Italia will increase its share
capital by a maximum nominal amount of € 1,420,690,865.55 through the issuance of a maximum of 2,291,344,587 ordinary shares and 291,729,714 savings shares, all with a par value of €0.55 per share, as a result of applying the share
exchange ratio and assignment procedure referred to in Sections 3 and 4 below. Furthermore, as a consequence of the Merger, Article 5 of the bylaws will be amended to reflect the share capital increases that the Telecom Italia shareholders’
meeting will be called upon to approve for Tim’s stock option plans, to the extent such plans are still effective. 
  
 The complete text of the bylaws of Telecom Italia, including the amendments to Article 5 resulting from the Merger, is annexed to this merger plan. It should be noted,
however, that the figures contained in such article 5 will be finalized in the merger deed, as a result of applying principles and criteria described below in Sections 3 and 4. It should also be noted that Article 22 of the bylaws of Telecom Italia
contains clauses which, pursuant to Article 2 of Law no. 474 of July 30, 1994, grant the Minister for the Economy and Finance, together with the Minister for Productive Activities, certain special powers, including the right to veto the adoption of
merger resolutions. The Minister for the Economy and Finance, in agreement with the Minister for Productive Activities, has notified Telecom Italia that he does not consider the conditions exist for the exercise of the veto power with respect to the
adoption of the merger resolution by Telecom Italia’s shareholders’ meeting. 
  

	3.	Exchange ratio. 

  
 The Merger will be submitted for approval on the basis of the balance sheets at 30 September 2004, prepared in accordance with and for the purposes of Article 2501-quater of the Civil Code. 
  
 The exchange ratio has been fixed as follows: 
  

	·	 	1.73 Telecom Italia ordinary shares with a par value of €0.55 per share for each Tim ordinary share with a par value of €0.06 per share; 

  

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	·	 	2.36 Telecom Italia savings shares with a par value of €0.55 per share for each Tim savings share with a par value of €0.06 per share. 

  
 No cash consideration is envisaged. 
  

	4.	Procedure for assigning shares of Telecom Italia. 

  
 The maximum amount of the increase in Telecom Italia’s share capital for the purposes of the share exchange, 
  

	·	 	considering the maximum amount by which Tim’s existing share capital may be increased, among other things as a consequence of the exercise of stock options granted and still
valid, and 

  

	·	 	on the basis of the exchange ratios indicated in Section 3 above, 

  
 will be a maximum of € 1,420,690,865.55, through the issuance of a maximum of 2,291,344,587 new Telecom Italia ordinary shares and a maximum of 291,729,714 new
Telecom Italia savings shares, all with a par value of €0.55 per share. 
  
 The maximum amount of the increase in Telecom Italia’s share capital for purposes of the share exchange has been calculated without considering the Tim ordinary and savings shares held by Telecom Italia as a result of the voluntary
partial tender offer for Tim ordinary shares and the voluntary tender offer for all Tim savings shares or Tim’s treasury shares, which will not be exchanged in the Merger. 
  
 The Merger will be implemented by means of: 
  

	(i)	the cancellation without exchange of Tim’s ordinary shares held as treasury stock at the effective date of the Merger; 

  

	(ii)	the cancellation without exchange of the Tim ordinary shares and savings shares held by Telecom Italia at the effective date of the Merger; 

  

	(iii)	the cancellation with exchange of the Tim ordinary shares and savings shares outstanding at the effective date of the Merger. The authorized intermediaries will provide Tim minority
shareholders with a service to handle any fractions of shares, at market prices and at no cost in terms of expenses, stamp duty or commissions, that will permit the number of newly issued shares to which the shareholders are entitled to be rounded
up or down to the nearest whole number. 

  
 The newly issued shares
earmarked for the exchange will be assigned to the persons entitled to such shares through their authorized intermediaries who are participants of the Monte Titoli S.p.A. central securities depository, at the effective date of the Merger.
Non-dematerialized Tim shares may only be exchanged upon delivery of such shares to an authorized intermediary for deposit in the central securities depository on a dematerialized basis. 
  
 The newly issued Telecom Italia shares earmarked for the exchange will be listed on the same basis as the Telecom Italia shares already
outstanding at the time they are issued. 
  

	5.	Date from which the ordinary and savings shares assigned in exchange will be entitled to a share of profits. 

  
 The ordinary and savings shares issued by Telecom Italia in exchange for the Tim shares
cancelled as a consequence of the Merger will have normal dividend entitlement and will therefore give their holders equivalent rights to those of the holders of outstanding Telecom Italia shares at the time they are issued. 
  

	6.	Effectiveness of the Merger. Attribution and recording of Tim transactions in the accounts of Telecom Italia. Effectiveness of the Merger for Italian tax purposes.

  
 Pursuant to Article 2504-bis, second paragraph, of
the Civil Code, the Merger will be effective from the date of the last filing of the merger deed, or from such later date as may be specified in the merger deed itself. 
  
 In accordance with point 6 of Article 2501-ter of the Civil Code, the transactions effected by Tim will be attributed to and recorded
in the accounts of Telecom Italia from 1 January of the year in which the Merger becomes effective. The Merger will also become effective for Italian tax purposes from such date. 
  
 It is expected that the spin-off of the mobile communications business in Italy, described in Section 1 above, will become effective prior
to the effective date of the Merger. 
  

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	7.	Treatment reserved to special categories of shareholders or holders of securities other than shares. Special advantages for directors. 

  
 No special treatment is envisaged, in connection with the Merger, for any specific
categories of shareholders or for holders of financial instruments other than the shares of Telecom Italia or the shares of Tim, provided, however, that: 
  

	·	 	the rights of holders of Telecom Italia stock options will not be amended as a consequence of the Merger, and 

  

	·	 	the number of shares obtainable by exercising Tim stock options will be amended to take account of the exchange ratio described in Section 3 above, with a corresponding updating of
all the respective terms and conditions of such stock options. 

  
 The savings shares issued by Telecom Italia in exchange for the Tim savings shares will have equivalent rights to those of the Telecom Italia savings shares already outstanding and will therefore entitle holders to a smaller dividend
premium compared to Telecom Italia ordinary shares than the dividend premium to which holders of the exchanged Tim savings shares are entitled compared to Tim ordinary shares. Consequently, holders of Tim savings shares who do not vote in favor of
the Merger at the special meeting of savings shareholders called to approve the merger resolution adopted by the extraordinary shareholders’ meeting will be entitled to withdrawal rights pursuant to Article 2437, first paragraph, subparagraph
g), of the Civil Code. 
  
 No special advantages are envisaged for the directors
of the companies participating in the Merger. 
  
 We reserve the right to make any
numerical and other changes, additions and updates to this merger plan or to the bylaws of Telecom Italia annexed hereto that may be required by governmental authorities or on the occasion of filings with the Company Register or in connection with
and/or resulting from the transactions envisaged in this plan. 
  
 Milan, 23 January 2005 
  

	 TELECOM ITALIA S.p.A. 
	 TELECOM ITALIA MOBILE S.p.A. 

  
 Annex: Post-merger bylaws of Telecom Italia 
  

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 TELECOM ITALIA - BYLAWS 
  
 NAME - REGISTERED OFFICE - PURPOSE AND DURATION
OF THE COMPANY 
  
 Article 1

  
 The name of the Company shall be “TELECOM ITALIA S.p.A.”

  
 Article 2 
  
 The registered office of the Company shall be in Milan. 
  
 Article 3 
  
 The Company’s purpose shall be: 
  

	-	the installation and operation, using any technique, method or system, of fixed and mobile equipment and installations, including space systems which use artificial satellites,
radio stations, including shipboard stations, links for maritime wireless communications, and dedicated and/or integrated networks, for the purpose of providing and operating, without territorial restrictions, licensed telecommunications services
for public use and telecommunications services in a free-market environment, including those resulting from technological progress, and the performance of activities directly or indirectly related thereto, including the design, construction,
operation, maintenance and distribution of telecommunications, remote-computing, online and electronic products, services and systems; 

  

	-	the performance of activities related to or otherwise serving the pursuit of the corporate purpose, including publishing, advertising, information technology, online and multimedia
activities and, in general, all commercial, financial, property, research, training and consulting activities; 

  

	-	the acquisition, provided it is not the Company’s principal activity, of equity interests in other companies and undertakings falling within the scope of the corporate purpose
or related, complementary or similar thereto, including companies involved in manufacturing electronic products and insurance; 

  

	-	the control and the strategic, technical and administrative and financial coordination of subsidiary companies and undertakings, and the financial planning and management thereof,
with the implementation of all related transactions. 

  
 Activities
reserved to persons entered in a professional register, activities involving dealings with the public covered by Article 106 of Legislative Decree 385/1993, and those which are otherwise prohibited by applicable legislation shall be expressly
excluded. 
  
 Article 4 
  
 The duration of the Company shall be until December 31, 2100. The extension of the time
limit doesn’t assign the right of withdrawal to shareholders who do not vote in favour of the resolution in question having the right of withdrawal. 
  
 SHARE CAPITAL – SHARES - BONDS 
  
 Article 5 
  
 The subscribed and fully paid-up share capital shall be equal to Euro 8,868,946,358.25, divided into 10,329,435,946 ordinary shares with a par value of Euro 0.55 each and
5,795,921,069 savings shares with a par value of Euro 0.55 each. 
  
 In
resolutions to increase the share capital by issuing shares for cash, the right of preemption may be excluded for up to a maximum of ten per cent of the previously existing capital, provided the issue price corresponds to the market value of the
shares and this is confirmed in a report prepared by the firm appointed to audit the accounts. 
  
 The Shareholders’ Meeting of May 26, 2003, reiterating, updating and, where necessary, renewing earlier resolutions of the Shareholders’ Meeting and the Board of Directors resolved to increase the share
capital by up to a maximum of Euro 624,936,779.50 (at January 21, 2005 Euro 618,863,689.40), by means of the issue of up to a maximum of 1,136,248,690 (at January 21, 2005 1,125,206,708) ordinary shares with a par value of Euro 0.55 each to be
reserved irrevocably and exclusively for the conversion of the “Olivetti 1.5% 2001-2010 convertibile con premio al rimborso” (now Prestito “Telecom Italia 1.5% 2001-2010 convertibile con premio al rimborso”) convertible bonds, on
the basis of 0.471553 ordinary shares for each bond presented for conversion. 
  

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 The Shareholders’ Meeting of May 26, 2003 also resolved to increase the share capital by up to a maximum of Euro
183,386,986.75 (at January 21, 2005 Euro 136,272,697.55), by means of the issue of up to a maximum of 333,430,885 (at January 21, 2005 247,768,541) ordinary shares with a par value of Euro 0.55 each, divided into the following divisible tranches:

  

	1	a tranche of up to a maximum of Euro 37,398,868.65 (at January 21, 2005 Euro 19,425,568.80) for the exercise of the “Piano di Stock Option 2000” stock options, increase to
be implemented by July 30, 2008 by means of the issue of up to a maximum of 67,997,943 (at January 21, 2005 35,319,216) shares with a par value of Euro 0.55 each, to be subscribed for at a total price of Euro 13.815 per option held (i.e. at a price
of Euro 4.185259 for each newly-issued share); 

  

	2	a tranche of up to a maximum of Euro 58,916,834.35 (at January 21, 2005 Euro 58,022,367.15) for the exercise of the “Piano di Stock Option 2001” stock options, increase to
be implemented by April 30, 2008 by means of the issue of up to a maximum of 107,121,517 (at January 21, 2005 105,495,213) shares with a par value of Euro 0.55 each, to be subscribed for at a total price of Euro 10.488 per option held (i.e. at a
price of Euro 3.177343 for each newly-issued share); 

  

	3	a tranche of up to a maximum of Euro 21,422,652.90 (at January 21, 2005 Euro 17,755,377.20) for the exercise of the “Piano di Stock Option Top 2002” stock options,
increase to be implemented by February 28, 2010 by means of the issue of up to a maximum of 38,950,278 (at January 21, 2005 32,282,504) shares with a par value of Euro 0.55 each, to be subscribed for at a total price of Euro 9.203 per option held
(i.e. at a price of Euro 2.788052 for each newly-issued share); 

  

	4	a tranche of up to a maximum of Euro 50,268,799.90 (at January 21, 2005 Euro 41,069,384.40) for the exercise of the “Piano di Stock Option 2002” stock options, increase to
be implemented by March 31, 2008 for the first lot, by March 31, 2009 for the second lot and by March 31, 2010 for the third lot by means of the issue of up to a maximum of 91,397,818 (at January 21, 2005 74,671,608) shares with a par value of Euro
0.55 each, to be subscribed for at a total price for the different options of respectively Euro 9.665, Euro 7.952 and Euro 7.721 per option held (i.e. at a price for the different options of respectively Euro 2.928015 Euro 2.409061 and Euro 2.339080
for each newly-issued share). 

  
 The Shareholders’ Meeting of
[-] also resolved to increase the share capital by up to a maximum of Euro 38.655.832,60, by means of the issue of up to a maximum of 70.283.332 ordinary shares with a par value of Euro 0.55 each, divided into the following divisible tranches:

  

	1.	a tranche of up to a maximum of Euro 11,705,656.05 for the exercise of the “2000-2002 Stock-Option Plans” stock options, increase to be implemented by December 31, 2008 by
means of the issue of up to 21,283,011 Telecom Italia ordinary shares with a par value of Euro 0.55 each, to be subscribed for at a total price of Euro 6.42 per option held (i.e. at a price of Euro 3.710983 for each newly-issued share);

  

	2.	a tranche of up to a maximum of Euro 1,132,285 for the exercise of the “2001-2003 Stock-Option Plans” stock options, increase to be implemented by December 31, 2005 by
means of the issue of up to 2,058,700 Telecom Italia ordinary shares with a par value of Euro 0.55 each, to be subscribed for at a total price of Euro 8.671 per option held (i.e. at a price of Euro 5.012139 for each newly-issued share);

  

	3.	a tranche of up to a maximum of Euro 474,798.50 for the exercise of the “2001-2003 Supplementary Plans” stock options, increase to be implemented by December 31, 2005 by
means of the issue of up to 863,270 Telecom Italia ordinary shares with a par value of Euro 0.55 each, to be subscribed for at a total price of Euro 7.526 per option held (i.e. at a price of Euro 4.350289 for each newly-issued share);

  

	4.	a tranche of up to a maximum of Euro 22,150,920 for the exercise of the “2002-2003 Stock-Option Plans” stock options, increase to be implemented by December 31, 2008 by
means of the issue of up to 40,274,400 Telecom Italia ordinary shares with a par value of Euro 0.55 each, to be subscribed for at a total price of Euro 5.67 per option held (i.e. at a price of Euro 3.277457 for each newly-issued share);

  

	5.	a tranche of up to a maximum of Euro 3,192,173.05 for the exercise of the “2003-2005 Stock-Option Plans” stock options, increase to be implemented by December 31, 2008 for
the first lot, by December 31, 2009 for the second lot and by December 31, 2010 for the third lot by means of the issue of up to a maximum of 5,803,951 shares with a par value of Euro 0.55 each, to be subscribed for at a total price of Euro 5.07 per
option held (i.e. at a price of Euro 2.930636 for each newly-issued share). 

  
 For five years starting from May 6, 2004 the Directors may increase the share capital in one or more tranches by up to a maximum total amount of Euro 880,000,000 by means of cash issues of up to a maximum of
1,600,000,000 ordinary shares, all or part of which: 
  

	(i)	to be offered with the right of pre-emption to shareholders and holders of convertible bonds; or 

  

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	(ii)	to be offered for subscription to employees of Telecom Italia S.p.A. or its subsidiaries, with the exclusion of the right of pre-emption, provided such increase in capital does not
exceed 1% of the capital attested at the date of the offering, pursuant to the combined effects of Article 2441, last paragraph, of the Civil Code and Articles 134(2) of Legislative Decree 58/1998. 

  
 Resolutions to increase the share capital adopted by the Board of Directors in exercising the
powers attributed above shall set the subscription price (including any premium) and a time limit for the subscription of the shares; they may also provide, in the event that the increase approved is not fully subscribed within the time limit
established for each issue, for the capital to be increased by an amount equal to the subscriptions received up to such time. 
  
 The Board of Directors may issue, in one or more tranches and for up to a maximum of five years from May 6, 2004, convertible bonds up to a maximum amount of Euro
880,000,000. 
  
 Article 6 
  
 The savings shares shall have the preferential rights set forth in this Article. 

 
 The net profit shown in the duly approved annual accounts, less the amount to be allocated
to the legal reserve, must be distributed to the savings shares up to five per cent of their par value. 
  
 The net profit that remains after the allocation to the savings shares of the preferred dividend provided for in the second paragraph, payment of which must be approved by the Shareholders’ Meeting, shall be
divided among all the shares in such a way that the dividend per savings share is higher by two per cent of its par value than the dividend per ordinary share. 
  

When the dividend paid on savings share in a fiscal year is less than that indicated in the second paragraph, the difference shall go to increase the preferred
dividend in the next two fiscal years. 
  
 In the event of a distribution of
reserves, the savings shares have the same rights as the other shares. If the net profit for the year is nil or insufficient to satisfy the property rights referred to in the preceding paragraphs, the Shareholders’ Meeting called to approve the
annual accounts may resolve to satisfy the right referred to in the second paragraph and/or the right to the premium referred to in the third paragraph by drawing on the reserves. Payment made by drawing on the reserves shall exclude application of
the mechanism for carrying over, to the two following fiscal years, the right to preferred dividends not received through the distribution of profits referred to in the fourth paragraph. 
  
 A reduction of the share capital due to losses shall not entail a reduction of the par value of the savings shares, except for the amount of
the loss that exceeds the total par value of the other shares. 
  
 Upon
dissolution of the Company, the savings shares shall have priority in the repayment of the capital up to their entire par value. 
  
 If the Company’s ordinary or savings shares are delisted, holders of saving shares may apply to the Company for their conversion into ordinary shares, in the manner
approved by an Extraordinary Shareholders’ Meeting called ad hoc within two months of the delisting. 
  
 Article 7 
  
 The shares shall be
indivisible. In the event of joint ownership, the rights of the joint owners shall be exercised by a common representative. Fully paid-up shares may be bearer shares when the law permits. In such case, shareholders may apply for their shares to be
converted, at their own expense, into registered shares or vice versa. 
  
 Vis-à-vis the Company, shareholders shall be deemed to elect domicile for all legal purposes at the domicile indicated in the Shareholders’ Register. 
  
 The imposition or removal of restrictions on the circulation of shares doesn’t assign the right of withdrawal to shareholders who did
not vote in favour of the resolution in question having the right of withdrawal. 
  
 Article 8 
  
 The Company may issue bonds and shall establish the
terms and conditions of their placement. 
  

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 BOARD OF DIRECTORS 
  
 Article 9 
  
 The Company shall be managed by a Board of Directors consisting of not less than seven and not more than twenty-three members. The
Shareholders’ Meeting shall establish the number of members of the Board, which shall remain unchanged until the Meeting establishes a different number. 
  
 The Board of Directors shall be appointed on the basis of slates presented by the shareholders pursuant to the following paragraphs or by the outgoing Board of Directors,
on which the candidates shall be listed by serial number. 
  
 When the Board of
Directors presents its own slate, it shall be filed at the registered office of the Company and published in at least one Italian daily newspaper with national circulation, at least twenty days prior to the date set for the Shareholders’
Meeting on the first call. 
  
 The slates presented by the shareholders shall be
filed at the registered office of the Company and published at the expense of the shareholders in the manner indicated in the preceding paragraph at least ten days prior to the date set for the Shareholders’ Meeting on the first call.

  
 Each shareholder may present or participate in the presentation of only one
slate and each candidate may appear on only one slate on pain of ineligibility. 
  
 Only shareholders who alone or together with other shareholders hold a total number of shares representing at least 1% of the share capital entitled to vote at the Ordinary Shareholders’ Meeting may submit slates, subject to their
proving ownership of the number of shares needed for the presentation of slates at least two days prior to the date set for the Shareholders’ Meeting at the first call on pain of nullity. 
  
 Together with each slate, and within the respective time limits specified above, declarations
must be filed in which the individual candidates agree to their candidacy and attest, on their own responsibility, that there are no grounds for ineligibility or incompatibility, and that they meet any requirements prescribed for the positions in
question. Together with the declarations, a curriculum vitae shall be filed for each candidate setting out their main personal and professional data with an indication, where appropriate, of the grounds for their qualifying as independent.

  
 Each person entitled to vote may vote for only one slate. 
  
 The Board of Directors shall be elected as specified below: 
  

	a)	four fifths of the directors to be elected shall be chosen from the slate that obtains the majority of the votes cast by the shareholders, in the order in which they are listed on
the slate; in the event of a fractional number, it shall be rounded down to the nearest whole number; 

  

	b)	the remaining directors shall be taken from the other slates; to that end, the votes obtained by the various slates shall be divided first by one, then by two, then by three, then
by four and then by five, up to the number of directors to be chosen. The quotients thus obtained shall be assigned to the candidates on each slate in the order specified thereon. On the basis of the quotients assigned, the candidates on the various
slates shall be arranged in a single decreasing ranking. Those who have obtained the highest quotients shall be elected. 

  

	 	If more than one candidate obtains the same quotient, the candidate from the slate that has not yet elected any director or that has elected the smallest number of directors shall
be elected. 

  

	 	If none of such slates has yet elected a director or all of them have elected the same number of directors, the candidate from the slate that obtained the largest number of votes
shall be elected. If the different slates have received the same number of votes and their candidates have been assigned the same quotients, a new vote shall be held by the entire Shareholders’ Meeting and the candidate obtaining the simple
majority of the votes shall be elected. 

  
 In appointing directors
who for any reason have not been appointed pursuant to the procedure specified above, the Shareholders’ Meeting shall vote on the basis of the majorities required by law. 
  
 If in the course of the fiscal year one or more vacancies occur on the Board, the procedure specified in Article 2386 of the Civil Code
shall be followed. 
  

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 Should a majority of the seats on the Board of Directors become vacant for any cause or reason, the remaining directors
shall be deemed to have resigned and they shall cease to hold office from the time the Board has been reconstituted by persons appointed by the Shareholders’ Meeting. 
  
 Article 10 
  
 The Board of Directors shall elect a Chairman from among its member — if the Shareholders’ Meeting has not already done so — and may also appoint a Deputy
Chairman; both may be re-elected. 
  
 In the absence or disability to act of the
Chairman, the Deputy Chairman, if one has been appointed, shall take his/her place or, if the Deputy Chairman is absent, the most senior director by age. 
  
 The Board of Directors may elect a Secretary who need not be a director. 
  
 Extracts from the register of the minutes of meetings of the Board of Directors signed by the Chairman or by two directors and countersigned by the Secretary shall be
conclusive evidence. 
  
 Article 11 
  
 The Chairman or his/her substitute shall call meetings of the Board of Directors at the
Company’s registered office or elsewhere, whenever he/she deems this appropriate in the interests of the Company or receives a written request to do so from at least one fifth of the directors holding office or from the members of the Board of
Auditors. The Chairman shall give advance notice of the matters to be discussed in Board meetings and arrange for adequate information on the questions to be examined to be provided to all the Directors, taking account of the circumstances of each
case. 
  
 In general, meetings shall be called at least five days prior to the
date thereof, except in urgent cases, when it may be given by telegram, fax or e-mail with at least twenty-four hours’ notice. 
  
 Notice shall be given to the Board of Auditors within the same time limits. 
  
 Participation in Board meetings may – if the Chairman or his/her substitute verifies the necessity – be by means of telecommunication techniques that permit
participation in the discussion and informational equality for all those taking part. 
  
 Article 12 
  
 The Board of Directors shall have the broadest
possible powers of ordinary and extraordinary administration of the Company, since all matters not expressly reserved to the General Shareholders’ Meeting by law or these bylaws are within its jurisdiction. 
  
 Within the limits established by law, the Board of Directors shall be entrusted with deciding
on the merger of companies of which Telecom Italia owns at least 90% of the shares or capital parts, the reduction of the share capital in the event of the withdrawal of shareholders, the revision of the bylaws to conform with statutory provisions,
the relocation of the registered office within Italy, and the opening and closing of secondary offices. 
  
 Article 13 
  
 To implement its own
resolutions and manage the Company, the Board of Directors, subject to the limits provided for by law, may: 
  

	-	create an Executive Committee, establishing its powers and the number of members; 

  

	-	delegate suitable powers, establishing the limits thereof, to one or more directors, possibly with the title of Chief Executive Officer; 

  

	-	appoint one or more General Managers, establishing their powers and duties; 

  

	-	appoint attorneys, who may be members of the Board of Directors, for specific transactions and for a limited period of time. 

  
 The Board may set up committees from among its members charged with giving advice and making
proposals and shall establish their powers and duties. 
  

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 Article 14 
  
 Persons with delegated powers shall report to the Board of Directors and the Board of Auditors on the activities carried out, the general results of operations and their
foreseeable development, and the transactions of greatest economic, financial or balance sheet significance concluded by the Company or its subsidiaries; in particular, they shall report on transactions in which they have an interest, directly or on
behalf of third parties, or that are influenced by the person, if any, who performs the activity of direction and coordination. Such reports shall be made promptly, and at least once in each quarter, on the occasion of the meetings of the Board of
Directors and the Executive Committee or in a written memorandum. 
  
 In
accordance with the times and procedures for disclosing information to the market, the representative of the holders of savings shares must be informed by the Board of Directors or the persons delegated to that end of any corporate events that might
affect the price of the shares of that class. 
  
 Article 15 
  
 The representation of the Company vis-à-vis third parties and in legal proceedings
shall pertain to the Chairman and, in his absence or disability to act, the Deputy Chairman, if one is appointed; it shall also pertain severally to each of the directors with delegated powers. 
  
 Article 16 
  
 The directors shall be entitled to the reimbursement of expenses incurred in the performance of their duties. The Ordinary
Shareholders’ Meeting shall also decide the annual remuneration payable to the Board. Once fixed, this remuneration shall remain unchanged until the Meeting establishes a different amount. 
  
 BOARD OF AUDITORS 
  
 Article 17 
  
 The Board of Auditors shall consist of five or seven auditors. The Shareholders’ Meeting shall establish the exact number, which shall
remain unchanged until the Meeting establishes a different number. The Meeting shall also appoint two alternates. 
  
 The Board of Auditors shall elect a Chairman from among its members by majority vote. In the absence or disability to act of the Chairman, he/she shall be replaced by the
most senior auditor by age. 
  
 Without prejudice to the situations of
incompatibility established by law, persons who are members of the boards of auditors of more than five companies listed on Italian regulated markets may not be appointed auditors and shall forfeit the post if they are elected. Telecom Italia S.p.A.
and its subsidiaries shall not be included when computing the above limit. 
  
 For
the purposes of Articles 1(2)(b) and 1(2)(c) of the regulation referred to in Justice Minister Decree 162/2000, the following sectors of activity and matters shall be considered closely linked to those of the Company: telecommunications, information
technology, online systems, electronics and multimedia technology, and matters related to private and administrative law, economics and business administration. 
  

The appointment of the Board of Auditors shall be based on the slates presented by shareholders who individually or together with other shareholders hold a total
number of shares representing at least 1% of the share capital entitled to vote at the Ordinary Shareholders’ Meeting, subject to their proving ownership of the number of shares needed for the presentation of slates at least two days prior to
the date set for the Shareholders’ Meeting at the first call on pain of nullity. 
  
 Each shareholder may present or participate in the presentation of only one slate and each candidate may appear on only one slate on pain of ineligibility. 
  
 The slates must be filed at the registered office of the Company and published at the expense of the shareholders who present them in at
least one Italian daily newspaper with national circulation, at least ten days prior to the date set for the Shareholders’ Meeting on the first call. 
  
 Together with each slate, declarations must be filed in which the individual candidates agree to their candidacy and attest, on their own responsibility, that there are
no grounds for ineligibility or incompatibility, and that they meet the requirements prescribed by law and these bylaws. Together with the declarations, a curriculum vitae for each candidate shall be filed setting out their main personal and
professional data. 
  

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 The slates shall be divided into two sections: one for candidates to the position of auditor and the other for candidates
to the position of alternate. The first candidate in each section must be selected from among persons entered in the register of auditors who have worked on statutory audits for a period of not less than three years. 
  
 Each person entitled to vote may vote for only one slate. 
  
 The Board of Auditors shall be elected as specified below: 
  

	a)	from the slate that obtains the majority of the votes cast by the shareholders (the Majority Slate) one alternate and all the auditors not chosen from the other slates (the Minority
Slates) shall be chosen in the order in which they are listed on the slate; 

  

	b)	from the Minority Slates two auditors shall be chosen. One alternate shall be chosen from the Minority Slate that obtains the largest number of votes. 

  
 For the appointment of the auditors from the Minority Lists, the votes
obtained by the various slates shall be divided first by one and then by two. The quotients thus obtained shall be assigned to the candidate auditors on each slate in the order specified thereon. On the basis of the quotients assigned, the
candidates on the various slates shall be arranged in a single decreasing ranking and those who have obtained the highest quotients shall be elected. 
  
 If more than one candidate obtains the same quotient, the candidate from the slate that has not yet elected an auditor shall be elected or, subordinately,
there shall be a tiebreaker vote by the entire Shareholders’ Meeting and the slate that obtains the simple majority of the votes shall prevail. 
  
 In appointing auditors who for any reason have not been appointed pursuant to the procedure specified above, the Shareholders’ Meeting shall vote on the basis of the
majorities required by law. 
  
 In the event of the substitution of an auditor
chosen from the Majority Slate or one of the Minority Slates, the alternate chosen respectively from the Majority List or the Minority Lists shall take his/her place. Appointments to fill vacancies on the Board of Auditors pursuant to Article 2401
of the Civil Code shall be made by the Shareholders’ Meeting on the basis of the majorities required by law. 
  
 After notifying the Chairman of the Board of Directors, the Board of Auditors, or at least two auditors, may call, as provided for by law, a meeting of the shareholders,
the Board of Directors or the Executive Committee. 
  
 Participation in the
meetings of the Board of Auditors may – if the Chairman verifies the necessity – be by means of telecommunication techniques that permit participation in the discussion and informational equality for all those taking part. 
  
 SHAREHOLDERS’ MEETING 
  
 Article 18 
  
 An Ordinary Shareholders’ Meeting must be called within 120 days or, where special circumstances make this necessary, within 180 days
of the end of the fiscal year; if the meeting is called within 180 days, the Directors shall give the reasons for the delay in the report on operations included in the annual report. 
  
 An Extraordinary Shareholders’ Meeting shall be called whenever it is deemed desirable by the Board of Directors and when it is
required in accordance with the law. If the quorum is not reached at the second call, there may be a third call. 
  
 Ordinary and Extraordinary Shareholders’ Meetings may be held in a place other than the Registered Office, provided it is in Italy. 
  
 Article 19 
  
 The shareholders, for which the Company has received the documentation pursuant to article 2370, second paragraph of the Civil Code, at
least two days prior to the date set for each meeting and hold the suitable certification on the date the meeting takes place, are entitled to attend the Meeting. 
  
 Ordinary shareholders may exercise their right to vote by mail in accordance with the applicable law. 
  

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 Every shareholder entitled to attend may be represented at the Shareholders’ Meeting by giving a proxy to an
individual or legal entity, subject to the restrictions established by law. 
  
 In
order to facilitate the collection of proxies among employee shareholders of the Company and its subsidiaries who belong to shareholder associations satisfying the requirements established by law, special areas shall be made available in accordance
with the procedures and time limits established by the Board of Directors either directly or through its agents where information can be provided and proxy forms collected. 
  
 Article 20 
  
 The Chairman of the Board of Directors or his/her substitute or, in the absence thereof, the person elected with the favourable vote of the majority of the capital
represented at the meeting, shall chair the Shareholders’ Meeting and govern its proceedings. To this end, the Chairman of the Meeting shall, amongst other things, verify its regularity, ascertain the identity and right to attend of those
present, direct the business, including by establishing a different order for the discussion of the items indicated in the notice convening the Meeting. 
  
 The Chairman shall take appropriate measures to ensure the orderly conduct of the discussion and polls; he shall establish how each poll is to be conducted and verify the
results; he may choose two or more scrutineers from among those present. 
  
 The
Secretary shall be appointed with the favourable vote of the majority of the capital represented at the meeting and a person who is not a shareholder may be selected. 
  
 Shareholders’ meetings shall be governed by the law, these bylaws and the Rules of Proceeding approved by the Ordinary
Shareholders’ Meeting. 
  
 FISCAL YEAR -
DIVIDENDS 
  
 Article 21 
  
 The fiscal year shall end on December 31 of each year. 
  
 From the net profit reported in the annual accounts, 5% shall be allocated to the legal
reserve until this reaches an amount equal to one-fifth of the share capital. 
  
 The remainder shall be used to pay the dividend determined by the Shareholders’ Meeting, and for such other purposes as the Meeting deems most appropriate or necessary. 
  
 During the course of the fiscal year, the Board of Directors may distribute interim dividends to the shareholders. 
  
 SPECIAL POWERS 
  
 Article 22 
  
 Pursuant to Article 2(1) of Decree Law 332/1994, ratified with amendments by Law 474/1994, the Minister for the Economy and Finance, in
agreement with the Minister for Productive Activities, shall have the following special powers: 
  

	a)	approval, to be granted expressly upon the acquisition by parties subject to the limitations on share ownership referred to in Article 3 of Decree Law 332/1994, ratified with
amendments by Law 474/1994, of major holdings, taken to mean holdings that, as specified by Treasury Minister Decree of March 24, 1997, are equal to at least 3% of the share capital represented by shares with a right to vote at the Ordinary
Shareholders’ Meeting. Approval must be granted within sixty days of the date of the communication that the Board of Directors must send at the time of the application for entry in the Shareholders’ Register. Until approval has been
granted and after expiration of the time limit without any action, the transferee may not exercise the voting rights or any rights other than the property rights attaching to the shares that represent the major holding. If approval is refused or the
time limit expires without action, the transferee must sell the shares within one year. If this is not done, the Court, at the request of the Minister for the Economy and Finance, shall order the sale of the shares representing the major holding
pursuant to the procedures established in Article 2359-ter of the Civil Code; 

  

	b)	veto of any resolution to dissolve the Company, transfer the business, merge or divide the Company, transfer the registered office outside Italy, change the corporate object, or
amend these bylaws with a view to eliminating or modifying the powers specified in subparagraphs a) and b). 

  

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 ANNEX II 
  
 Report of the Board of Directors of Telecom Italia S.p.A. 
 dated 23 January 2005 
 on the plan for the merger by incorporation of 
  
 Telecom Italia Mobile S.p.A. 
  
 into 
  
 Telecom Italia S.p.A. 
  
 pursuant to Article 2501-quinquies of the Italian Civil Code 
 and Article 70.2 of the Regulation approved by CONSOB with 
 Deliberation no.
11971 of 14 May 1999 
  
 This is an English
translation of the original Italian document 
  
 The Telecom Italia
securities referred to herein that will be issued in connection with the merger described herein have not been, and are not intended to be, registered under the U.S. Securities Act of 1933 (the Securities Act) and may not be offered or sold,
directly or indirectly, in or into the United States except pursuant to an applicable exemption. The Telecom Italia securities are intended to be made available within the United States in connection with the merger pursuant to an exemption from the
registration requirements of the Securities Act. 
  
 The merger described
herein relates to the securities of two foreign (non-U.S.) companies. The merger in which TIM ordinary shares and savings shares will be converted into Telecom Italia shares is subject to disclosure requirements of a foreign country that are
different from those of the United States. Financial statements included in the document, if any, will be prepared in accordance with foreign accounting standards that may not be comparable to the financial statements of United States companies.

  
 It may be difficult for you to enforce your rights and any claim you
may have arising under the U.S. federal securities laws, since Telecom Italia and TIM are located in Italy, and some or all of their officers and directors may be residents of Italy or other foreign countries. You may not be able to sue a foreign
company or its officers or directors in a foreign court for violations of the U.S. securities laws. It may be difficult to compel a foreign company and its affiliates to subject themselves to a U.S. court’s judgment. 
  
 You should be aware that Telecom Italia may purchase securities of TIM otherwise than
under the merger, such as in open market or privately negotiated purchases. Disclosure of such purchases will be made in accordance with, and to the extent required by, Telecom Italia’s disclosure obligations under Italian law. 

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TABLE OF CONTENTS 
  

					
	1.	  	
DESCRIPTION OF THE MERGER AND REASONS THEREFOR	  	4
			
	2.	  	
VALUES ATTRIBUTED TO TELECOM ITALIA AND TIM FOR THE PURPOSE OF DETERMINING THE EXCHANGE RATIO	  	12
			
	3.	  	 
EXCHANGE RATIO AND THE METHODS APPLIED IN ITS DETERMINATION
	  	13
			
	4.	  	
PROCEDURE FOR ASSIGNING THE SHARES OF TELECOM ITALIA	  	19
			
	5.	  	
EFFECTIVE DATE OF THE MERGER AND ENTITLEMENT DATE	  	19
			
	6.	  	
ITALIAN TAX EFFECTS OF THE MERGER ON TELECOM ITALIA AND TIM	  	20
			
	7.	  	
EXPECTED MAJOR SHAREHOLDINGS AND CONTROL OF TELECOM ITALIA AFTER THE MERGER	  	20
			
	8.	  	
EFFECTS OF THE MERGER ON SHAREHOLDERS’ AGREEMENTS FALLING WITHIN THE SCOPE OF ARTICLE 122 OF LEGISLATIVE DECREE No. 58 OF 24 FEBRUARY 1998	  	21
			
	9.	  	
AMENDMENTS TO THE BYLAWS	  	21
			
	10.	  	
BOARD OF DIRECTORS’ EVALUATION OF THE CONDITIONS FOR EXERCISE OF POTENTIAL RIGHT OF WITHDRAWAL	  	22

  

 3 

Table of Contents

 Dear Shareholders, 
  
 We submit this report for your consideration; it describes, from a legal and economic perspective, the plan for the merger by incorporation
of Telecom Italia Mobile S.p.A. (“Tim” or the “Company to be Absorbed”) into Telecom Italia S.p.A. (“Telecom Italia” or the “Absorbing Company”) and in particular the methods and
criteria used to determine the exchange ratio of the shares of the companies involved in accordance with Article 2501 quinquies of the Italian Civil Code (“Civil Code”) and Article 70.2 of the Regulation approved by CONSOB with
Deliberation No. 11971 of 14 May 1999, as amended (the “Regulation on Issuers”) 
  

	
1.	Description of the merger transaction and the reasons therefor 

  

	1.1	The merger transaction 

  

	1.1.1	The transaction submitted for your approval consists of the merger by incorporation of Tim into Telecom Italia pursuant to Article 2501 et seq. of the Civil Code (the
“Merger”). Since the Merger involves issuers of securities listed on an Italian regulated securities exchange, it is also subject to the applicable provisions of Legislative Decree No. 58 of 24 February 1998 and the Regulation on
Issuers. 

  

	    	For purposes of the Merger, reference is made to the respective balance sheets of Telecom Italia and Tim at 30 September 2004, prepared pursuant to Article 2501-quater of the
Civil Code. 

  

	1.1.2	The Merger is the last step in the plan for the reorganization of the group headed by Telecom Italia – the guidelines of which were approved by the Boards of Directors
of Telecom Italia and Tim in their meetings on 7 December 2004 and publicly disclosed on the same date – which also includes: 

  

	 	•	a voluntary partial tender offer for Tim ordinary shares and a voluntary tender offer for all Tim savings shares (collectively, the “Tender Offer”); and

  

	 	•	the spin-off of the mobile communications business in Italy, currently operated by Tim, into a company wholly owned by Tim (the “Spin-Off”).

  

	    	The intention of the companies involved is to complete the Merger as soon as possible and, specifically, to arrange for it to become effective by the end of June 2005.

  

	1.1.3	The Tender Offer, which commenced on 3 January 2005 and terminated on 21 January 2005, represented the first step in the above-mentioned reorganization plan and must be considered
as connected with and serving the purposes of the Merger. 

  

	    	In view of the Merger, the Tender Offer was intended to contribute to optimizing the capital structure of the Absorbing Company. Since in implementing the Merger the Tim shares held
by Telecom Italia will be cancelled without exchange, Telecom Italia’s acquisition of Tim shares by means of the Tender Offer has increased the proportion of Tim’s share capital that will be cancelled and consequently reduced the amount of
equity to be issued in exchange. This will have a positive effect on earnings and free cash flow yield per share, to the benefit of all the post-Merger shareholders of Telecom Italia and Tim. From a financial perspective, the equity that is not
issued will in effect be replaced, as a result of the settlement of the obligations arising from the Tender Offer, by an increase in Telecom Italia’s net debt. The cost of this new debt – in terms of after-tax net financial expense –
is lower than the cost – in terms of the expected dividends – which would have been incurred on the equity not issued in exchange for Tim shares purchased in the Tender Offer. 

  

	    	On the basis of the results of the Tender Offer, which are described below, the total consideration in respect of the Tim shares tendered is approximately €13.8 billion, of
which €2.5 billion will be paid by Telecom Italia by using its own funds and approximately €11.3 billion will be raised through bank financing provided by a syndicate of banks led by JP Morgan plc (Global Coordinator), Mediobanca Banca di
Credito Finanziario S.p.A. (“Mediobanca”), MCC S.p.A. – Capitalia Gruppo Bancario (“MCC”), UniCredit Banca Mobiliare S.p.A. and Banca Intesa S.p.A. (Mandated Lead Arrangers). Consequently, the net financial
debt of the Telecom Italia Group, estimated at a little less than €30 billion at 31 December 2004, will amount, excluding the other costs related to the Tender Offer, to just under €44 billion. This figure does not take into account the
exercise of the call options for approximately 42 million Tim ordinary shares and 21 million Tim savings shares which were previously disclosed to the market. Moreover, it should be noted that following requests to convert Telecom Italia (originally
Olivetti) 1.5% 2001-2010 convertible bonds with redemption premium received by 21 January 2005 and not yet effected, the latter amount will be reduced by approximately €1 billion as a consequence of the issuance of the corresponding shares upon
conversion. 

  

 4 

Table of Contents

	    	The increase in debt following the Tender Offer has not led, in line with the indication given in the announcement of the plan to reorganize the Telecom Italia Group, to a reduction
in Telecom Italia’s credit rating (currently Baa2 for Moody’s, BBB+ for Standard & Poor’s, A– for Fitch). It should be noted that Standard & Poor’s and Fitch, while confirming their respective ratings, have revised
their outlooks from positive to stable and from stable to negative, respectively. The rating agencies arrived at these conclusions on the basis of the maximum estimated consideration payable in connection with the Tender Offer, equal to
approximately €14.5 billion. 

  

	    	Approximately €11.3 billion of the Tender Offer is covered by the loan debt incurred in connection with an agreement Telecom Italia entered into on 8 December 2004 for a
maximum amount of €12 billion. The loan is divided into three repayment tranches with different maturities (12, 36 and 60 months, with Telecom Italia having the option, at its discretion, to extend the maturities of the first two tranches by 12
months and 9 months, respectively). 

  

	    	The amount borrowed under the bank financing, equal to approximately €11.3 billion, may be refinanced in the capital markets, depending on market opportunities and conditions,
probably in the next two years. 

  

	    	The progressive reduction in the debt incurred as a result of the Tender Offer will be made possible primarily by the cash flow that will be generated, which is expected to be at
least in line with the plans announced in March 2004. 

  

	1.1.4	The next step in the planned reorganization of the Telecom Italia Group is the SpinOff, which, by maintaining the autonomy of the domestic mobile communications business, is in line
with an assessment of what would be desirable from a regulatory and accounting perspective in the context of the overall reorganization plan and at the same time is an efficient way to meet the need for transparency in the relationship between fixed
and mobile communications. As mentioned above, the business to be spun-off includes Tim’s domestic mobile communications activities, but not the following items related primarily to Tim’s international business: (i) the 100% equity
interest held by TIM in TIM International N.V. (“TIM International”), the holding company for equity investments in foreign companies operating in the mobile communications sector with a book value, including payments for
future increases in capital, of €4,582 million; (ii) the reserve for risks in respect of guarantees issued on behalf of foreign affiliates, amounting to €198 million; (iii) the guarantees granted and received in relation to the foreign
sector, included in the memorandum accounts, for a total of €982 million; (iv) the advance taxes, related to the international assets, amounting to €813 million; (v) the balance of the current account held by TIM with Telecom Italia; and
(vi) certain other financial and tax items. The above amounts, included here merely for explanatory purposes, are recorded in Tim’s balance sheet at 30 September 2004. 

  

	    	In this respect it should be noted that Tim has established Tim Italia S.p.A., the company to which Tim’s domestic mobile communications business is intended to be transferred
in the Spin-Off (“Tim Italia”), by means of a unilateral act. Tim has also applied, pursuant to Article 2343 of the Civil Code, for the appointment of an appraiser to prepare the valuation report for the business to be spun off.
Likewise, for regulatory purposes, Tim has notified the Ministry for Communications pursuant to Article 25.8 of Legislative Decree No. 259 of 1 August 2003. 

  

	    	As a result of the Spin-Off and before the effective date of the Merger – since it is expected that the transfer deed will be executed and filed with the relevant office of the
Company Register by the end of March 2005 – Tim Italia will succeed to the authorizations held by Tim for the provision of mobile communications services in Italy. 

  

	    	Accordingly, at the time of the Merger, Tim will have 100% control of Tim Italia, the company to which the domestic mobile communications business of Tim will be transferred, and of
Tim International. 

  

	    	Under the proposed Merger, Telecom Italia will succeed to all of Tim’s legal rights and obligations in respect of the latter’s assets and liabilities, except for those
pertaining to the business transferred to Tim Italia. At the same time, Telecom Italia will become the direct holder of 100% of the capital of both Tim Italia and Tim International and will be responsible for their direction and coordination.

  

	1.1.5	 At the end of the acceptance period of the Tender Offer on 21 January 2005, the following shares had been tendered: 2,639,154,665 ordinary shares (corresponding to
approximately 31.2% of Tim’s ordinary share capital and approximately 107.4% of the ordinary shares that were the subject of the ordinary share offer) and 8,463,127 savings shares (corresponding to approximately 6.4% of Tim’s savings share
capital and of the savings shares that were the subject of the savings share offer). Following the proration of the Tim ordinary shares tendered, Telecom Italia therefore owns, directly and indirectly, 

  

 5 

Table of Contents

	 	 
7,190,583,124 Tim ordinary shares (corresponding to approximately 84.8% of the company’s ordinary share capital and approximately 85.539% of its total
share capital) and 8,463,127 Tim savings shares (corresponding to approximately 6.4% of the company’s savings share capital and approximately 0.098% of its total share capital). 

  

	    	Telecom Italia’s Board of Directors has favorably assessed the results of the Tender Offer, especially in view of the fact that the Tim ordinary shares tendered exceeded the
number of Tim ordinary shares subject to the Tender Offer, thus demonstrating the market’s appreciation of the transaction and making it possible to achieve the objective of optimizing Telecom Italia’s balance sheet and financial structure
upon completion of the Merger. For this reason, Telecom Italia’s Board of Directors has decided to waive the Tender Offer effectiveness conditions concerning the minimum threshold of acceptances for Tim savings shares, thereby confirming the
effectiveness of the Tender Offer and accepting to purchase the smaller quantity of Tim savings shares tendered, and to proceed with the integration process. 

  

	    	It should also be noted that, as a result of the exercise of the options which were previously disclosed to the market (for approximately 21 million Tim savings shares) and the
execution of securities lending agreements (for approximately 37 million Tim savings shares), following the Tender Offer Telecom Italia will be entitled to vote approximately 50.3% of the shares entitled to vote in the special meeting of Tim savings
shareholders that will be called to approve the Merger resolution. 

  

	1.1.6	Under Article 2504-ter of the Civil Code, the Merger will result in the cancellation of the Tim shares held by Telecom Italia at the effective date of the Merger
without exchange and in the cancellation of the treasury shares held by Tim. Holders of Tim ordinary and savings shares other than Telecom Italia will instead be assigned newly issued Telecom Italia ordinary and savings shares on the basis of the
exchange ratio described below (see primarily Section 4 below). 

  

	    	Regulations are being promulgated which mandate the adoption, in Italy, of the IAS/IFRS international accounting standards for the preparation of financial statements. In
particular, for companies with shares listed on regulated securities exchanges, the adoption of these standards will be mandatory for their 2005 consolidated annual financial statements and optional for their company annual accounts.

  

	    	Telecom Italia is currently analyzing and assessing whether to adopt the IAS/IFRS standards not only for the consolidated financial statements of the Telecom Italia Group, but also
for the Telecom Italia S.p.A. 2005 annual financial statements for civil law purposes. 

  

	    	If the Italian accounting standards are applied for the 2005 annual financial statements of Telecom Italia S.p.A. for civil law purposes, it will be possible to account for the
Merger at book value, thereby giving rise to both a “cancellation deficit” (the difference between the book value of the Tim shares held by Telecom Italia, including those acquired through the Tender Offer, and the value of the
corresponding portion of shareholders’ equity) and an “exchange deficit” (the difference between the increase in capital for the exchange and the corresponding portion of the Tim shareholders’ equity acquired). The cancellation
deficit could be allocated to increase the book value of Tim assets at the time of the Merger (the equity interests in Tim Italia and Tim International), while the exchange deficit could be allocated to the reduction of the reserves included in
Telecom Italia’s shareholders’ equity. 

  

	    	As for the financial statements of the Telecom Italia Group, which will have to be prepared on the basis of the new IAS/IFRS accounting standards, the Merger will be accounted for
on a fair value basis and the merger differences will therefore be allocated to the tangible and intangible assets and to the liabilities of TIM Italia and Tim International and their subsidiaries, while any portion not so allocated will be recorded
as goodwill. 

  

	1.1.7	As part of the share exchange, holders of Tim savings shares will be assigned Telecom Italia savings shares. 

  

	    	It should be noted that, from a formal legal perspective, Telecom Italia savings shares are entitled to a smaller dividend premium compared to ordinary shares than that to which
holders of Tim savings shares are currently entitled compared to Tim ordinary shares. 

  

	    	Tim savings shares entitle their holders, among other things, to the right to a premium with respect to any profit distributed to ordinary shareholders equal to 20% of their par
value of €0.06 and to the right to the distribution of net profits, after deducting the amount to be allocated to the legal reserve, up to 5% of their par value. In contrast, Telecom Italia savings shares entitle their holders the right to the
distribution of net profits up to 5% of their par value of €0.55, and the right to a premium with respect to any dividend distributed to ordinary shareholders equal to 2% of their par value. 

  

 6 

Table of Contents

	    	Because of these different rights, the resolution approving the Merger Plan will be submitted for approval to the special meeting of Tim savings shareholders; holders of Tim savings
shares who do not vote in favor of the Merger will be entitled to withdrawal rights pursuant to Article 2437, first paragraph, subparagraph g), of the Civil Code. 

  

	    	It should be noted, however, that from a substantive economic perspective, the exchange will lead to an improvement in the entitlement to profits of Tim savings shareholders as
regards the quantification of their premium, since each Tim savings share with a par value of €0.06 will be exchanged for more than one Telecom Italia savings share with a par value of €0.55 (on the basis of the exchange ratio of 2.36
Telecom Italia savings shares for each Tim savings share; see Section 4 below), so that the post-exchange dividend premium for each former Tim savings share will be calculated with reference to a higher total par value of €0.55 x €2.36 =
€1.30 instead of €0.06. Consequently, the post-exchange dividend premium for holders of Tim savings shares – with respect to the dividend premium compared to ordinary shares – for each Tim savings share held, equal to 20% x
€0.06 = €0.012, will increase as a consequence of the exchange for Telecom Italia savings shares to 2% x €1.30 = €0.026. In this way the right to a smaller premium in relative terms will be more than offset in absolute terms.

  

	1.1.8	On 14 December 2004, Telecom Italia published a notice in the Italian Official Gazette concerning the right of holders of Telecom Italia 1.5% 2001-2010 convertible bonds with
redemption premium to exercise their conversion rights under Article 2503-bis, second paragraph, of the Civil Code. 

  

	    	The above-mentioned bonds are continuously convertible subject to the provision on the suspension of conversion rights contained in Article 6(iv) of the terms and conditions of the
bonds. Under these terms and conditions, conversion rights will be suspended from the day after the meeting of the Board of Directors that calls the shareholders’ meeting to approve the Merger Plan. However, as announced on 31 December
2004, in view of the planned addition of the approval of the annual financial statements to the agenda of such shareholders’ meeting, the intention is to apply the special provision under the terms and conditions for the case in which the
shareholders’ meeting is called to approve the distribution of a dividend. Accordingly, from the day following the above-mentioned addition to the agenda, it will again be possible to exercise conversion rights for 14 days. From the 15th day
following the meeting of the Board of Directors held to approve the financial statements for the year ended 31 December 2004 until the dividend payment day, inclusive, the right to exercise conversion rights will again be suspended.

  

	1.1.9	The shareholders’ meeting of Telecom Italia called to approve the Merger will also be called to approve the increases in share capital required by Tim’s stock option
plans, to the extent such plans are still effective. The number of shares obtainable upon the exercise of Tim stock options will be adjusted to take account of the exchange ratio. 

  

	1.1.10	Following the Merger, Telecom Italia’s ordinary and savings shares will continue to be listed on the Mercato Telematico Azionario operated by Borsa Italiana S.p.A. and
on the New York Stock Exchange in the form of ADSs (American Depository Shares, each of which represents ten ordinary or savings shares). As regards the listing of Telecom Italia’s ordinary shares on the Frankfurt Stock Exchange, in the light
of the decisions adopted by the Board of Admission of the Frankfurt Stock Exchange, the shares will be delisted by the effective date of the Merger. 

  

	1.1.11	Lastly, it should be noted that Article 22 of Telecom Italia’s bylaws contains clauses which, pursuant to Article 2 of Law 474 of 30 July 1994, grant the Minister for the
Economy and Finance certain special powers, to be exercised in agreement with the Minister for Productive Activities. 

  

	    	At the end of the meeting of Telecom Italia’s Board of Directors on 7 December 2004, pursuant to Article 22.b) of the bylaws and Article 2 of Law 474 of 30 July 1994, the
company notified the Minister for the Economy and Finance of the commencement of the plan for the reorganization of the Group. 

  

	    	The Minister for the Economy and Finance, in agreement with the Minister for Productive Activities, has notified Telecom Italia that he does not consider that the conditions exist
for the exercise of the veto right with respect to the adoption of the Merger resolution by Telecom Italia’s shareholders’ meeting. 

  

	1.2	Companies participating in the Merger 

  

	1.2.1	Telecom Italia, together with the group of which it is the parent company, is one of the leading international groups operating in the telecommunications services sector and,
more generally, in the information and communications technology sector. 

  

 7 

Table of Contents

	    	The following tables provide selected historical operating, cash flow and financial data for the Telecom Italia Group and Telecom Italia, as reported in the financial statements for
the first nine months of financial years 2004 and 2003 and in the 2003 financial statements. 

  

	    	Selected operating, cash flow and financial data for the Telecom Italia Group and Telecom Italia 

  
 TELECOM ITALIA GROUP 
  

							
	 Operating and cash flow data
 (millions of euro)
	  	1.1-
30.9.2004

	  	1.1-
30.9.2003

	  	Year
2003

	 Sales and service revenues
	  	22,912	  	22,682	  	30,850
	 Gross operating profit
	  	10,788	  	10,648	  	14,280
	 Operating income before amortization of goodwill on consolidation differences
	  	6,607	  	6,639	  	8,619
	 Operating income
	  	5,442	  	5,214	  	6,789
	 Income before taxes
	  	3,690	  	3,858	  	3,442
	 Consolidated net income before minority interests
	  	1,518	  	2,889	  	2,428
	 Consolidated net income: Telecom Italia
	  	745	  	1,881	  	1,192
	 Consolidated cash flow(1)
	  	6,399	  	7,901	  	9,207
	 Free cash flow from operations(2)
	  	6,585	  	7,360	  	9,233

	1.	Calculated as: Consolidated net income (loss) before minority interests plus amortization and depreciation. 

  

	2.	Calculated as: Operating Income + Amortization and Depreciation – Industrial Investments – Change in Operating Working Capital. 

  

										
	 Balance sheet data
 (millions of euro)

	  	 At 30 Sept.
 2004

	 	 	At 31 Dec.
2003

	 	 	At 30 Sept.
2003

	 
	  	 	 
	 Fixed assets, net
	  	52,635	 	 	54,573	 	 	55,892	 
	 Working capital
	  	(1,824	)	 	(638	)	 	(462	)
	 Net invested capital
	  	50,811	 	 	53,935	 	 	55,430	 
	 Financed by:
	  	 	 	 	 	 	 	 	 
	 Consolidated shareholders’ equity:
	  	19,390	 	 	20,589	 	 	21,177	 
	 •        Telecom Italia
	  	15,141	 	 	16,092	 	 	16,814	 
	 •        Minority interests
	  	4,249	 	 	4,497	 	 	4,363	 
	 Consolidated net financial debt:
	  	31,421	 	 	33,346	 	 	34,253	 
	 •        Medium/long-term
	  	34,020	 	 	30,545	 	 	28,806	 
	 •        Short-term
	  	(2,599	)	 	2,801	 	 	5,447	 

  
 TELECOM ITALIA
S.p.A. 
  

							
	 Operating and cash flow data
 (millions of euro)

	  	1.1-
30.9.2004

	  	1.1-
30.9.2003

	  	Year
2003

	 Sales and service revenues
	  	11,793	  	11,872	  	16,033
	 Gross operating profit
	  	5,526	  	5,510	  	7,433
	 Operating income
	  	3,256	  	3,169	  	4,139
	 Income before taxes
	  	1,664	  	1,378	  	1,728
	 Net income
	  	894	  	2,012	  	2,646
	 Cash flow(1)
	  	2,897	  	4,121	  	5,565
	 Free cash flow from operations(2)
	  	3,782	  	3,669	  	4,702

	1.	Calculated as: Net income (loss) plus amortization and depreciation. 

  

	2.	Calculated as: Operating Income + Amortization and Depreciation – Industrial Investments – Change in Operating Working Capital. 

  

 8 

Table of Contents

							
	 Balance sheet data
 (millions of
euro)

	  	At 30 Sept.
2004

	  	At 31 Dec.
2003

	  	At 30 Sept.
2003

	 Fixed assets, net
	  	47,544	  	48,604	  	49,858
	 Working capital
	  	230	  	3,079	  	1,063
	 Net invested capital
	  	47,774	  	51,683	  	50,921
	 Financed by:
	  	 	  	 	  	 
	 Shareholders’ equity:
	  	15,533	  	16,356	  	15,688
	 •        Share capital
	  	8,858	  	8,854	  	8,846
	 •        Reserves and retained earnings
	  	5,781	  	4,856	  	4,830
	 •        Net income for the period
	  	894	  	2,646	  	2,012
	 Net financial debt (positive financial position)
	  	32,241	  	35,327	  	35,233
	 •        of which short-term
	  	3,286	  	14,635	  	13,199

  

	1.2.2	Tim, together with the group of which it is the parent company, is one of the leading international groups operating in the telecommunications services sector, and more
specifically in mobile telecommunications under license or in a free market. Its activities include the design, implementation, management and sale of telecommunications, information and communication technology and electronic systems. Tim’s
main international markets are in South America and the Mediterranean basin. 

  

	    	The following tables provide selected historical operating, cash flow and financial data for the Tim Group and Tim, as reported in the financial statements for the first nine months
of financial years 2004 and 2003 and in the 2003 financial statements. 

  

	    	Selected operating, cash flow and financial data for the Tim Group and Tim 

  
 TIM GROUP 
  

							
	 Operating and cash flow data
 (millions of euro)

	  	1.1-
30.9.2004

	  	1.1-
30.9.2003

	  	Year
2003

	 Sales and service revenues
	  	9,499	  	8,635	  	11,782
	 Gross operating profit
	  	4,574	  	4,157	  	5,502
	 Operating income before amortization of goodwill on consolidation differences
	  	3,199	  	3,021	  	3,885
	 Operating income
	  	3,129	  	2,944	  	3,786
	 Income before taxes
	  	3,100	  	3,441	  	4,207
	 Consolidated net income before minority interests
	  	1,724	  	2,041	  	2,456
	 Consolidated net income: Parent Company
	  	1,664	  	1,970	  	2,342
	 Consolidated cash flow(1)
	  	3,048	  	3,156	  	3,998
	 Free cash flow from operations(2)
	  	2,829	  	3,123	  	3,746

	1.	Calculated as: Consolidated net income before minority interests plus amortization and depreciation. 

  

	2.	Calculated as: Operating Income + Amortization and Depreciation – Industrial Investments – Change in Operating Working Capital. 

  

										
	 Balance sheet data
 (millions of
euro)

	  	At 30 Sept.
2004

	 	 	At 31 Dec.
2003

	 	 	 At 30 Sept.
 2003

	 
	 Fixed assets, net
	  	9,247	 	 	9,276	 	 	9,064	 
	 Working capital
	  	(1,925	)	 	(2,407	)	 	(2,015	)
	 Net invested capital
	  	7,322	 	 	6,869	 	 	7,049	 
	 Financed by:
	  	 	 	 	 	 	 	 	 
	 Consolidated shareholders’ equity:
	  	7,382	 	 	7,803	 	 	7,535	 
	 •        Parent Company
	  	6,827	 	 	7,295	 	 	7,049	 
	 •        Minority interests
	  	555	 	 	508	 	 	486	 
	 Consolidated net financial debt
	  	(60	)	 	(934	)	 	(486	)
	 •        Medium/long-term
	  	490	 	 	585	 	 	668	 
	 •        Short-term
	  	(550	)	 	(1,519	)	 	(1,154	)

  

 9 

Table of Contents

 TIM S.p.A. 
  

							
	 Operating and cash flow data
 (millions of euro)

	  	1.1-
30.9.2004

	  	1.1-
30.9.2003

	  	Year
2003

	 Sales and service revenues
	  	7,381	  	6,980	  	9,469
	 Gross operating profit
	  	4,076	  	3,805	  	5,035
	 Operating income
	  	3,201	  	2,969	  	3,863
	 Income before taxes
	  	3,376	  	3,081	  	3,852
	 Net income
	  	2,143	  	1,846	  	2,322
	 Cash flow(1)
	  	2,977	  	2,634	  	3,405
	 Free cash flow from operations(2)
	  	3,038	  	3,409	  	4,201

	1.	Calculated as: Net income (loss) plus amortization and depreciation. 

  

	2.	Calculated as: Operating Income + Amortization and Depreciation – Industrial Investments – Change in Operating Working Capital. 

  

										
	 Balance sheet data
 (millions of
euro)

	  	At 30 Sept.
2004

	 	 	At 31 Dec.
2003

	 	 	At 30 Sept.
2003

	 
	 Fixed assets, net
	  	9,741	 	 	9,161	 	 	8,576	 
	 Working capital
	  	(1,347	)	 	(1,622	)	 	(1,170	)
	 Net invested capital
	  	8,394	 	 	7,539	 	 	7,406	 
	 Financed by:
	  	 	 	 	 	 	 	 	 
	 Shareholders’ equity:
	  	8,899	 	 	8,957	 	 	8,481	 
	 •        Share capital
	  	514	 	 	514	 	 	514	 
	 •        Reserves and retained earnings
	  	6,242	 	 	6,121	 	 	6,121	 
	 •        Net income for the period
	  	2,143	 	 	2,322	 	 	1,846	 
	 Net financial debt
	  	(505	)	 	(1,418	)	 	(1,075	)
	 •        of which short-term
	  	(505	)	 	(1,418	)	 	(1,075	)

  

	1.3	Reasons for the Merger, business objectives and plans to achieve them 

  

The Merger satisfies a series of business needs prompted by the progressive, increasing integration between fixed and mobile communications platforms. The evolution of
the market and the defense of the creation of value also require an adaptation of business models and organizational strategies, an objective that the merger by incorporation of Tim into Telecom Italia is intended to promote, in order to strengthen
the competitiveness of the post-Merger company. 
  
 To capture the benefits made
available by the integration of platforms and services, at a time of significant technological discontinuity, it is desirable to undertake a corporate structural reorganization that will guarantee the unitary governance of business processes that a
situation of partial control of capital does not fully allow. The corporate integration that will be implemented will make it possible to overcome the constraints inherent in the existing ownership structure, notwithstanding the scope for
coordination typical of a group structure. Today, in fact, the process of integration is inevitably conditioned by the existence of two sets of shareholders in the market, whose interests have to be pursued separately as regards strategic
investments and business plans. Only complete integration can overcome these limitations, by eliminating every possible conflict and simultaneously promoting the most efficient distribution of costs and benefits between the parent company and the
subsidiary. 
  
 The reorganization will make it possible to respond to the need
for integration expressed by customers, to capitalize on the complementary features of the services offered in order to foster consumption, and at the same time to capture all the benefits deriving from the synergies between the different business
areas. 
  
 The demand for telecommunications services is growing, driven by the
spread of broadband in wireline business and by the new services supplied in the mobile segment. In particular: 
  

	–	electronic communications on the wireline network have enriched the supply of traditional “voice” and “data” services by adding the innovative services made
possible by XDSL technology and fiber optics; 

  

	–	electronic communications on the new-generation mobile networks (GPRS, EDGE and UMTS) now afford mobility not only for voice services but also for data, Internet and media services.

  
 There are sectors in which customers increasingly feel the need
to use the services made possible by the new technologies seamlessly, regardless of where they are. Furthermore, technological innovation is significantly 

  

 10 

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increasing the interaction between the different networks (fixed and mobile, voice and data) and between the supply of telecommunications services and that
of adjacent sectors, such as information technology, media and consumer electronics. 
  
 The leading manufacturers of telecommunications equipment and terminals have oriented their technological investments to satisfying the market’s new needs: 
  

	–	telecommunications networks are rapidly evolving into “multimedia networks” thanks to the spread of the IP protocol and the adoption of homogeneous wireline and mobile
multiservice platforms; 

  

	–	the new wireline and mobile terminals satisfy multiple functions and convergent handsets permit seamless access to wireline and mobile services. 

  
 The rapid spread of this equipment will allow telecommunications operators to benefit from
the potential synergies deriving from a more closely integrated management of wireline and mobile electronic communications businesses and thus to be well positioned to cope with a scenario likely to be characterized by the saturation of the market
in traditional telephone services and the trend of eroding prices and margins. 
  
 The leading operators in the Italian and European telecommunications market are preparing to respond to the latest technological and market developments on three main fronts: 
  

	–	better coordination and distribution of customer relations between the various segments (integration of sales channels and responsibilities for specific segments, brand management);

  

	–	strengthening of certain critical functions for comparative advantage (guidance of IT and network technological choices; management of research; purchasing; content acquisition and
management; and coordination of supply policies); 

  

	–	defense of margins through programs to recoup efficiency by exploiting synergies across the different business areas (common management of IT and network infrastructures, convergent
evolution of applications platforms, and common content acquisition and management). 

  
 In this setting, the Telecom Italia Group already ranks in the top tier among European competitors in all business areas in terms of growth, profitability and product innovation. This is the result of the substantial
investments made in technological innovation, which today provide the Group with a network infrastructure considered future-proof, ready to host and handle the portfolio of new generation products and services. 
  
 As mentioned above, however, the evolution of the market and the defense of the creation of
value also require an adaptation of current business models and organizational strategies, an objective that the merger by incorporation of Tim into Telecom Italia is intended to promote. 
  
 The Merger, together with the Spin-Off, will simplify the Group’s ownership structure by maintaining the domestic mobile communications
business under an unlisted, wholly owned subsidiary of Telecom Italia, thereby creating optimal conditions for grasping the opportunities to realize the synergies referred to above. 
  
 The following additional advantages will also be pursued through the Merger: 
  

	–	to optimize financial and cash flows within the Group by managing Group debt more efficiently and making better use of financial leverage. At the same time, Telecom Italia’s
current shareholders will have access to all the cash flow generated by the mobile communications business; 

  

	–	to enable Telecom Italia to optimize, in conjunction with the Tender Offer, its own financial structure and to reduce the weighted average cost of capital employed compared with its
current cost. In fact, the purchase of Tim shares is financed by means of an increase in net financial debt, whose cost, net of the tax effect, is lower than the cost which would have been incurred by the additional amount of equity not issued in
exchange for Tim shares acquired in the Tender Offer. The consequent reduction in the weighted average cost of capital is likely to favor the full value potential of the shares of Telecom Italia as the company resulting from the Merger and thus the
creation of value for the shareholders. 

  
 As mentioned above, the
Merger serves to promote the adaptation of the Group’s business models and organizational strategy to the evolution of the market and the defense of the creation of value for shareholders. 
  
 The integration process, involving actions designed to improve efficiency and to enhance
strategic and operational effectiveness, primarily concerns the Networks and Information Technology, Customer Operations, 

  

 11 

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the Supply of Innovative Services and Sales Channels business areas and will be implemented in compliance with applicable sector and antitrust laws. The main
projects under consideration concern: 
  
 Networks and Information
Technology 
  

	•	 	Joint development of network and platform architectures for wireline and mobile products and services; 

  

	•	 	Integration and synergies in connection with networks for access traffic and IP backbone traffic, for example, through joint planning of requirements and development processes;

  

	•	 	Joint development, operation and maintenance of network information systems; 

  

	•	 	Design of the new integrated network model. 

  
 Customer Operations 
  

	•	 	Joint development of IT applications providing support for the management of the business; 

  

	•	 	Increase in customer care efficiency and service levels by adoption of the best practices developed in Telecom Italia and Tim; 

  

	•	 	Synergies in connection with the supply of customer information services (e.g., the 12 and 412 customer information services). 

  
 Supply of Innovative Services and Sales Channels 
  

	•	 	Development of convergent services for the consumer market (e.g., seamless access to mail, interoperability of fixed and mobile services, and standardization of mimicking) and for
the business market (e.g., mobile use of corporate applications by means of extended enterprise models); 

  

	•	 	Increase in the effectiveness of sales channels and search for efficiency gains in overlapping commercial services while maintaining separate offers; 

  

	•	 	Development of a multimedia portal accessible from fixed and mobile network terminals and enhancement of Group contents and brands. 

  
 Procurement 
  

	•	 	Optimization of the distribution logistics for commercial products; 

  

	•	 	Exploitation of the synergies between network operating structures and joint evaluation of make-or-buy options; 

  

	•	 	Elimination of duplication and harmonization of service standards in Facility Management and General Services. 

  
 Working groups have been formed to define the scope for integration, specify and develop
integration plans and lay down how they are to be implemented. The groups are headed by an Integration Committee that provides guidance and control, by ensuring observance of specific responsibilities over the development of the overall integration
plan. Consistently with the integration plan, the organizational and operational restructuring will be based on three guidelines: a market plan aimed at increasing the effectiveness of customer relations; an efficiency plan for the rationalization
of internal and external structures; and an organizational development plan. The synergies expected from the Merger, the broad outlines of which have already been identified and whose economic benefits and other advantages will be detailed and
announced by mid-April 2005, are the result of analyses and evaluations undertaken by the managers involved in the integration plans referred to above. 
  

	
2.	The values attributed to Telecom Italia and Tim for the purpose of determining the exchange ratio 

  
 For the valuations needed to establish the exchange ratio, Telecom Italia’s Board of Directors was assisted by qualified financial
advisors, namely JPMorgan Chase Bank N.A. (“JPMorgan”), Mediobanca and MCC, acting as Lead Advisors. Furthermore, in accordance with international best practice, the Committee responsible for internal control and corporate
governance (consisting exclusively of independent directors) appointed as additional financial advisor Goldman Sachs International (“Goldman Sachs”). 
  
 Telecom Italia’s Board of Directors — taking into account the foreseen distribution of dividends on Telecom Italia and TIM shares
in April 2005, assumed to be in line with the respective dividends per share paid in May 2004, and 

  

 12 

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after careful analysis of the valuations presented by the financial advisors, with whose valuation methodologies applied and described in Section 3 below it
agreed — has identified the following ranges for the values of the shares of the companies participating in the Merger for purposes of establishing the exchange ratio: 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Values per Tim ordinary share (euros)
	  	5.07	  	5.33	  	5.58

  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Values per Tim savings share (euros)
	  	5.05	  	5.31	  	5.57

  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Values per Telecom Italia ordinary share (euros)
	  	2.89	  	3.12	  	3.34

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Values per Telecom Italia savings share (euros)
	  	2.09	  	2.25	  	2.41

  
 It should be noted that the values in
the above tables, as well as those in all the tables in Section 3 below, have been rounded, albeit without any material impact on the results. 
  

	
3.	The exchange ratio established and the methods applied in its determination 

  

	3.1	Valuation methodologies applied 

  

	3.1.1	As a preliminary matter, it should be noted that the aim of the valuation of the companies participating in a merger is to obtain values that are meaningfully comparable.

  

	    	Consistent with this objective, and in accordance with standard practice, a uniform yardstick must be adopted throughout the whole valuation process in order to protect the
interests of the shareholders of Telecom Italia and Tim, respectively. This does not necessarily mean that identical valuation methods must be used for all the companies directly or indirectly involved in a merger, especially if they operate in
different sectors, but rather that the same approach to valuation must be adopted. 

  

	    	Since, as mentioned above, the exclusive objective of merger valuations is to establish meaningfully comparable values, it must be emphasized that the methods adopted in the context
of valuations for merger purposes and the related results may differ from those used for valuations having different purposes. 

  

	    	Accordingly, the exchange ratio was established by applying valuation methodologies that are commonly used in Italy and internationally for transactions of this kind and for
businesses active in the relevant sectors. 

  

	    	In particular, account was taken of the comparative valuation of the companies involved and priority was given to the homogeneity and comparability of the criteria applied rather
than a simple estimate of the equity value of each company on a stand-alone basis. 

  

	    	In this perspective, the valuations were undertaken considering, as required, the two companies as separate entities notwithstanding the strategic, operational and financial
synergies expected from the Merger, as well as control premiums and minority discounts associated with the holding of equity interests. 

  

	3.1.2	For the valuation of Tim, the fundamental method applied was the Discounted Cash Flow method. 

  

	    	The Discounted Cash Flow method determines the value of a company or an economic activity as a whole. It is based on the assumption that the value of a company or an economic
activity is equal to the present value of future cash flows. These flows can be determined analytically as follows: 

  

	 	+	Earnings before interest and tax (EBIT) 

  

	 	-	Taxes 

  

	 	+	Depreciation and other non-cash allowances 

  

	 	-	Fixed investments 

  

	 	+/-	Change in net working capital 

  

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	    	Under this method, the value of the economic capital of a company or an economic activity is equal to the sum of (i) the discounted value of the expected cash flows and (ii) the
terminal value of the company or the economic activity, less (iii) the net financial debt and minority interests, as expressed by the following formula: 

  

													
	W	 	=	 	 n
 S
 t=1
	 	 FCt

 (1+WACC)t
	 	+	 	 VT 

 (1+WACC)n
	 	-DFt0
	 	 	 	 	 	 
	 	 	 	 	 	 

  

					
	 where:
	 	 	  	 
			
	 W
	 	 =
	  	Value of the economic capital
	 FC t
	 	 =
	  	Annual cash flow expected in period t
	 VT
	 	 =
	  	Terminal value
	 DF
	 	 =
	  	Net financial debt and minority interests at time t=0
	 n
	 	 =
	  	Number of projection periods
	 WACC
	 	 =
	  	Weighted average cost of capital

  

	    	The terminal value is the value of the company or economic activity to be valued at the end of the period covered by the projections and is determined assuming that the duration of
the business is unlimited. 

  

	    	The terminal value was determined using two alternative methods: 

  

	    	(i) the perpetual growth method in accordance with the following formula: 

  
 VT = FC / (WACC – g) 
  

	    	where: 

  

					
	 VT
	 	 =
	  	Terminal value
	 FC
	 	 =
	  	Normalized cash flow
	 g
	 	 =
	  	Perpetual growth rate
	 WACC
	 	 =
	  	Weighted average cost of capital

  

	    	(ii) the exit multiple method, according to which the terminal value is determined based on a multiple of the EBITDA expected for the last year of the period covered by the
projections considered. 

  

	    	The terminal value obtained in this way is treated as if it were an additional cash flow and thus is discounted using the weighted average cost of capital, which represents the
weighted average (on the basis of the financial structure of the company economic activity) of the costs of the different forms of financing used (equity capital and debt capital net of tax effects): 

  

													
	 WACC
	 	 =
	 	 Kd (1 – t)
	 	 D

	 	 +
	 	Ke	 	 E

	 	 	 	D + E	 	 	 	D + E

  

	    	where: 

  

					
	 Kd
	 	 =
	  	Cost of debt capital
	 Ke
	 	 =
	  	Cost of equity capital
	 D
	 	 =
	  	Debt capital
	 E
	 	 =
	  	Equity capital
	 t
	 	 =
	  	Tax rate

  

	    	In particular, the cost of debt capital represents the long-term interest rate applicable to companies or economic activities with a similar risk profile, net of the tax effect. The
cost of equity capital, in contrast, reflects the rate of return expected by the investor taking into account the relative risk, calculated using the Capital Asset Pricing Model, expressed in accordance with the following formula:

  
 Ke = Rf +
ß(Rm – Rf ) 
  

	    	where: 

  

					
	 Ke
	 	 =
	  	Cost of equity capital
	 Rf
	 	 =
	  	Rate of return on risk-free investments
	 ß
	 	 =
	  	Coefficient that measures the correlation between the rate of return expected on an investment and the rate of return expected on the reference equity market
	 Rm
	 	 =
	  	Expected equity market rate of return
	 (Rm – Rf)
	 	 =
	  	Risk premium required by the equity market compared to the rate of return on risk-free investments

  

 14 

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	3.1.3	For the valuation of Telecom Italia, the fundamental method applied was the Sum-of-the-Parts method, which represents standard market practice for the valuation of a group
operating in several sectors. 

  

	    	Under the Sum-of-the-Parts method, the value of a company’s economic capital is calculated as the sum of the values of its separate units, as economic entities that can be
valued independently, suitably adjusted to take into account the company’s financial position and minority interests, where material, and other factors such as off-balance-sheet items and potential tax benefits. 

  

	    	As regards the separate units, in view of the complexity and extent of the structure of the Telecom Italia Group and of the many sectors in which it operates, it was deemed
advisable to value each of them on the basis of the methodologies considered most appropriate to the specific circumstances. In particular, the valuation of the principal assets was based on the Discounted Cash Flow method, while the remaining
assets, which are of limited importance in the overall valuation, were valued using, depending on the circumstances, the stock market price method, the market multiples method, balance sheet values, the Discounted Cash Flow method and/or the values
published in analysts’ research reports on such activities, where available. 

  

	3.1.4	The exchange ratios obtained by applying the above methods were tested using the stock market price method, which, in this case involves a consideration of the ratio between
the stock market prices of the shares of the companies participating in the merger. 

  

	    	This method is considered significant in merger valuations when the average volumes traded are large; in such circumstances, the prices established by the financial markets provide
a meaningful baseline for purposes of a comparison of the profitability, soundness, growth prospects and risk profile of the companies from the perspective of investors and thus for the ratio between the values of the companies involved in the
merger. 

  

	    	In applying this method, it is necessary to strike a balance between the need to mitigate the volatility of daily share prices by considering a sufficiently long period and the need
to use recent data that are indicative of the market values of the companies in question. 

  

	    	Since both Tim and Telecom Italia are listed on Borsa Italiana’s Mercato Telematico electronic share market and are among the largest Italian companies in terms of
market value, it was considered that the stock market prices method constituted a reliable benchmark. 

  

	3.2	Application of the chosen valuation methodologies 

  
 This subsection contains a description of the manner in which the valuation methods discussed in Subsection 3.1 above were applied to the companies participating in the
Merger in order to determine the exchange ratios. 
  
 In the case of the
activities for which the Discounted Cash Flow method was used, as mentioned in the previous subsection, the method was applied with a view to determining the fundamental value of the companies for financial investors and on the basis of the
following approach: 
  

	–	reference was made to the cash flows of the individual activities as set forth in the business and financial plans developed by the business units of the Telecom Italia Group;

  

	–	the growth rates used for the financial projections beyond 2007, used by certain financial advisors, as well as the growth rates for the calculation of the terminal value in
accordance with the perpetual growth method, reflect growth prospects consistent with the relevant market benchmarks. The terminal value, where determined on the basis of this method, is consistent with the multiples implicit in the current prices
of comparable companies. Moreover, multiples of comparable companies represent the basis for the calculation of the terminal value using the alternative exit multiple method; 

  

	–	the weighted average cost of capital (WACC) reflects assumptions which are consistent with market benchmarks relating to the cost of debt capital and the cost of equity capital
(rate of return on risk-free investments, Beta coefficient, risk premium required by the equity market), as well as with the capital structure of the activity to be valued. 

  
 In applying the Discounted Cash Flow method, reference was made to the cash flows from operations for the main activities based on the
update, for the period 2004-2007, of the business and financial plans approved and announced to the market in March 2004. The plans were developed by management in accordance with the strategic, operating and financial objectives of the Group. Both
the average annual organic growth rate (i.e. at constant scope of consolidation and exchange rates) of EBITDA (2003-2006 compound annual growth rate, or CAGR, in excess of 5.5%) and the Net Financial Position at 31 December 2004 (less than Euro 30
billion) were confirmed. 
  

 15 

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 As regards the main Business Units, on the one hand, fixed telephony, in a market which continues to enjoy prospects of
an average annual growth rate higher than 2%, confirms an average annual organic growth rate of EBITDA in excess of 2%, primarily due to a stable customer base, achieved by broadening the range of wireline services and products offered and by the
growth of broadband services in Italy and abroad (France and Germany), also driven by the launch of new value added services (VAS) and innovative content. 
  
 On the other hand, mobile telephony confirms its main growth drivers in the domestic business: development and differentiation of the wireless services and products
offered: enhancement of value added services (multi-messaging and interactive VAS); customer focus; technological strength (EDGE/UMTS and combined services); and an increase in the average revenue per user (ARPU). The growth of the international
business, where it has been decided to exit the Venezuelan market, continues to be driven by Brazil. In Brazil, a substantial expansion of the customer base is expected and the second position will be maintained through the continuation of the
strengthening of customer care, brand development and positioning innovation in the services and products offered, and improved territorial coverage. This allows a double-digit EBITDA average annual organic growth trend for the mobile communications
activity as a whole and gross operating profits of more than 53% for the Italian market to be confirmed, in line with the figures announced to the market. 
  
 In reaching its own conclusions, Telecom Italia’s Board of Directors acknowledged that, among a number of available valuation methods, each financial advisor used
those valuation methods deemed more appropriate considering the activities of both the Absorbing Company and the Company to be Absorbed, and that, in spite of the different methods adopted, all financial advisors reached consistent conclusions.

  

	3.2.1	Tim 

  
 As mentioned above, Tim was valued using the Discounted Cash Flow methodology as the fundamental method, for verification and control purposes, the methodologies of market multiples, transaction multiples and the
values published in analysts’ research reports, where available, were used. 
  
 The estimated Net Financial Position at 31 December 2004, adjusted to take account of minority interests, where material, the effects of the expected sale of Corporacion Digitel (Venezuela) and certain tax benefits, was added to the value
calculated in accordance with the methodologies mentioned in the preceding paragraph. 
  
 The table below shows the minimum, mean and maximum values per Tim ordinary share, obtained using the fundamental method described above, before the distribution of dividends expected in April 2005, and thus before the completion of the
Merger. 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Values per Tim ordinary share (euros)
	  	5.32	  	5.58	  	5.84

  
 The table below shows the minimum,
mean and maximum values per Tim savings share calculated on the basis of the average market discount of the last month, last three months and last six months before 3 December 2004, as well as the discount on the last day of trading of Telecom
Italia and Tim shares before the announcement of the transaction (3 December 2004), resulting in the application of a discount of approximately zero. 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Values per Tim savings share (euros)
	  	5.31	  	5.58	  	5.84

  
 The table below shows the minimum,
mean and maximum values per Tim ordinary and savings share, obtained using the fundamental method described above, and adjusted for the distribution of dividends expected in April 2005. 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Values per Tim ordinary share (euros)
	  	5.07	  	5.33	  	5.58
	 Values per Tim savings share (euros)
	  	5.05	  	5.31	  	5.57

  
 It should be noted that the potential
exercise of financial instruments that may give rise to the subscription of Tim shares (stock options) was taken into account solely to the extent that their exercise was reasonably likely on the basis of their relative profitability. 
  

 16 

Table of Contents

	3.2.2	Telecom Italia 

  
 As mentioned above, Telecom Italia was valued using the Sum-of-the-Parts methodology as the fundamental method. 
  
 In applying this method, the valuation of the principal activities (Telecom Italia S.p.A. and Tim) was based primarily on the Discounted Cash Flow method. In particular,
Tim was valued based on the range of values obtained using this method. Depending on the circumstances, the remaining activities – listed below – were valued using the stock market price method, the market multiples method, balance sheet
values, the Discounted Cash Flow method and/or the values published in analysts’ research reports on such activities, where available: 
  

	–	fixed telephony activities included in the Wireline division but outside the perimeter of Telecom Italia S.p.A.; 

  

	–	Telecom Italia Media group; 

  

	–	IT Services Market division; 

  

	–	Olivetti Tecnost group; 

  

	–	equity interests in Entel Bolivia and Entel Chile; 

  

	–	other activities and equity interests. 

  
 The estimated net financial position at 31 December 2004, adjusted to take account of the effects of the proportional net indebtedness and minority interests, where
material, certain off-balance-sheet items and tax benefits, as well as the pro forma effect of the conversion of the Telecom Italia 1.5% 2001-2010 convertible bonds with redemption premium (consistent with the fully-diluted method, which assumes the
conversion into ordinary shares), was added to the sum of the values obtained in the manner described in the preceding paragraph. 
  
 The Telecom Italia treasury shares held both directly and indirectly were valued using the method which consists in determining the value of a Telecom Italia share by
dividing the value of the company’s economic capital (calculated without considering the holding of treasury shares) by the number of shares (fully-diluted), excluding the treasury shares. 
  
 The table below shows the minimum, mean and maximum values per Telecom Italia ordinary share,
obtained using the Sum-of-the-Parts fundamental method, before the distribution of dividends expected in April 2005, thus before the completion of the Merger. 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Values per Telecom Italia ordinary share (euros)
	  	2.99	  	3.22	  	3.44

  
 The table below shows the minimum,
mean and maximum values per Telecom Italia savings share calculated on the basis of the average market discount of the last month, last three months and last six months before 3 December 2004, as well as the discount on the last day of trading of
Telecom Italia and Tim shares before the announcement of the transaction (3 December 2004), resulting in a discount of between 26% and 27%. 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Values per Telecom Italia savings share (euros)
	  	2.21	  	2.37	  	2.52

  
 The next table shows the minimum, mean
and maximum values per Telecom Italia ordinary and savings share, obtained using the Sum-of-the-Parts fundamental method, and adjusted for the distribution of dividends expected in April 2005. 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Values per Telecom Italia ordinary share (euros)
	  	2.89	  	3.12	  	3.34
	 Values per Telecom Italia savings share (euros)
	  	2.09	  	2.25	  	2.41

  
 It should be noted that the potential
exercise of financial instruments that may give rise to the subscription of Telecom Italia shares (stock options and convertible bonds) was taken into account solely to the extent that their exercise was reasonably likely on the basis of their
relative profitability. 
  
 It should also be noted that the effects of the Offer
for Tim ordinary and savings shares do not require the Exchange Ratio to be altered since the Offer was made on terms consistent with the valuations used to determine 

  

 17 

Table of Contents

 
the Exchange Ratio. In fact, in the context of the valuation of Telecom Italia, the acquisition of the Tim shares tendered in the Offer increases the value
of the equity interest in Tim substantially equivalent to the increase in Telecom Italia’s net financial debt, which, moreover, will be at a level consistent with Telecom Italia’s current rating. The overall effect is that the value of
Telecom Italia’s equity will remain substantially unchanged. 
  

	3.2.3	Determination of the exchange ratios 

  
 The following table summarizes the range of the estimates of the exchange ratios calculated in accordance with the methods and the criteria discussed in the preceding
subsections, as the quotient of the estimated value per Tim ordinary and savings share and the estimated value per Telecom Italia ordinary and savings share using the minimum and maximum values of the ranges reported earlier. 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Telecom Italia ordinary shares per Tim ordinary share
	  	1.67	  	1.71	  	1.75
	 Telecom Italia savings shares per Tim savings share
	  	2.31	  	2.36	  	2.42

  
 The Board of Directors, in the light
of the information provided by JPMorgan, Mediobanca, and MCC, as well as Goldman Sachs, and after considering the results of the application of the above-mentioned valuation methods, reached a conclusion with regard to the ratios existing between
the economic values of the two companies participating in the Merger. 
  
 This
conclusion was then compared with that reached by the Board of Directors of Tim, in taking into consideration the information provided by its own advisors, Lazard & Co. S.r.l and Credit Suisse First Boston, as well as Merrill Lynch International
Milan office and Studio Casò, represented by Dott. Angelo Casò, who were directly appointed by Tim’s Committee for Internal Control (consisting exclusively of independent directors). 
  
 At the end of the valuation process and the comparison between the results obtained, the
Board of Directors of Telecom Italia and the Board of Directors of Tim determined that: 
  

	(i)	the exchange ratio on the basis of which the assignment of the ordinary shares of Telecom Italia will be made is: 

  
 1.73 Telecom Italia ordinary shares, with a par value of Euro 0.55 per
share 
 for each 
 1
Tim ordinary share, with a par value of Euro 0.06; 
  

	(ii)	the exchange ratio on the basis of which the assignment of the savings shares of Telecom Italia will be made is: 

  
 2.36 Telecom Italia savings shares, with par value of Euro 0.55 per share

 for each 
 1 Tim
savings share, with a par value of Euro 0.06. 
  
 The above exchange ratios
must be verified by the experts appointed under Article 2501-sexies of the Civil Code, namely the accounting firm of Reconta Ernst & Young S.p.A., appointed by the Turin Court, for Tim, and the accounting firm of Mazars & Guerard
S.p.A., appointed by the Milan Court, for Telecom Italia, for purposes of issuing the opinion required by law. 
  

	3.2.4	Control methodologies 

  
 In order to verify the accuracy of the exchange ratios determined applying the methodologies described above, a further check was made using the stock market price
method. 
  
 The method was applied taking into consideration the average exchange
ratios (Telecom Italia ordinary shares per Tim ordinary share and Telecom Italia savings shares per Tim savings share) expressed by the market in different periods prior to the day on which Borsa Italiana S.p.A. suspended trading in the Telecom
Italia and Tim securities in view of the forthcoming announcement of the transaction (the ratios given by the official prices recorded on 3 December 2004 and the averages of the official prices in the preceding 1, 3, 6 and 12 months), adjusted for
the effect of the distribution of dividends expected in April 2005, before the completion of the Merger. 
  

 18 

Table of Contents

 In contrast, the stock market prices of Tim and Telecom Italia shares after the announcement of the transaction were not
taken into account because they were affected by the announcement and were therefore not deemed to be relevant. 
  
 The following table shows the average exchange ratios obtained with reference to the different periods specified above. 
  

													
	 	  	3/12/04

	  	 1
 month

	  	 3
 months

	  	 6
 months

	  	 12
 months

	  	 12
 months*

	 Telecom Italia ordinary shares per Tim ordinary share
	  	1.72	  	1.69	  	1.71	  	1.74	  	1.75	  	1.74
	 Telecom Italia savings shares per Tim savings share
	  	2.47	  	2.41	  	2.36	  	2.39	  	2.44	  	2.45

	*	Average exchange ratios calculated by adjusting the official prices before 24 May 2004 for the distribution of reserves made that day. 

  
 The next table shows the minimum, mean and maximum values of the average exchange ratios
(Telecom Italia ordinary shares per Tim ordinary share and Telecom Italia savings shares per Tim savings share) expressed by the stock market in the periods considered above. 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Telecom Italia ordinary shares per Tim ordinary share
	  	1.69	  	1.72	  	1.75
	 Telecom Italia savings shares per Tim savings share
	  	2.36	  	2.42	  	2.47

  
 The above figures are consistent with
the exchange ratios determined using the fundamental values described in the previous subsection. 
  

	
4.	Procedure for assigning Telecom Italia shares 

  
 The newly issued shares earmarked for the exchange will be assigned to the persons entitled to such shares, through their authorized intermediaries who are participants
of the Monte Titoli S.p.A. central securities depository, at the effective date of the Merger. 
  
 Non-dematerialized Tim shares may only be exchanged upon delivery of such shares to an authorized intermediary for deposit with the central securities depository on a dematerialized basis. 
  
 As part of the procedure for the assignment of Telecom Italia shares, the authorized
intermediaries will provide Tim minority shareholders with a service to handle any fractions of shares, at market prices and at no cost in terms of expenses, stamp duty or commissions, that will permit the number of newly issued shares to which the
shareholders are entitled on the basis of the exchange ratios to be rounded up or down to the nearest whole number. 
  

	
5.	Effective date of the Merger and entitlement date 

  
 Pursuant to Article 2504-bis, second paragraph, of the Civil Code, the Merger will be effective from the date of the last filing of the merger deed required by
Article 2504, or from such later date as may be specified in the merger deed itself. 
  
 Accordingly, as of the effective date of the Merger, Telecom Italia will assume all of Tim’s assets, rights and liabilities. Since the Spin-Off is to occur before the Merger is effective, Tim Italia will succeed to all the permits,
concessions, licenses and administrative authorizations held by Tim for the provision of mobile communications services in Italy. The Merger will therefore result in Telecom Italia succeeding only to such Tim assets and liabilities as have not been
transferred in connection with the Spin-Off. 
  
 In accordance with the combined
effect of Articles 2504-bis, third paragraph, and 2501-ter, first paragraph, subparagraph 6, of the Civil Code, the transactions effected by Tim will be attributed to and recorded in Telecom Italia’s accounts as of 1 January of
the year in which the Merger becomes effective, or 1 January 2005, in accordance with the planned timetable for the Merger. The same date will apply to the tax effects, pursuant to Article 172.9 of Presidential Decree No. 917 of 22 December 1986.

  
 The Telecom Italia shares issued in the exchange will have normal entitlement
to all the rights appertaining thereto and will therefore have equivalent rights to the Telecom Italia shares outstanding at the time of issuance. 
  

 19 

Table of Contents

	
6.	Italian Tax Effects of the Merger on Telecom Italia and Tim 

  

	6.1	Tax neutrality 

  
 For Italian income tax purposes, pursuant to Article 172.1 of the Consolidated Income Tax Law (Presidential Decree No. 917 of 22 December 1986), the Merger is tax neutral and therefore does not constitute a sale or
distribution of capital gains and losses on the assets of the merged or incorporated company, including inventories and goodwill. 
  

	6.2	Merger goodwill 

  
 As regards the position of Telecom Italia, there is no merger goodwill to be recognized as income for tax purposes, and thus merger differences will have no material tax impact. 
  

	6.3	Reserves for tax-deferred income 

  
 The reserves for tax-deferred income reported in Tim’s latest financial statements, and existing at the effective date of the Merger, will be treated in accordance
with the specific provisions of Article 172.5 of Presidential Decree No. 917 of 22 December 1986, and, if applicable, will be re-established. 
  

	6.4	Registration fee 

  
 The merger deed is subject to a registration fee of €129.11, pursuant to Article 4.b) of the first part of the schedule attached to Presidential Decree No. 131 of 26
April 1986. 
  

	6.5	Italian Tax Effects on shareholders of Telecom Italia 

  
 Pursuant to Article 172.3 of Presidential Decree No. 917 of 22 December 1986, the exchange of Tim shares for Telecom Italia shares does not constitute a sale, a
distribution of capital gains or losses, or a source of income, as the transaction merely involves the replacement in shareholders’ portfolios of the shares of Tim by shares of Telecom Italia. Accordingly, the basis in the Tim shares will be
transferred to the shares obtained in the exchange. 
  
 *    *    * 
  
 Shareholders
resident in countries outside Italy are urged to consult their own tax advisors about the tax effects of the Merger in their own jurisdictions. 
  

	
7.	Expected major shareholdings and control of Telecom Italia 

  
 At 23 January 2005, on the basis of Telecom Italia’s shareholder register and the disclosures made by shareholders pursuant to Article 120 of Legislative Decree No.
58 of 24 February 1998, persons holding directly or indirectly more than 2% of Telecom Italia’s outstanding ordinary shares with voting rights were as follows: 
  

					
	 Shareholders

	  	 Number of
 ordinary shares held

	  	% of ordinary
share capital

	 Olimpia S.p.A.
	  	1,751,765,823	  	16.96
	 Brandes Investment Partners LLC (*)
	  	372,896,243	  	3.61
	 Hopa S.p.A. (**)
	  	361,364,703	  	3.50
	 Assicurazioni Generali S.p.A. (***)
	  	288,964,287	  	2.80
	 Bank of Italy (****)
	  	231,499,817	  	2.24

	*	Disclosure pursuant to Article 121.3 of the Regulation on Issuers. 

  

	**	Shares held through the subsidiary company Holinvest S.p.A. 

  

	***	The list of companies through which the shares are held is available on the Internet at www.consob.it. 

  

	****	Shares partly held by the Bank of Italy’s supplementary pension fund. 

  
 Telecom Italia’s post-Merger shareholdings will be affected by a number of factors and, in particular, by the conversion of Telecom
Italia (formerly Olivetti) 1.5% 2001-2010 convertible bonds with redemption premium and the number of Telecom Italia and Tim stock options that are exercised. As regards the bonds, at 21 January 2005 conversion requests had been received for
463,187,994 additional Telecom Italia shares, compared to the share capital recorded in the Company Register at the same date. 
  

 20 

Table of Contents

 The following table summarizes the foreseeable composition of Telecom Italia shareholders with holdings in excess of 2%
of the ordinary share capital, assuming that no bonds are converted (in addition to those related to the requests submitted by 21 January 2005, which are not yet reflected in Telecom Italia’s share capital filed with the Company Register but
are considered for purposes of this analysis) and that no stock options are exercised. 
  
 The table is based exclusively on information in the Telecom Italia shareholders’ register or disclosed by shareholders pursuant to Article 120 of Legislative Decree No. 58 of 24 February 1998. 
  

					
	 Shareholders

	  	 Number of
 ordinary shares held

	  	% of ordinary
share capital

	 Olimpia S.p.A.
	  	1,751,765,823	  	13.46
	 Brandes Investment Partners LLC
	  	372,896,243	  	2.87
	 Hopa S.p.A.
	  	361,364,703	  	2.78
	 Assicurazioni Generali S.p.A.
	  	288,964,287	  	2.22

  
 It is also worth noting that, on 21
December 2004, Olimpia S.p.A. announced the approval by its extraordinary shareholders’ meeting of an increase in capital of €2 billion by means of a rights issue, the proceeds of which will be used to purchase Telecom Italia shares. On 23
January 2005, Olimpia S.p.A. further announced that it had entered into two forward contracts to buy Telecom Italia ordinary shares and bonds convertible into Telecom Italia ordinary shares, respectively. The execution of these contracts –
subject to the subscription of the above-mentioned capital increase – will entail an expenditure of appropriately €1 billion. On the same date, Olimpia S.p.A. also announced that the other parties to the contracts already held shares and
convertible bonds corresponding to approximately 310 million Telecom Italia ordinary shares. 
  
 Upon completion of the Merger, no shareholder is expected to control Telecom Italia. 
  

	
8.	Effects of the merger on shareholders’ agreements falling within the scope of Article 122 of Legislative Decree No. 58 of 24 February 1998 

  
 The parties to the shareholders’ agreements falling within the scope of Article 122 of
Legislative Decree No. 58 of 24 February 1998 that concern the companies participating in the Merger have not made any notifications concerning the possible effects of the transaction on such agreements. 
  

	
9.	Amendments to the bylaws 

  
 As mentioned above, in connection with the Merger, Article 5 of Telecom Italia’s bylaws concerning the company’s share capital will be amended
as necessary to take into account the issuance of shares in relation to the exchange ratios referred to in Section 4 above. 
  
 The maximum increase in Telecom Italia’s share capital for the purposes of the share exchange, 
  

	•	 	considering the maximum amount by which Tim’s existing share capital may be increased, among other things, as a consequence of the exercise of stock options granted and still
valid; and 

  

	•	 	on the basis of the exchange ratios indicated in Section 4 above, 

  
 will be a maximum of €1,420,690,865.55, through the issuance of a maximum of 2,291,344,587 new Telecom Italia ordinary shares and a maximum of 291,729,714 new
Telecom Italia savings shares, all with a par value of €0.55 per share. The maximum amount of the increase in Telecom Italia’s share capital for purposes of the share exchange has been calculated without considering the Tim ordinary and
savings shares held by Telecom Italia as a result of the Tender Offer or Tim’s treasury shares, which will not be exchanged in the Merger. 
  
 Article 5 of Telecom Italia’s bylaws will also be amended to take into account the increases in capital for Tim’s stock-option plans. Telecom Italia will take
over these plans and issue a number of new ordinary shares for their implementation adjusted on the basis of the exchange ratio adopted for the Merger; while the exercise price of each option will remain unchanged. 
  
 In other words, the owners of Tim stock options will have the right to purchase at the
predetermined price not the original number of ordinary shares of Tim but the larger number of ordinary shares of Telecom Italia, as the company resulting from the Merger, determined on the basis of the exchange ratio of 1 to 1.73. The unit price of
ordinary shares deriving from the exercise of stock options will therefore be that obtained for each plan by dividing the original price by 1.73. 
  

 21 

Table of Contents

 In more detail, Telecom Italia will approve an overall maximum increase in capital, divided into the following tranches,
each of which is severable: 
  

	a)	an increase of up to €11,705,656.05 for the exercise of stock options already granted by Tim under its “2000-2002 Stock-Option Plans”, to be implemented by 31
December 2008 through the issuance of up to 21,283,011 Telecom Italia ordinary shares with a par value of €0.55 per share to be offered to the holders of the above-mentioned stock options on the basis of the exchange ratio adopted for Tim
shareholders for purposes of the Merger at a price of €6.42 for each option held (i.e. €3.710983 for each newly issued share); 

  

	b)	an increase of up to €1,132,285 for the exercise of stock options already granted by Tim under its “2001-2003 Stock-Option Plans”, to be implemented by 31 December
2005 through the issuance of up to 2,058,700 Telecom Italia ordinary shares with a par value of €0.55 per share to be offered to the holders of the above-mentioned stock options on the basis of the exchange ratio adopted for Tim shareholders
for purposes of the Merger at a price of €8.671 for each option held (i.e. €5.012139 for each newly issued share); 

  

	c)	an increase of up to €474,798.50 for the exercise of stock options already granted by Tim under its “2001-2003 Supplementary Plans”, to be implemented by 31 December
2005 through the issuance of up to 863,270 Telecom Italia ordinary shares with a par value of €0.55 per share to be offered to the holders of the above-mentioned stock options on the basis of the exchange ratio adopted for Tim shareholders for
purposes of the Merger at a price of €7.526 for each option held (i.e. €4.350289 for each newly issued share); 

  

	d)	an increase of up to €22,150,920 for the exercise of stock options already granted by Tim under its “2002-2003 Stock-Option Plans”, to be implemented by 31 December
2008 through the issuance of up to 40,274,400 Telecom Italia ordinary shares with a par value of €0.55 per share to be offered to the holders of the above-mentioned stock options on the basis of the exchange ratio adopted for Tim shareholders
for purposes of the Merger at a price of €5.67 for each option held (i.e. €3.277457 for each newly issued share); 

  

	e)	an increase of up to €3,192,173.05 for the exercise of stock options already granted by Tim under its “2003-2005 Stock-Option Plans”, to be implemented through the
issuance of up to a total of 5,803,951 shares with a par value of €0.55 per share, by 31 December 2008 for the first lot, by 31 December 2009 for the second lot and by 31 December 2010 for the third lot. The shares will be offered to the
holders of the above-mentioned stock options on the basis of the exchange ratio adopted for Tim shareholders for purposes of the Merger at a price of €5.07 for each option held (i.e. €2.930636 for each newly issued share).

  
 The amendments to the bylaws described above will come into
force on the effective date of the Merger pursuant to Article 2504-bis of the Civil Code and as provided for in the Merger Plan. 
  

	
10.	Board of Directors’ evaluation of the conditions for exercise of withdrawal right 

  
 As the Absorbing Company, Telecom Italia will leave its bylaws concerning the company’s purpose unchanged since the text as it stands
does not differ significantly from that of the bylaws specifying Tim’s corporate purpose, as regards either the activities the company can engage in or the related business risk. Furthermore, Telecom Italia’s corporate purpose already
allows the company to own equity interests in operating companies, and thus there is no need to make any amendments as a result of the Merger. 
  
 As regards holders of Tim savings shares, because of the difference between the dividend premium to which Tim savings shares are entitled and the dividend premium to
which Telecom Italia savings shares are entitled, Tim savings shareholders who do not vote in favor of the Merger in the special meeting of Tim’s savings shareholders will be entitled to withdrawal rights pursuant to Article 2437, first
paragraph, subparagraph g), of the Civil Code, since their rights will be modified by the share exchange. 
  
 The value of Tim savings shares for purposes of such withdrawal rights will be determined as the arithmetic mean of the shares’ closing prices in the six months prior to the publication, by the end of January
2005, of the notice calling the extraordinary meeting of Tim ordinary shareholders. 
  
 Consistent with its interest in purchasing all of Tim’s savings shares, as evidenced by the Tender Offer, Telecom Italia has indicated that it intends to purchase all the savings shares for which the right of withdrawal is exercised by
exercising its prerogatives in accordance with applicable law. 
  
 Milan, 23
January 2005 
  

 22 

Table of Contents

 ANNEX III 
  

MEETING OF THE BOARD OF DIRECTORS OF TELECOM 
 ITALIA MOBILE S.P.A. HELD ON 23 JANUARY 2005 
  
 REPORT ON THE PLAN FOR THE MERGER BY INCORPORATION OF

 TELECOM ITALIA MOBILE S.P.A. INTO TELECOM
ITALIA S.P.A. 
  
 THIS IS AN ENGLISH TRANSLATION OF THE ORIGINAL ITALIAN DOCUMENT 
  
 Milan, 23 January 2005 
  
 TELECOM ITALIA MOBILE
S.P.A. 
  
 TELECOM
ITALIA GROUP – DIRECTION AND CO-ORDINATION BY TELECOM ITALIA S.P.A. 
  
 The Telecom Italia securities referred to herein that will be issued in connection with
the merger described herein have not been, and are not intended to be, registered under the U.S. Securities Act of 1933 (the Securities Act) and may not be offered or sold, directly or indirectly, into the United States except pursuant to an
applicable exemption. The Telecom Italia securities are intended to be made available within the United States in connection with the merger pursuant to an exemption from the registration requirements of the Securities Act. 
  
 The merger described herein relates to the securities of two foreign (non-U.S.) companies.
The merger in which TIM ordinary shares and savings shares will be converted into Telecom Italia shares is subject to disclosure requirements of a foreign country that are different from those of the United States. Financial statements included in
the document, if any, will be prepared in accordance with foreign accounting standards that may not be comparable to the financial statements of United States companies. 
  
 It may be difficult for you to enforce your rights and any claim you may have arising under the U.S. federal securities laws, since
Telecom Italia and TIM are located in Italy, and some or all of their officers and directors may be residents of Italy or other foreign countries. You may not be able to sue a foreign company or its officers or directors in a foreign court for
violations of the U.S. securities laws. It may be difficult to compel a foreign company and its affiliates to subject themselves to a U.S. court’s judgment. 
  
 You should be aware that Telecom Italia may purchase securities of TIM otherwise than under the merger, such as in open market or
privately negotiated purchases. Disclosure of such purchases will be made in accordance with, and to the extent required by, Telecom Italia’s disclosure obligations under Italian law. 

Table of Contents

  
  
  
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 2 

Table of Contents

 
Table of contents 
  

							
	 1.
	  	
Description of the Merger and reasons therefor, with special emphasis on the business objectives of the companies participating in the Merger and the plans to achieve them 	  	4
	 	  	 1.1
	  	
Description of the participating companies	  	4
	 	  	 1.2
	  	
Description of Tim’s activities	  	4
	 	  	 1.3
	  	
Description of Telecom Italia’s activities	  	6
	 	  	 1.4
	  	
Principal legal aspects of the Merger	  	7
	 	  	 1.5
	  	
Reasons for the Merger – Business objectives and plans to achieve them	  	11
	 2.
	  	
The values attributed to the Companies Participating in the Merger for the purpose of determining the Exchange Ratio 	  	13
	 	  	 2.1
	  	
Purpose of the valuation	  	13
	 	  	 2.2
	  	
Methods used and results obtained	  	14
	 3.
	  	
Conclusions 	  	20
	 	  	 3.1
	  	
Determination of the Exchange Ratio	  	20
	 	  	 3.2
	  	
Exchange Ratio	  	20
	 4.
	  	
Procedure for assigning the shares of the Post-Merger Company and dividend entitlement
date 	  	20
	 	  	 4.1
	  	
Procedure for the exchange	  	20
	 	  	 4.2
	  	
Effective date of the Merger	  	21
	 5.
	  	
Effective date for accounting purposes	  	21
	 6.
	  	
Italian tax effects of the Merger on Telecom Italia	  	21
	 	  	 6.1.
	  	
Direct taxes: taxation of the Companies Participating in the Merger	  	21
	 	  	 6.2.
	  	
Italian tax effects on shareholders	  	22
	 	  	 6.3.
	  	
Indirect taxes	  	22
	 7.
	  	
Expected shareholdings in the Post-Merger Company 	  	22
	 	  	 7.1
	  	
Tim shareholders	  	22
	 	  	 7.2
	  	
Telecom Italia shareholders	  	22
	 	  	 7.3
	  	
Effects of the Merger on shareholders	  	22
	 8.
	  	
Effects of the Merger on shareholders’ agreements (Article 122 of Italian Legislative Decree 58/1998) relating to the shares of the Companies Participating in the Merger	  	23
	 9.
	  	
Bylaw amendments	  	23
	 	  	 9.1
	  	
Telecom Italia’s bylaws and amendments deriving from the Merger 	  	23
	 10.
	  	
Evaluation of the conditions for the exercise of the right of withdrawal (Articles 2437, 2437-quinquies and 2497-quater of the Civil Code)	  	24
	 	  	 10.1
	  	
Evaluation in relation to Article 2437-quinquies of the Civil Code	  	24
	 	  	 10.2
	  	
Evaluation in relation to Article 2437 of the Civil Code	  	24
	 	  	 10.3
	  	
Evaluation in relation to Article 2497-quater of the Civil Code	  	25

  

 3 

Table of Contents

 REPORT OF THE BOARD OF
DIRECTORS OF TELECOM ITALIA MOBILE S.P.A. ON THE PLAN FOR THE MERGER
BY INCORPORATION OF TELECOM ITALIA MOBILE S.P.A. INTO TELECOM ITALIA S.P.A.
PURSUANT TO ARTICLE 2501-QUINQUIES OF THE ITALIAN CIVIL CODE
AND ARTICLE 70.2 OF THE IMPLEMENTING REGULATIONS OF LEGISLATIVE DECREE NO. 58 OF 28
FEBRUARY 1998 (THE “CONSOLIDATED LAW”) RELATING TO THE RULES APPLICABLE TO
ISSUERS, ADOPTED BY CONSOB RESOLUTION 11971/1999, AS AMENDED. 
  
 Dear Shareholders, 
  
 In accordance with Article 2501-quinquies of the Italian Civil Code (“Civil Code”) and Article 70.2 of Consob Regulation 11971 of 14 May 1999,
(the “Regulation”), we submit the plan (the “Merger Plan”) for the merger by incorporation (the “Merger”) of Telecom Italia Mobile S.p.A. (“Tim” or the “Company to be
Absorbed”) into Telecom Italia S.p.A. (“Telecom Italia” or the “Absorbing Company” or – after the Merger is effective – the “Post-merger Company”) for your review and approval.
This report is intended to describe and explain the reasons for the Merger Plan in legal and economic terms, particularly with respect to the exchange ratio. 
  
 This report is also intended to provide an accurate analysis of the business and financial rationale for the comprehensive reorganization of the activities of the Telecom
Italia Group (the “Reorganization Plan”) and consequently to explain how it is in the interests of the Company and its shareholders. The goal, both for Tim and Telecom Italia, is to improve their competitive position, due among
other things to the greater operational and financial synergies and efficiencies that will arise, in line with the resolutions adopted by the Boards of Directors of both companies on 7 December 2004. 
  

	
1.	Description of the Merger and reasons therefor, with special emphasis on the business objectives of the companies participating in the Merger and the plans to achieve them

  

	
1.1	Description of the participating companies 

  

	1.1.1	Telecom Italia Mobile S.p.A.: Tim is a company limited by shares with its registered office in Turin at 6 Via Cavalli and its headquarters in Rome at 152 Via Pietro De
Francisci, share capital of €515,728,777.86, divided into 8,595,479,631 shares with a par value of €0.06 per share, consisting of 8,463,410,468 ordinary shares and 132,069,163 savings shares. The Company to be Absorbed has its tax domicile
at its registered office and is registered in the Turin Company Register. Its tax code number is 06947890015. 

  

	1.1.2	Telecom Italia S.p.A.: Telecom Italia is a company limited by shares with its registered office in Milan at 2 Piazza Affari, fully paid up share capital of
€8,868,946,358.25, divided into 10,329,435,946 ordinary shares with a par value of €0.55 per share and 5,795,921,069 savings shares with a par value of €0.55 per share. The Absorbing Company has its tax domicile at its registered
office and is registered in the Milan Company Register. Its tax code number is 00488410010. 

  

	
1.2	Description of Tim’s activities 

  

	1.2.1	Tim, together with the group of which it is the parent company, is one of the leading international groups operating in the telecommunication services sector, and more specifically
in mobile telecommunications under licence or in a free market. Its activities include the design, implementation, management and sale of telecommunication, information and communication technology and electronic systems. Tim’s main
international markets are in South America and the Mediterranean basin. 

  

 4 

Table of Contents

	1.2.2	The following tables provide selected historical operating, cash flow and financial data for the Tim Group and Tim, as reported in the financial statements for the first nine
months of financial years 2004 and 2003 and in the 2003 financial statements. 

  
 Selected operating, cash flow and financial data for the Tim Group and Tim 
  
 Tim Group 
  

							
	 Operating and cash flow data
 (millions of euro)

	  	1.1-30.9.2004

	  	1.1-30.9.2003

	  	 Year
 2003

	 Sales and service revenues
	  	9,499	  	8,635	  	11,782
	 Gross operating profit
	  	4,574	  	4,157	  	5,502
	 Operating income before amortization of goodwill on consolidation differences
	  	3,199	  	3,021	  	3,885
	 Operating income
	  	3,129	  	2,944	  	3,786
	 Income before taxes
	  	3,100	  	3,441	  	4,207
	 Consolidated net income before minority interests
	  	1,724	  	2,041	  	2,456
	 Consolidated net income: Parent Company
	  	1,664	  	1,970	  	2,342
	 Consolidated cash flow(1)
	  	3,048	  	3,156	  	3,998
	 Free cash flow from operations(2)
	  	2,829	  	3,123	  	3,746

	1.	Consolidated net income (loss) before minority interests plus amortization and depreciation. 

  

	2.	Calculated as: Operating Income + Amortization and Depreciation – Industrial Investments – Change in Operating Working Capital. 

  

										
	 Balance sheet data
 (millions of
euro)

	  	At 30 Sept.
2004

	 	 	At 31 Dec.
2003

	 	 	At 30 Sept.
2003

	 
	 Fixed assets, net
	  	9,247	 	 	9,276	 	 	9,064	 
	 Working capital
	  	(1,925	)	 	(2,407	)	 	(2,015	)
	 Net invested capital
	  	7,322	 	 	6,869	 	 	7,049	 
	 Financed by:
	  	 	 	 	 	 	 	 	 
	 Consolidated shareholders’ equity:
	  	7,382	 	 	7,803	 	 	7,535	 
	 •        Parent Company
	  	6,827	 	 	7,295	 	 	7,049	 
	 •        Minority interests
	  	555	 	 	508	 	 	486	 
	 Consolidated net financial debt (positive financial position)
	  	(60	)	 	(934	)	 	(486	)
	 •        Medium/long-term
	  	490	 	 	585	 	 	668	 
	 •        Short-term
	  	(550	)	 	(1,519	)	 	(1,154	)

  
 Tim
S.p.A. 
  

							
	 Operating and cash flow data
 (millions of euro)

	  	1.1-30.9.2004

	  	1.1-30.9.2003

	  	Year
2003

	 Sales and service revenues
	  	7,381	  	6,980	  	9,469
	 Gross operating profit
	  	4,076	  	3,805	  	5,035
	 Operating income
	  	3,201	  	2,969	  	3,863
	 Income before taxes
	  	3,376	  	3,081	  	3,852
	 Net income
	  	2,143	  	1,846	  	2,322
	 Cash flow(1)
	  	2,977	  	2,634	  	3,405
	 Free cash flow from operations(2)
	  	3,038	  	3,409	  	4,201

	1.	Net income (loss) plus amortization and depreciation. 

  

	2.	Calculated as: Operating Income + Amortization and Depreciation – Industrial Investments – Change in Operating Working Capital. 

  

 5 

Table of Contents

										
	 Balance sheet data
 (millions of
euro)

	  	At 30 Sept.
2004

	 	 	At 31 Dec.
2003

	 	 	At 30 Sept.
2003

	 
	 Fixed assets, net
	  	9,741	 	 	9,161	 	 	8,576	 
	 Working capital
	  	(1,347	)	 	(1,622	)	 	(1,170	)
	 Net invested capital
	  	8,394	 	 	7,539	 	 	7,406	 
	 Financed by:
	  	 	 	 	 	 	 	 	 
	 Shareholders’ equity:
	  	8,899	 	 	8,957	 	 	8,481	 
	 •        Share capital
	  	514	 	 	514	 	 	514	 
	 •        Reserves and retained earnings
	  	6,242	 	 	6,121	 	 	6,121	 
	 •        Net income for the period
	  	2,143	 	 	2,322	 	 	1,846	 
	 Net financial debt (positive financial position)
	  	(505	)	 	(1,418	)	 	(1,075	)
	 •        Of which short-term
	  	(505	)	 	(1,418	)	 	(1,075	)

  

	
1.3	Description of Telecom Italia’s activities 

  

	1.3.1	Telecom Italia, together with the group of which it is the parent company, is one of the leading international groups operating in the telecommunication services sector and,
more generally, in the information and communication technology sector. 

  

	1.3.2	The following tables provide selected historical operating, cash flow and financial data for the Telecom Italia Group and Telecom Italia, as reported in the financial
statements for the first nine months of financial years 2004 and 2003 and in the 2003 financial statements. 

  
 Selected operating, cash flow and financial data for the Telecom Italia Group and Telecom Italia 
  
 TELECOM ITALIA GROUP 
  

							
	 Operating and cash flow data
 (millions of euro)

	  	1.1-30.9.2004

	  	1.1-30.9.2003

	  	Year
2003

	 Sales and service revenues
	  	22,912	  	22,682	  	30,850
	 Gross operating profit
	  	10,788	  	10,648	  	14,280
	 Operating income before amortization of goodwill on consolidation differences
	  	6,607	  	6,639	  	8,619
	 Operating income
	  	5,442	  	5,214	  	6,789
	 Income before taxes
	  	3,690	  	3,858	  	3,442
	 Consolidated net income before minority interests
	  	1,518	  	2,889	  	2,428
	 Consolidated net income: Telecom Italia
	  	745	  	1,881	  	1,192
	 Consolidated cash flow(1)
	  	6,399	  	7,901	  	9,207
	 Free cash flow from operations(2)
	  	6,585	  	7,360	  	9,233

	1.	Consolidated net income (loss) before minority interests plus amortization and depreciation. 

  

	2.	Calculated as: Operating Income + Amortization and Depreciation – Industrial Investments – Change in Operating Working Capital. 

  

										
	 Balance sheet data
 (millions
of euro)

	  	30 Sept.
2004

	 	 	31 Dec.
2003

	 	 	30 Sept.
2003

	 
	 Fixed assets, net
	  	52,635	 	 	54,573	 	 	55,892	 
	 Working capital
	  	(1,824	)	 	(638	)	 	(462	)
	 Net invested capital
	  	50,811	 	 	53,935	 	 	55,430	 
	 Financed by:
	  	 	 	 	 	 	 	 	 
	 Consolidated shareholders’ equity:
	  	19,390	 	 	20,589	 	 	21,177	 
	 •        Telecom Italia
	  	15,141	 	 	16,092	 	 	16,814	 
	 •        Minority interests
	  	4,249	 	 	4,497	 	 	4,363	 
	 Consolidated net financial debt :
	  	31,421	 	 	33,346	 	 	34,253	 
	 •        Medium/long-term
	  	34,020	 	 	30,545	 	 	28,806	 
	 •        Short-term
	  	(2,599	)	 	2,801	 	 	5,447	 

  

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 TELECOM ITALIA S.p.A. 
  

							
	 Operating and cash flow data
 (millions of euro)

	  	1.1-30.9.2004

	  	1.1-30.9.2003

	  	Year
2003

	 Sales and service revenues
	  	11.793	  	11.872	  	16.033
	 Gross operating profit
	  	5.526	  	5.510	  	7.433
	 Operating income
	  	3.256	  	3.169	  	4.139
	 Income before taxes
	  	1.664	  	1.378	  	1.728
	 Net income
	  	894	  	2.012	  	2.646
	 Cash flow(1)
	  	2.897	  	4.121	  	5.565
	 Free cash flow from operations(2)
	  	3.782	  	3.669	  	4.702

	1.	Net income (loss) plus amortization and depreciation. 

  

	2.	Calculated as: Operating Income + Amortization and Depreciation – Industrial Investments – Change in Operating Working Capital. 

  

							
	 Balance sheet data
 (millions of
euro)

	  	30 Sept.
2004

	  	31 Dec.
2003

	  	30 Sept.
2003

	 Fixed assets, net
	  	47,544	  	48,604	  	49,858
	 Working capital
	  	230	  	3,079	  	1,063
	 Net invested capital
	  	47,774	  	51,683	  	50,921
	 Financed by:
	  	 	  	 	  	 
	 Shareholders’ equity:
	  	15,533	  	16,356	  	15,688
	 •        Share capital
	  	8,858	  	8,854	  	8,846
	 •        Reserves and retained earnings
	  	5,781	  	4,856	  	4,830
	 Net   income for the period
	  	894	  	2,646	  	2,012
	 Net financial debt (positive financial position):
	  	32,241	  	35,327	  	35,233
	 •        Medium/long-term
	  	28,955	  	20,692	  	22,034
	 •        Short-term
	  	3,286	  	14,635	  	13,199

  

	
1.4	Principal legal aspects of the Merger 

  

	1.4.1	The proposed transaction, consisting of the merger by incorporation of Tim into Telecom Italia, pursuant to and for the purposes of Article 2501 et seq. of the Civil Code,
implements the corporate restructuring which forms the basis of the Reorganization Plan. 

  

	    	In order to implement this corporate restructuring, prior to the Merger and to its effectiveness, Tim is expected to spin off its mobile communications business in Italy (the
“Spin-off”) to a company wholly owned by Tim, to be known as Tim Italia S.p.A., with its registered office in Milan at 2 Piazza degli Affari (“Tim Italia”). The principal legal aspects of the Spin-off are described
in Section 1.4.5 below. 

  

	1.4.2	The Boards of Directors of Telecom Italia and Tim (collectively, the “Companies Participating in the Merger”) have adopted their respective balance sheets at
30 September 2004 as their balance sheets for purposes of Article 2501-quater of the Civil Code. 

  

	    	On 24 December 2004 Tim, pursuant to Article 2501-sexies of the Civil Code, applied to the Turin Court for the appointment of an expert to prepare the report on the exchange
ratios for the Merger. In a decree dated 28 December 2004, the Turin Court appointed as expert the accounting firm of Reconta Ernst & Young S.p.A. 

  

	    	The Milan Court, pursuant to Article 2501-sexies of the Civil Code, has appointed the accounting firm of Mazars & Guerard to prepare the report on the exchange ratios for
Telecom Italia 

  

	1.4.3	The Merger will result in the cancellation without exchange of the Tim ordinary and savings shares held by Telecom Italia at the effective date of the Merger and the assignment to
holders of Tim ordinary and savings shares other than Telecom Italia of ordinary and savings shares issued by Telecom Italia. Under Article 2504-ter of the Civil Code, the treasury shares owned by Tim will be cancelled without exchange.

  

	    	The intention of the Companies Participating in the Merger is to complete the Merger as soon as possible and, specifically, to arrange for it to become effective by the end of June
2005. 

  

	1.4.4	As a consequence of the Reorganization Plan, Tim will be merged into Telecom Italia, which will maintain its present bylaws with the amendments described in Section 9 of this
Report. 

  

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	    	Both the corporate purpose of Telecom Italia and that of Tim provide for the performance of telecommunication activities. Consequently, the implementation of the Reorganization Plan
will not cause any significant changes in the activities performed by Telecom Italia and Tim before the Merger nor in the related business risks. 

  

	1.4.5	As mentioned above, before the Merger is completed and as the first step in implementing the Reorganization Plan, Tim will spin off its mobile communications business in
Italy (the “Domestic Communications Business”) by means of a contribution in kind to a new company in compliance with the prescribed procedures under applicable law. 

  

	    	To this end, on 29 December 2004, Tim established Tim Italia by means of a unilateral act. As stated above, this new company will acquire the Domestic Communications Business as a
consequence of the Spin-off. 

  

	    	On 11 January 2005, Tim applied, pursuant to Article 2343 of the Civil Code, to the Milan Court for the appointment of an appraiser to prepare the valuation report on the Domestic
Mobile Business to be contributed to Tim Italia. In a decree dated 12 January 2005, the Milan Court appointed Dott. Claudio Pastori, an accountant in Milan. 

  

	    	The Domestic Mobile Business to be spun off includes all the assets of Tim’s mobile communications business in Italy and all the rights and obligations in any way related to
the assets and liabilities to be transferred. All the contracts of employees and self-employed workers will also be transferred with the Domestic Communications Business. 

  

	    	The Domestic Communications Business will not include the assets and liabilities shown in Tim’s balance sheet at 30 September 2004 related primarily to the Tim’s
international business, i.e.: (i) the equity interest held by Tim in Tim International N.V. (“Tim International”), the holding company for equity investments in foreign companies operating in the mobile communications sector with a
book value, including payments for future increases in capital, of €4,582 million; (ii) the reserve for risks in respect of guarantees issued on behalf of foreign affiliates, amounting to €198 million; (iii) the guarantees granted and
received in relation to the foreign sector, included in the memorandum accounts, for a total of €982 million; (iv) advance taxes, related to the international assets, amounting to €813 million; (v) the balance of the current account held
by Tim with Telecom Italia; and (vi) certain other financial and tax items. 

  

	    	The Spin-off, implemented in accordance with Article 172.1 of the Consolidated Income Tax Law (Presidential Decree no. 917 of 22 December 1986), is tax neutral in terms of Italian
taxation and, therefore, will not lead to the realization of capital gains or losses. In other words, Tim Italia will succeed, on a continuing basis, to Tim’s tax situation in respect of the assets and liabilities contributed.

  

	    	Another consequence of the Spin-off is that Tim Italia will succeed to the authorizations for the provision of electronic communications networks and services in Italy already held
by Tim and to all the rights (including those temporarily assigned to Tim at the date of the transfer of the Domestic Communications Business) to use numbering systems and/or radio frequencies under public franchises, licences, general
authorizations and special authorizations resulting from notifications declaring the commencement of activities. As regards the regulatory aspects, both Tim and Tim Italia have initiated all the registration formalities and notifications to the
competent authorities. To this end, Tim has already notified the Ministry of Communications in accordance with Article 25.8 of Legislative Decree 259/2003. 

  

	    	Tim, Tim Italia and Telecom Italia will make the notifications concerning the transaction required by Article 47 of Law 428/1990, as amended by Article 2 of Legislative Decree
18/2001. 

  

	    	Following the Spin-off and until the Merger becomes legally effective, Tim will continue to control Tim Italia, the company owning the Domestic Communications Business, and Tim
International, the holding company for equity investments in foreign companies operating in the mobile communications sector. Upon completion of the Merger, Telecom Italia will own 100% of the capital of both companies directly.

  

	    	It is expected that the Spin-off will be completed, by means of the execution of a transfer instrument and its filing with the Milan Company Register, by the end of March 2005.

  

	1.4.6	 As part of the Reorganization Plan, Telecom Italia made a voluntary partial tender offer under Article 102 et seq. of the Consolidated Law for 2,456,534,241
Tim ordinary shares, representing 29.12% of Tim’s ordinary share capital at 20 December 2004 and 28.67% of its total share capital at the same date and a voluntary tender offer for all 132,069,163 Tim savings shares, representing 100% of
Tim’s savings 

  

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share capital and about 1.54% of its total share capital (although the offers were legally distinct, hereinafter the offer for Tim’s ordinary shares and
the offer for Tim’s savings shares are referred to jointly as the “Offer”). The Offer price was 5.6 for each Tim ordinary and savings share and its effectiveness was subject to the condition, for both classes of shares, that
two thirds of the number of shares subject of the Offer must be tendered. 

  

	    	In order to provide Tim shareholders and the market with the information needed to assess the Offer and an evaluation of the terms and purpose of the Offer, especially as regards
the fairness of the proposed price, in its meeting on 22 December 2004, Tim’s Board of Directors approved the Issuer’s Statement pursuant to Article 103.3 of the Consolidated Law and Article 39 of the Regulation concerning Issuers.

  

	    	The Offer commenced on 3 January 2005 and terminated on 21 January 2005. The number of shares tendered amounted to approximately 31.2% of Tim’s ordinary share capital and 6.4%
of its savings share capital. The Offer Document specified that, in the event of the number of shares tendered falling below the minimum thresholds set, Telecom Italia’s Board of Directors would decide whether to acquire the smaller quantity of
Tim ordinary and/or savings shares tendered and proceed with the planned reorganization by implementing the Merger. 

  

	    	Telecom Italia’s Board of Directors has favorably assessed the results of the Offer, especially in view of the fact that the Tim ordinary shares tendered exceeded the number of
Tim ordinary shares subject to the Offer, thus demonstrating the market’s appreciation of the transaction and making it possible to achieve the objective of optimizing the Post-merger Company’s balance sheet and financial structure upon
completion of the Merger. For this reason, Telecom Italia’s Board of Directors has decided to waive the Offer effectiveness conditions concerning the minimum threshold of acceptances for Tim savings shares, thereby confirming the effectiveness
of the Offer and accepting to purchase the smaller quantity of Tim savings shares tendered, and to proceed with the Reorganization Plan and the related integration process. 

  

	    	It should also be noted that, as a result of the exercise of the options which were previously disclosed to the market (for approximately 21 million Tim savings shares) and the
execution of securities lending agreements (for approximately 37 million Tim savings shares), following the Offer Telecom Italia will be entitled to vote approximately 50.3% of the shares entitled to vote in the special meeting of Tim savings
shareholders that will be called to approve the Merger resolution. 

  

	    	As mentioned above, the Offer represented the first step in the Reorganization Plan and must therefore be considered as connected with and serving the purposes of the Merger.

  

	    	In view of the Merger, the Offer was intended to contribute to optimizing the capital structure of the Absorbing Company. Since, in implementing the Merger, the Tim shares held by
Telecom Italia will be cancelled without exchange, Telecom Italia’s acquisition of Tim shares by means of the Offer has increased the proportion of Tim’s share capital that will be cancelled and consequently reduced the amount of equity to
be issued in exchange. This could have a positive effect (i) on the earnings per share of Telecom Italia post-Merger, thus improving the return on equity, and (ii) on the free cash flow yield per share, to the benefit of all the post-Merger
shareholders of Telecom Italia and Tim. From a financial perspective, the equity that is not issued will in effect be replaced, as a result of the settlement of the obligations arising from the Offer, by an increase in Telecom Italia’s net
debt. The cost of this new debt – in terms of after-tax net financial expense – is lower than the cost in – terms of the expected dividends – which would have been incurred on the additional amount of equity (not issued in
exchange for Tim shares purchased in the Offer). 

  

	  	The results of the Offer mean that Telecom Italia will pay a total consideration of approximately €13.8 billion, of which €2.5 billion will be paid by Telecom Italia
through the realization of a portion of its liquid assets and approximately €11.3 billion will be raised through bank financing. Consequently, the net financial debt of the Telecom Italia Group, estimated at approximately €30 billion at 31
December 2004, is expected to increase, excluding other costs related to the Offer, to just under €44 billion. 

  

	  	The increase in debt following the Offer has not led, in line with the indication given in the announcement of the plan to reorganize the Telecom Italia Group, to a reduction in
Telecom Italia’s credit rating (currently Baa2 for Moody’s, BBB+ for Standard & Poor’s, A– for Fitch). It should be noted that Standard & Poor’s and Fitch, while confirming their respective ratings, have revised
their outlooks from positive to stable and from stable to negative, respectively. The rating agencies arrived at these conclusions on the basis of the maximum estimated consideration payable in connection with the Offer, equal to approximately
€14.5 billion. 

  

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	  	The bank financing may be refinanced in the capital markets, depending on market opportunities and conditions, probably in the next two years. 

  

	  	The progressive reduction in the debt incurred in connection with the Offer will be made possible primarily by the cash flow that will be generated, which is expected to be at least
in line with the plans announced in March 2004. 

  

	1.4.7	As part of the share exchange, Telecom Italia will assign newly-issued savings shares of the Post-Merger Company to holders of Tim savings shares. 

 

	  	It should be noted that, from a formal legal perspective, Telecom Italia savings shares are entitled to a smaller dividend premium compared to ordinary shares than that to which
holders of Tim savings shares are currently entitled compared to Tim ordinary shares. 

  

	  	Tim savings shares entitle their holders, among other things, to the right to a premium with respect to any profit distributed to ordinary shareholders equal to 20% of their par
value of €0.06 and to the right to the distribution of net profits, after deducting the amount to be allocated to the legal reserve, up to 5% of their par value. In contrast, Telecom Italia savings shares entitle their holders the right to the
distribution of net profits up to 5% of their par value of €0.55, and the right to a premium with respect to any dividend distributed to ordinary shareholders equal to 2% of their par value. 

  

	  	Since the Merger will result in holders of Tim savings shares receiving in exchange Telecom Italia savings shares that, as specified above, entitle the holders to a smaller dividend
premium than the cancelled Tim savings shares, the Merger will be submitted for approval to a special meeting of Tim savings shareholders pursuant to Article 146.1b) of the Consolidated Law (the “Special Meeting”).

  

	  	Moreover, in view of the smaller dividend premium of the Telecom Italia savings shares that will be assigned in exchange to the existing holders of Tim savings shares, all of the
latter who do not vote in favor of the resolution submitted to the Special Meeting will be entitled to withdrawal rights pursuant to Article 2437, first paragraph, subparagraph g), of the Civil Code, in view of the modification to their property
rights as a consequence of the exchange. 

  

	  	It should be noted, however, that, from a substantive economic perspective, the Merger will lead to the above-mentioned change in the dividend premium being more than offset, in
absolute terms, by an improvement in the entitlement to profits of each Tim savings shareholder (as regards the premium compared to dividends on ordinary shares). In fact, as a consequence of the exchange, each Tim savings share with a par value of
€0.06 will be replaced by more than one Telecom Italia savings share with a par value of €0.55 on the basis of the exchange ratios (described below), so that the post-exchange dividend premium for each former Tim savings share will be
calculated with reference to a higher total par value equal to €0.55 (par value) x 2.36 (exchange ratio) = €1.30 instead of €0.06. Consequently, the dividend premium attaching to each Tim savings share held, currently equal to
€0.012 (20% x €0.06), will increase as a consequence of the exchange for Telecom Italia savings shares to €0.026 (2% x €1.30). 

  

	1.4.8	Telecom Italia will succeed to all Tim’s legal rights and obligations in force at the effective date of the Merger, including those arising in connection with Tim’s
stock option plans (to this end, the Absorbing Company will make the necessary capital increases for purposes of such plans, as described in Section 9 below). 

  

	1.4.9	The Merger is technically subject to the veto right of the Minister for the Economy and Finance pursuant to the Golden Share provisions under Article 2 of Decree Law
332/1994, ratified by Law 474/1994, and Article 22.b) of Telecom Italia’s bylaws. 

  

	  	At the end of the meeting of Telecom Italia’s Board of Directors on 7 December 2004, in accordance with Article 22.b) of the Absorbing Company’s bylaws and Article 2 of
Decree Law 332/1994, ratified by Law 474/1994, Telecom Italia notified the Minister for the Economy and Finance of the commencement of the plan for the reorganization of the Group. 

  

	  	The Minister for the Economy and Finance, in agreement with the Minister for Productive Activities, has notified Telecom Italia that he does not consider that the conditions exist
for the exercise of the veto right with respect to the adoption of the Merger resolution by Telecom Italia’s shareholders’ meeting. 

  

	1.4.10	Telecom Italia’s ordinary and savings shares are and, following the Merger, will continue to be, listed on the Mercato Telematico operated by Borsa Italiana
S.p.A. 

  

	  	 In addition, following the Merger, Telecom Italia’s ordinary and savings shares will continue to be listed on the New York Stock Exchange in the form of ADRs
(American Depository Receipts, each of which 

  

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represents ten ordinary or savings shares). As regards the listing of Telecom Italia’s ordinary shares on the Frankfurt Stock Exchange, in the light of
the decisions adopted by the Board of Admission of the Frankfurt Stock Exchange, the shares will be delisted by the effective date of the Merger. 

  

	
1.5	Reasons for the Merger – Business objectives and plans to achieve them  

  

	1.5.1	The Merger satisfies a series of business needs prompted by the progressive, increasing integration between fixed and mobile telephony platforms. The evolution of the market and the
defense of the creation of value also require an adaptation of business models and organizational strategies, an objective that the merger by incorporation of Tim into Telecom Italia is intended to promote. 

  

	  	To capture all of the benefits made available by the integration of platforms and services, at a time of significant technological discontinuity, it is desirable to undertake a
corporate structural reorganization that will guarantee the unitary governance of business processes that a situation of partial control of capital does not fully allow. 

  

	  	The reorganization will make it possible to respond to the need for integration expressed by customers, to capitalize on the complementary features of the services offered in order
to foster consumption, and at the same time to capture all the benefits deriving from the synergies between the different business areas. 

  

	  	The demand for telecommunications services is growing, driven by the spread of broad-band in wireline business and by the new services supplied in the mobile segment. In particular:

  

	 	–	electronic communications on the wireline network have enriched the supply of traditional “voice” and “data” services by adding the innovative services made
possible by XDSL technology and fiber optics; 

  

	 	–	electronic communications on the new-generation mobile networks (GPRS, EDGE and UMTS) now afford mobility not only for voice services but also for data, Internet and media services.

  

	  	There are sectors in which customers increasingly feel the need to use the services made possible by the new technologies seamlessly, regardless of where they are. Furthermore,
technological innovation is significantly increasing the interaction between the different networks (fixed and mobile, voice and data) and between the supply of telecommunications services and that of adjacent sectors, such as information
technology, media and consumer electronics. 

  

	  	The leading manufacturers of telecommunications equipment and terminals have oriented their technological investments to satisfying the market’s new needs:

  

	 	–	telecommunications networks are rapidly evolving into “multimedia networks” thanks to the spread of the IP protocol and the adoption of homogeneous wireline and mobile
multiservice platforms; 

  

	 	–	the new wireline and mobile terminals satisfy multiple functions and convergent handsets permit seamless access to wireline and mobile services. 

  

	  	The rapid spread of this equipment will allow telecommunications operators to benefit from the potential synergies deriving from a more closely integrated management of wireline and
mobile electronic communications businesses and thus to be well positioned to cope with a scenario likely to be characterized by the saturation of the market in traditional telephone services and the trend of eroding prices and margins.

  

	  	The leading operators in the Italian and European telecommunications market are preparing to respond to the latest technological and market developments on three main fronts:

  

	 	–	better coordination and distribution of customer relations between the various segments (integration of sales channels and responsibilities for specific segments, brand management);

  

	 	–	strengthening of certain critical functions for comparative advantage (guidance of IT and network technological choices; management of research; purchasing; content acquisition and
management; and coordination of supply policies); 

  

	 	–	defense of margins through programs to recoup efficiency by exploiting synergies across the different business areas (common management of IT and network infrastructures, convergent
evolution of applications platforms, and common content acquisition and management). 

  

	  	 In this setting, the Telecom Italia Group already ranks in the top tier among European competitors in all business areas in terms of growth, profitability and
product innovation. This is the result of the 

  

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substantial investments made in technological innovation, which today provide the Group with a network infrastructure considered future-proof, ready to host
and handle the portfolio of new generation products and services. 

  

	  	As mentioned above, however, the evolution of the market and the defense of the creation of value also require an adaptation of current business models and organizational
strategies, an objective that the merger by incorporation of Tim into Telecom Italia is intended to promote. 

  

	  	The Merger, together with the Spin-off, will simplify the Group’s ownership structure by maintaining the Domestic Communications Business under an unlisted, wholly owned
subsidiary of Telecom Italia, thereby creating optimal conditions for grasping the opportunities to realize the synergies referred to above. 

  

	  	The Merger is also intended to bring the following additional advantages: 

  

	 	–	to optimize financial and cash flows within the Group by managing Group debt more efficiently and making better use of financial leverage. At the same time, Tim’s current
shareholders will become shareholders of a company with a more balanced financial structure, capable of being taken over and therefore better placed to enhance the value of the shares assigned in exchange; 

  

	 	–	to enable Telecom Italia to optimize, through the Offer and the Merger, its own financial structure and to reduce the weighted average cost of capital employed compared with its
current cost. In fact, as explained above, the purchase of Tim shares is financed by means of an increase in net financial debt, whose cost, net of the tax effect, is lower than the cost which would have been incurred by the additional amount of
equity not issued in exchange for Tim shares acquired in the Offer. The consequent reduction in the weighted average cost of capital should favor the full value potential of the shares of Telecom Italia as the Post-Merger Company and thus the
creation of value for shareholders, including the Tim shareholders who exchange their shares. 

  

	  	As mentioned above, the Merger serves to promote the adaptation of the Group’s business models and organizational strategy to the evolution of the market and the defense of the
creation of value for shareholders. 

  

	  	The integration process, involving actions designed to improve efficiency and to enhance strategic and operational effectiveness, primarily concerns the Networks and Information
Technology, Customer Operations, the Supply of Innovative Services and Sales Channels business areas and will be implemented in compliance with applicable sector and antitrust laws. The main projects under consideration concern:

  

	  	Networks and Information Technology 

  

	 	•	 	Joint development of network and platform architectures for wireline and mobile products and services; 

  

	 	•	 	Integration and synergies in connection with networks for access traffic and IP backbone traffic, for example, through joint planning of requirements and development processes;

  

	 	•	 	Joint development, operation and maintenance of network information systems; 

  

	 	•	 	Design of the new integrated network model. 

  

	  	Customer Operations 

  

	 	•	 	Joint development of IT applications providing support for the management of the business; 

  

	 	•	 	Increase in customer care efficiency and service levels by adoption of the best practices developed in Telecom Italia and Tim; 

  

	 	•	 	Synergies in connection with the supply of customer information services (e.g., the 12 and 412 customer information services). 

  

	  	Supply of Innovative Services and Sales Channels 

  

	 	•	 	Development of convergent services for the consumer market (e.g., seamless access to mail, interoperability of fixed and mobile services, and standardization of mimicking) and for
the business market (e.g., mobile use of corporate applications by means of extended enterprise models); 

  

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	 	•	 	Increase in the effectiveness of sales channels and search for efficiency gains in overlapping commercial services while maintaining separate offers; 

  

	 	•	 	Development of a multimedia portal accessible from fixed and mobile network terminals and enhancement of Group contents and brands. 

  

	  	Procurement 

  

	 	•	 	Optimization of the distribution logistics for commercial products; 

  

	 	•	 	Exploitation of the synergies between network operating structures and joint evaluation of make-or-buy options; 

  

	 	•	 	Elimination of duplication and harmonization of service standards in Facility Management and General Services. 

  

	  	Working Groups have been formed to define the scope for integration, specify and develop integration plans, and lay down how they are to be implemented. The groups are headed by an
Integration Committee that provides guidance and control, by ensuring observance of specific responsibilities over the development of the overall integration plan. 

  

	  	Consistently with the integration plan, the organizational and operational restructuring will be based on three guidelines: a market plan aimed at increasing the effectiveness of
customer relations; an efficiency plan for the rationalization of internal and external structures; and an organizational development plan. 

  

	  	The synergies expected from the Merger, the broad outlines of which have already been identified and whose economic benefits and other advantages will be detailed and announced by
mid-April 2005, are the result of analyses and evaluations undertaken by the managers involved in the integration plans discussed above. 

  

	
2.	The values attributed to the Companies Participating in the Merger for the purpose of determining the Exchange Ratios 

  

	
2.1	Purpose of the valuation 

  

	2.1.1	The purpose of the valuation is to determine the exchange ratio (the “Exchange Ratio”) on the basis of which the participation in the Post-Merger Company of
the shareholders of Telecom Italia and Tim, respectively, will be determined. 

  

	  	The aim of the valuation, therefore, is to value Telecom Italia and Tim in order to obtain significantly comparable values for the purpose of determining the Exchange Ratio for the
Merger in question, considering all the shareholders of the Companies Participating in the Merger as parties interested in the valuation and the Exchange Ratio. 

  

	  	To achieve this objective, the valuations for the purpose of determining the Exchange Ratio require the identification and application of valuation methods based on uniform criteria
for the Companies Participating in the Merger. 

  

	  	Such valuations may therefore differ from other valuations made in different contexts or for different purposes, including with respect to the selection of criteria and
methodologies applied. 

  

	2.1.2	In the light of information provided by the Advisors (as specified below), the Board of Telecom Italia has reached its conclusions on the Exchange Ratio following a careful
evaluation of the Companies Participating in the Merger, selecting from a range of valuation methods those generally considered most appropriate in consideration of the activities performed by the Absorbing Company and the Company to be Absorbed.

  

	  	Furthermore, as suggested by corporate doctrine and standard professional practice, the values attributed to the Companies Participating in the Merger were compared on a
going-concern basis. 

  

	  	It should also be noted that the effects of the Offer for Tim ordinary and savings shares do not require the Exchange Ratio to be altered since the Offer was made on terms
consistent with the valuations used to determine the Exchange Ratio. In fact, in the context of the valuation of Telecom Italia, the acquisition of the Tim shares tendered in the Offer increases the value of the equity interest in Tim substantially
equivalent to the increase in Telecom Italia’s net financial debt, which, moreover, will be at a level consistent with Telecom Italia’s current rating. The overall effect is that the value of Telecom Italia’s equity will remain
substantially unchanged. 

  

 13 

Table of Contents

	2.1.3	For purposes of determining the Exchange Ratio, Tim’s Board of Directors was assisted by leading financial Advisors, namely the investment banks Lazard & Co. S.r.l.
as Sole Lead Advisor and Credit Suisse First Boston. In addition, as recommended by the Committee for Internal Control and Corporate Governance (consisting exclusively of independent directors), the Milan office of Merrill Lynch International and
Studio Casò, in the person of Mr. Angelo Casò, were requested as advisors to prepare additional fairness opinions on the Exchange Ratio. In arriving at its conclusions, Tim’s Board of Directors acknowledged that each financial
Advisor chose from among the various possible valuation methods those it deemed most appropriate considering the activities performed by the Absorbing Company and the Company to be Absorbed and that, although they adopted different methods, the
financial Advisors reached consistent conclusions. 

  

	  	For its part, the Board of Directors of Telecom Italia was assisted by the following financial Advisors: JPMorgan, MCC, Mediobanca and Goldman Sachs International.

  

	2.1.4	Tim’s Board of Directors, after carefully analyzing the valuations put forward by its financial Advisors, approved the valuation methods they had applied, described in
Section 2.2 below. 

  

	
2.2	Methods used and results obtained 

  

	2.2.1	Introduction 

  

	 	A.	The valuation methods and criteria to be applied here were selected taking into account: 

  

	 	a)	the specific objectives assigned to the valuations in connection with the Merger; 

  

	 	b)	the nature of the activities performed by each of the Companies Participating in the Merger. 

  

	 	B.	Concerning the first aspect, in selecting the valuation principles and criteria, reference was made, as is considered proper and desirable in every kind of valuation, to the
purpose of the exercise and to the material factors allowing the value of the object of the valuation to be calculated. Given the objective of obtaining comparable values for the determination of the Exchange Ratio, valuation methods based on
uniform criteria were adopted for both Companies Participating in the Merger. 

  

	 	  	In this case, the Exchange Ratio was determined on the basis of a comparison of the values of the Companies Participating in the Merger. 

  

	 	  	As indicated above, these values were obtained on a going-concern basis and can neither be considered as representative of stand-alone valuations of the two Companies Participating
in the Merger nor compared with any potential acquisition or disposal prices (which normally take into account potential majority premiums and minority discounts). Nor do these values reflect the strategic, operational and financial synergies
expected from the Merger. 

  

	 	  	As specified below, for the valuation of both Companies Participating in the Merger, the two methods used were the market-price method and the sum-of-parts method, the latter
primarily through the application of the discounted cash flow or DCF methodology to the various business units. In particular, for the purpose of determining the Exchange Ratio, values obtained on the basis of uniform methods were compared: the
ratio between market prices on the one hand and the ratio between fundamental values (sum-of-parts) on the other. 

  

	 	  	The valuation process was further supported by considering financial analysts’ target prices for the Telecom Italia and Tim shares and making reference to market multiples for
comparable companies. 

  

	 	C.	With regard to the second aspect, account was taken, on the one hand, of the multiple operational areas of Telecom Italia and Tim and, on the other, of the fact that
the controlling interest in Tim held by Telecom Italia represents a significant part of the latter’s assets. 

  

	 	D.	In the light of the above, the following methodologies were used to determine the values of Telecom Italia and Tim: 

  

	 	(i)	Market Prices. In this regard, it is noted that where companies participating in a merger have shares listed on regulated securities exchanges, theory and professional
practice suggest that account be taken of the results derivable from the market prices of the respective shares, averaged over appropriate periods of time. In this case, the market prices are considered to be particularly significant, taking into
account the high capitalization and liquidity of Tim and Telecom Italia; the extensive coverage the two companies receive in analysts’ research reports; and the existence among their shareholders of numerous international institutional
investors; 

  

 14 

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	 	(ii)	Sum of the Parts. Under this method, a company’s value is calculated as the sum of the values of its separate units (meaning economic entities that can be valued
independently) adjusted to take into account the company’s financial position and minority interests. 

  

	 	  	For purposes of determining the Exchange Ratio, the values of Telecom Italia’s and Tim’s equity were calculated both taking into account and excluding the effects of the
distribution by the two companies of dividends in April 2005 (assumed to be equal to those distributed in 2004). The reason for considering the effects of the dividends is that the calendar of the Merger provides for the share exchange to take place
after they have been paid. 

  

	 	E.	The sections that follow describe the methods and principles adopted in valuing the Companies Participating in the Merger both from the theoretical point of view and from the point
of view of the principal results achieved. 

  

	2.2.2	Market Price method 

  

	 	A.	The Market Price method estimates the value of the capital on the basis of the stock market prices recorded in a significant period concluding at a date close to that on which the
estimate is made. 

  

	 	  	The application of the Market Price method considered the prices of Telecom Italia and Tim shares over various periods prior to the announcement of the Merger (3 December 2004) and
the beginning of rumors (the week of 16-19 November 2004), in order to focus on the values of the two companies expressed by market prices excluding possible announcement effects. 

  

	 	  	The period prior to the beginning of rumors is considered more significant since in the subsequent period both the market prices and the trading volumes showed anomalies and
discontinuities compared, to their long-term trends. Analyses of the two companies stock market prices are reported below for various periods up to 16 November 2004. It is nonetheless worth noting that the differences between these values and those
obtained for periods up to the Merger announcement date are not material. 

  

	 	B.	On the basis of the market data at 16 November 2004 (the last day of trading before the beginning of rumors), it was found that: 

  

	 	a)	both of the Companies Participating in the Merger had a large market capitalization and a significant and widely-distributed float; 

  

	 	b)	as can be seen from the following table: (i) the daily volume of trading in Tim and Telecom Italia ordinary shares was high (approximately 1% of the float on average); and (ii)
during the twelve months preceding the date of the beginning of rumors concerning the Merger: 

  

	 	•	 	trades of Tim ordinary shares amounted to approximately 389.5% of the ordinary share capital (excluding the shares held by Telecom Italia), for a value of approximately €65
billion; 

  

	 	•	 	trades of Telecom Italia ordinary shares amounted to approximately 201% of the ordinary share capital (excluding the shares held by Olimpia S.p.A.), for a value of approximately
€43 billion. 

  

											
	 Tim
 (ordinary shares)

	  	Average daily
trading volume (in
€ thousands)

	  	Cumulative
volume (in
€ thousands)

	  	Average % of
capital traded (*)

	 	 	Cumulative % of
capital traded (*)

	 
	 Prices
	  	 	  	 	  	 	 	 	 	 
	 16/11/2004
	  	65,758	  	65,758	  	1.8	%	 	1.8	%
	 1-month average
	  	52,095	  	1,146,096	  	1.4	%	 	31.1	%
	 2-month average
	  	50,586	  	2,175,181	  	1.4	%	 	59.0	%
	 3-month average
	  	48,796	  	3,220,504	  	1.3	%	 	87.4	%
	 6-month average
	  	47,803	  	6,310,041	  	1.3	%	 	171.2	%
	 12-month average
	  	56,285	  	14,352,550	  	1.5	%	 	389.5	%

  

 15 

Table of Contents

											
	 Telecom Italia
 (ordinary
shares)

	  	Average daily
trading volume (in
€ thousands)

	  	Cumulative
volume (in
€ thousands)

	  	Average % of
capital traded (*)

	 	 	Cumulative % of
capital traded (*)

	 
	 Prices
	  	 	  	 	  	 	 	 	 	 
	 16/11/2004
	  	85,138	  	85,138	  	1.0	%	 	1.0	%
	 1-month average
	  	71,326	  	1,569,170	  	0.8	%	 	18.5	%
	 2-month average
	  	65,538	  	2,818,153	  	0.8	%	 	33.3	%
	 3-month average
	  	59,735	  	3,918,770	  	0.7	%	 	46.3	%
	 6-month average
	  	58,305	  	7,696,208	  	0.7	%	 	90.9	%
	 12-month average
	  	66,690	  	17,005,946	  	0.8	%	 	201.0	%

	(*)	Percentage of the free float. 

  
 Source: Datastream. 
  

	 	c)	both Companies represented a significant portion of the total capitalization of the Mibtel (Milan telematic index) and S&P/MIB stock indices. According to data provided by Borsa
Italiana, at 16 November 2004: 

  

	 	•	 	Telecom Italia represented 5.3% of the Mibtel index and 8.9% of the S&P/MIB index; and 

  

	 	•	 	Tim represented 7.4% of the Mibtel index and 6.6% of the S&P/MIB index; 

  

	 	d)	the Telecom Italia and Tim floats were significantly divided among Italian and foreign institutional investors and Italian retail investors. 

  

	 	C.	In order to mitigate the short-term fluctuations that are typical of the financial markets, in line with best valuation practices, the analysis of the share prices was extended to
the average figures recorded by the market over relatively long periods. 

  

	 	  	To this end, volume-weighted average prices were calculated for periods of up to 12 months, both excluding and taking into account the impact of the dividend distribution.

  

	 	D.	From the analysis of the market prices, the 1, 3, 6 and 12-month averages were identified as those that fell within a range of constant valuations, as can be seen from the following
table. 

  

													
	 Market prices
 (ordinary
shares)

	  	Stock market value
not adjusted for
dividend

	  	Ratio
(X)*

	  	Stock market value
adjusted for
dividend

	  	Ratio
(X)*

	  	Telecom
Italia (€)

	  	Tim (€)

	  	  	Telecom
Italia (€)

	  	Tim (€)

	  
	 Weighted averages
	  	 	  	 	  	 	  	 	  	 	  	 
	 16/11/2004
	  	2.82	  	4.81	  	1.71	  	2.71	  	4.55	  	1.68
	 1 month
	  	2.70	  	4.68	  	1.73	  	2.59	  	4.42	  	1.71
	 2 months
	  	2.63	  	4.56	  	1.73	  	2.52	  	4.30	  	1.70
	 3 months
	  	2.58	  	4.50	  	1.74	  	2.48	  	4.25	  	1.71
	 6 months
	  	2.55	  	4.51	  	1.77	  	2.45	  	4.25	  	1.74
	 12 months
	  	2.54	  	4.52	  	1.78	  	2.44	  	4.27	  	1.75

 Source: Datastream. 

	*	Possible differences due to rounding. 

  

													
	 Market prices
 (savings
shares)

	  	Stock market value
not adjusted for
dividend

	  	Ratio
(X)*

	  	Stock market value
adjusted for
dividend

	  	Ratio
(X)*

	  	Telecom
Italia (€)

	  	Tim (€)

	  	  	Telecom
Italia (€)

	  	Tim (€)

	  
	 Weighted averages
	  	 	  	 	  	 	  	 	  	 	  	 
	 16/11/2004
	  	2.05	  	4.78	  	2.33	  	1.94	  	4.51	  	2.33
	 1 month
	  	2.01	  	4.62	  	2.30	  	1.89	  	4.35	  	2.30
	 2 months
	  	1.95	  	4.53	  	2.32	  	1.84	  	4.26	  	2.32
	 3 months
	  	1.92	  	4.48	  	2.34	  	1.80	  	4.22	  	2.34
	 6 months
	  	1.86	  	4.45	  	2.39	  	1.75	  	4.18	  	2.39
	 12 months
	  	1.84	  	4.45	  	2.42	  	1.72	  	4.18	  	2.43

 Source: Datastream 
  

	*	Possible differences due to rounding. 

  

 16 

Table of Contents

	2.2.3	Sum-of-Parts Method 

  

	 	A.	Under the Sum-of-Parts method, the value of Telecom Italia and Tim is calculated as the sum of the values of the individual units of each company, considered as economic
entities that can be valued independently. Such sum is suitably adjusted to take account of the financial position and minority interests for each of the Companies Participating in the Merger. 

  

	 	B.	For the valuation of the individual units, the Discounted Cash Flow or DCF methodology was primarily used, as applied to the principal assets of Telecom Italia and Tim: the
Italian wireline and mobile services and the major subsidiaries abroad. 

  

	 	  	For the valuation of the remaining assets of Telecom Italia and Tim, reference was made to their stock market value, where available and deemed appropriate, and for those of minor
importance or not consolidated, to their book value or to the estimates of financial analysts in research reports. 

  

	 	  	The Telecom Italia assets to which the above-mentioned methods were applied are summarized below: 

  

	 	–	fixed telephony services included in the Wireline division; 

  

	 	–	Mobile division (Tim, domestic and international activities); 

  

	 	–	Internet Media division (TI Media S.p.A.); 

  

	 	–	Latin America division (holdings in Entel Chile and Entel Bolivia); 

  

	 	–	IT market division (Finsiel S.p.A.); 

  

	 	–	Olivetti Tecnost group; 

  

	 	–	other assets and shareholdings. 

  

	 	  	The DCF methodology was applied by discounting operating cash flows gross of any component of a financial nature (Free Cash Flows or “FCF”). Under this methodology, the
value of a company is equal to the sum of the following components: 

  

	 	–	operating cash flows that the company will be able to generate in the future, discounted at a rate representing the weighted average cost of capital; 

  

	 	–	net financial position and minority interests, which in the case in question were calculated with reference to 31 December 2004. 

  

	 	  	The DCF method was applied to determine the fundamental value for financial investors and reflects the following assumptions and approaches: 

  

	 	–	the Weighted Average Cost of Capital (“WAAC”), calculated on a target capital structure of the activity to be valued which is in line with the current capital structure
and with the relevant market benchmarks; 

  

	 	–	the growth rates used for the financial projections beyond the time periods covered by Telecom Italia’s and Tim’s business plans, where such projections were considered,
and for the calculation of the terminal value, reflect growth prospects consistent with the relevant market benchmarks. 

  

	 	C.	In applying the DCF methodology, reference was made to the cash flows of the main activities as shown by the update, for the period 2004-2007, of the business and financial plans
approved and announced to the market in March 2004. The plans were developed by management in conformity with the Group’s strategic, operational and financial objectives. The average rate of organic growth (i.e., at constant scope of
consolidation exchange rates) of EBITDA compound annual growth rate (CAGR 2003-2006 >5.5%), and the net financial position at 31 December 2004 (less than €30 billion) are both confirmed. 

  

	 	  	As regards the fixed telephony activity, in a market with prospective annual growth of more than 2%, an average rate of organic growth of EBITDA of more than 2% is confirmed,
primarily due to a stable customer base, achieved by broadening the range of wireline services and products offered and the growth of broadband services in Italy and abroad (France and Germany), also driven by the launch of new value added services
(VAS) and innovative content. 

  

	 	  	 In the case of the mobile telephony activity, the main lines of growth in Italy are confirmed: development and differentiation of the wireless services and products
offered; enhancement of value added services (multi-messaging and interactive VAS); focus on customers; technological 

  

 17 

Table of Contents

	 	 
strength (EDGE/UMTS and combined services); and an increase in the average revenue per user (ARPU). The growth of the international business, where it has
been decided to withdraw from the Venezuelan market, continues to be driven by Brazil. In Brazil, a substantial expansion of the customer base is expected and the second position in the domestic market will be maintained through the continuation of
the strengthening of customer care, brand development and positioning, innovation in the services and products offered, and improved territorial coverage. This allows a double-digit EBITDA annual organic growth trend for the mobile communications
activity as a whole and gross operating profits of more than 53% for the Italian market to be confirmed, in line with the figures announced. 

  

	 	D.	The update for the period 2004-2007 of the business and financial plans approved and announced to the market in March 2004, which were developed by management in conformity with the
Group’s strategic, operational and financial objectives, provided the basis for determining both the operational cash flows for the forecasting period adopted and the terminal value at the end of the periods considered by the Advisors in their
valuations (“Terminal Value”). 

  

	 	  	For purposes of estimating the Terminal Value, theory and prevailing professional practice propose two alternatives: 

  

	 	–	the value corresponding to the capitalization of the normalized operating cash flow (or the present value of the operating cash flows expected for the period subsequent to the time
horizon of the explicit projection), which can be estimated as follows: 

  

					
	                             
	 	 VT=
	 	     FCFn     
	 	 	(WACC–g)

  

					
	 	 	 where:
	 	 
			
	 	 	 VT
	 	 = Terminal Value;

	 	 	 FCFn
	 	 = normalized operating cash flow;

	 	 	 g
	 	 = assumed perpetual growth rate;

	 	 	 WACC
	 	 = weighted average cost of capital;

			
	 	 	 or,
	 	 

  

	 	–	the value calculated on the basis of a multiple of the gross operating profit of the last year of the projection period considered. 

  

	 	  	Since the cash flows in question will be used to remunerate all the entities contributing capital, in discounting such cash flows it is necessary to use a rate representing the cost
of all the financial resources utilized by the company. This rate is identified as the Weighted Average Cost of Capital (WACC) and is calculated with reference to a target capital structure of the activity to be valued and the relevant market
benchmarks, as follows: 

  

									
	                    	 	WACC= Kd (1-t)	 	    D    	 	+ Ke	 	    E    
	 	 	 	D + E	 	 	D + E

  

					
	 	 	 where:
	 	 
			
	 	 	 Kd
	 	 = cost of debt capital;

	 	 	 Ke
	 	 = cost of equity capital;

	 	 	 D
	 	 = debt capital;

	 	 	 E
	 	 = equity capital;

	 	 	 t
	 	 = tax rate.

  

	 	  	In particular, the prevailing practice is to calculate the cost of equity capital on the basis of the Capital Asset Pricing Model (CAPM), defined by the following formula:

  

	 	  	Ke = Rf + Beta x (Rm – Rf) 

  

							
	 	 	 where:
	 	 	 	 
				
	 	 	 Rf
	 	 =
	 	rate of return on risk-free investments;
	 	 	 Beta
	 	 =
	 	correlation coefficient between a share’s effective rate of return and the overall rate of return of the reference share market;
	 	 	 Rm
	 	 =
	 	overall rate of return of the reference share market;
	 	 	 (Rm - Rf)
	 	 =
	 	premium required by the reference share market compared to the rate of return on risk-free investments.

  

 18 

Table of Contents

	 	  	The principle underlying this methodology rests on the hypothesis that, in a liquid and efficient market, investors determine the required rate of return considering exclusively the
systematic (or market) risk of the investment, expressed by the relation between the variation in the price of the share and the variation in the share market (Beta). The specific risk of the investment (the share) is not considered, since it can be
eliminated by the investor through appropriate diversification of investments. 

  

	 	E.	In light of the above, in this case reference was made to the operating cash flows for the individual units as shown by the updated business and financial plans prepared by the
management of both companies. Certain Advisors then extended the financial projections beyond the time horizon of the companies’ business and financial plans. The growth rates used for these financial projections and for the determination of
the Terminal Value, calculated using a perpetual normalized FCF growth rate, reflect growth prospects consistent with the relevant market benchmarks. Although the Advisors adopted different applications of the same methodology, Tim’s Board of
Directors noted that they arrived at similar and mutually consistent conclusions. 

  

	 	  	With respect to the WACC, reference was also made to the calculation of different WACCs for the individual activities. In particular, for the risk-free rate, the “normal”
rate of return on risk-free investments in the reference market of the business unit considered was used, while the beta was calculated on the basis of the most appropriate market variables, taking into account the target financial structure of the
activities to be valued and the relevant market benchmarks. With respect to the premium required by the share market, the most recent valuation practices and estimates of financial analysts published in research reports were used.

  

	 	  	In the valuation of Telecom Italia and Tim, from the sum of the values of the assets, calculated as described above, the estimated net financial position at 31 December 2004 and the
valuation of minority interests were deducted; these were determined primarily, depending on the circumstances, with reference to their book or market value, in view of their limited importance in relation to the overall valuation of the two
companies. 

  

	 	  	In order to divide the results obtained for the equity value of the two companies between their ordinary and savings shares, reference was made to the average discounts implied by
the 1, 2, 3, 6 and 12-month averages of the prices of Telecom Italia and Tim savings shares compared to those of their ordinary shares. The consensus view is that other methods of dividing the equity value between ordinary and savings shares would
introduce discretionary factors into the valuation, unsupported by objective factors. However, in Tim’s case, on the basis of the average historical discount between the prices of ordinary and savings shares, it was decided to assume a discount
of 0% compared to the ordinary shares in determining the value of the savings shares. It needs to be stressed that the range value taken into consideration does not alter the economic substance of the dividend premium to which savings shares are
entitled. 

  

	 	F.	With reference to the Sum-of-the Parts method, after carefully examining the valuations put forward by the Advisors, Tim’s Board of Directors identified the following ranges
for the values of the ordinary and savings shares. 

  

													
	SUM-OF-THE-PARTS METHOD
			
	 	 	Values per share
not adjusted for dividend

	 	Values per share
adjusted for dividend

	 €

	 	Telecom
Italia

	 	Tim

	 	Ratio
(X)

	 	Telecom
Italia

	 	Tim

	 	Ratio
(X)

	 Value per ordinary share
	 	2.97-3.28	 	5.26-5.50	 	1.68-1.77	 	2.86-3.17	 	5.1-5.25	 	1.65-1.75
	 Value per savings share
	 	2.18-2.41	 	5.26-5.50	 	2.29-2.41	 	2.06-2.29	 	4.99-5.24	 	2.29-2.42

  

	 	  	The results obtained by applying the Sum-of-the-Parts method confirm the relative values obtained by using the Market Price method. 

  

	 	G.	In determining the Exchange Ratio, an analysis was also made of the reasonably foreseeable effects of the possible exercise of the right of withdrawal by holders of Tim savings
shares. It was deemed, considering also the prices of the shares in the relevant period, that the result of such withdrawals would not require the Exchange Ratio to be modified, since it was reasonable to presume that the withdrawal price would be
lower than the value attributed to Tim shares for the purposes of the Merger on the basis of the valuation methods applied. 

  

 19 

Table of Contents

	
3.	Conclusions  

  

	
3.1	Determination of the Exchange Ratio 

  

	3.1.1	Taking into account the valuations put forward by the Advisors, the Board of Directors has established the relative values of the Companies Participating in the Merger for the
purpose of determining the Exchange Ratio. 

  

	3.1.2	The Exchange Ratio derived for the ordinary and savings shares by applying the foregoing methods is summarized below: 

  

					
	 METHOD
 (ORDINARY SHARES)

	  	 EXCHANGE RATIO
 NOT ADJUSTED
 FOR DIVIDEND (X)

	  	EXCHANGE RATIO
ADJUSTED FOR
DIVIDEND (X)

	 Market Price method
	  	 	  	 
	 – 16 November 2004
	  	1.71	  	1.68
	 Weighted averages:
	  	 	  	 
	 – 1 month
	  	1.73	  	1.71
	 – 2 months
	  	1.73	  	1.70
	 – 3 months
	  	1.74	  	1.71
	 – 6 months
	  	1.77	  	1.74
	 – 12 months
	  	1.78	  	1.75
	 Sum-of-the-Parts method
	  	1.68-1.77	  	1.65-1.75
			
	 METHOD
 (SAVINGS SHARES)

	  	 EXCHANGE RATIO
 NOT ADJUSTED
 FOR DIVIDEND (X)

	  	 EXCHANGE RATIO
 ADJUSTED FOR
 DIVIDEND
(X)

	 Market Price method
	  	 	  	 
	 – 16 November 2004
	  	2.33	  	2.33
	 Weighted averages:
	  	 	  	 
	 – 1 month
	  	2.30	  	2.30
	 – 2 months
	  	2.32	  	2.32
	 – 3 months
	  	2.34	  	2.34
	 – 6 months
	  	2.39	  	2.39
	 – 12 months
	  	2.42	  	2.43
	 Sum-of-the-Parts method
	  	2.29-2.41	  	2.29-2.42

  

	3.1.3	These conclusions were compared with those reached by the Board of Directors of Telecom Italia, taking into account the indications provided by its financial Advisors: JP
Morgan, MCC, Mediobanca and Goldman Sachs. Following this valuation process and the comparison of the valuations obtained, the Exchange Ratio shown below was adopted. 

  

	
3.2	Exchange Ratio 

  

	3.2.1	On the basis of the valuations of the Companies Participating in the Merger, the following Exchange Ratio, which determines the number of shares to be issued in connection with the
Merger, was adopted: 

  

	 	–	1.73 Telecom Italia ordinary shares with a par value of €0.55 per share for each Tim ordinary share with a par value of €0.06; 

  

	 	–	2.36 Telecom Italia savings shares with a par value of €0.55 per share for each Tim savings share with a par value of €0.06. 

  

	3.2.2	No cash consideration is envisaged. 

  

	
4.	Procedure for assigning the shares of the Post-Merger Company and dividend entitlement date 

  

	
4.1	Procedure for the exchange 

  

	4.1.1	In implementing the Merger, the Tim ordinary and savings shares held by Telecom Italia and the Tim ordinary shares held by Tim as treasury stock will be cancelled without
exchange, whereas new Telecom Italia ordinary and savings shares will be issued to Tim’s shareholders other than Telecom Italia in connection with the exchange. 

  

	    	 Telecom Italia will effect the exchange by increasing its share capital by up to a maximum of €1,420,690,865.55, through the issuance of up to a maximum of
2,291,344,587 Telecom Italia ordinary shares and up to a maximum of 291,729,714 Telecom Italia savings shares, all with a par value of €0.55 

  

 20 

Table of Contents

	 	 
per share. The maximum amount of the increase in Telecom Italia’s share capital for purposes of the share exchange has been calculated without taking
into consideration the Tim ordinary and savings shares held by Telecom Italia following the Offer or Tim’s treasury shares, which will not be exchanged in the Merger. 

  

	    	As specified below, the amount of the increase was determined by also including the percentage of new shares to be issued in connection with the exercise of stock options previously
granted by Telecom Italia and Tim to their respective employees and other employees of the Group (i.e. on a fully diluted basis). 

  

	4.1.2	The newly issued shares earmarked for the exchange will be assigned to the persons entitled to such shares, through their authorized intermediaries who are participants of
the Monte Titoli S.p.A. central securities depository, at the effective date of the Merger. Non-dematerialized Tim shares may only be exchanged upon delivery of such shares to an authorized intermediary for deposit with the central securities
depository on a dematerialized basis. 

  

	    	As part of the procedure for the assignment of Telecom Italia shares, Absorbing Company will arrange for the authorized intermediaries to provide Tim minority shareholders with a
service to handle any fractions of shares, at market prices and at no cost in terms of expenses, stamp duty or commissions, that will permit the number of newly issued shares to which the shareholders are entitled on the basis of the exchange ratio
to be rounded up or down to the nearest whole number. 

  

	
4.2	Effective date of the Merger 

  

	4.2.1	Pursuant to Articles 2504-bis, third paragraph, and 2501-ter, first paragraph, subparagraph 5, of the Civil Code, the newly-issued Telecom Italia shares will
have normal entitlement to all the rights appertaining thereto. 

  

	4.2.2	Pursuant to Article 2504-bis, second paragraph, of the Civil Code, the Merger will be effective, without prejudice to the effects referred to in Article
2501-ter, paragraphs 5 and 6, of the Civil Code, from the date of the last filing of the merger deed, or from such later date as may be specified in the merger deed itself. 

  

	    	Accordingly, as of that date, Telecom Italia will assume all of Tim’s assets, rights and liabilities. 

  

	
5.	Effective date for accounting purposes  

  

	5.1.1	In accordance with the combined effect of Articles 2504-bis, third paragraph, and 2501-ter, first paragraph, subparagraph 6, of the Civil Code, and Article
172.9 of the Consolidated Income Tax Law (approved by Presidential Decree No. 917 of 22 December 1986), and in compliance with Article 6 of the Merger Plan, the transactions effected by Tim will be attributed to and recorded in Telecom Italia’s
accounts, for accounting and income tax purposes, as of 1 January of the year in which the Merger becomes effective, or 1 January 2005, in accordance with the planned timetable. 

  

	
6.	Italian tax effects of the Merger on Telecom Italia  

  

	
6.1.	Direct taxes: taxation of the Companies Participating in the Merger 

  

	6.1.1	For income tax purposes, pursuant to Article 172.1 of the Consolidated Income Tax Law (approved by Presidential Decree No. 917 of 22 December 1986), the Merger is tax neutral
for Italian tax purposes and therefore does not constitute a sale or distribution of capital gains and losses on the assets of the merged or incorporated companies, including on inventories and goodwill. As regards the position of Telecom Italia, it
should be noted that there is no merger goodwill to be recognized as income for tax purposes and thus merger differences will have no material tax impact. The reserves for tax-deferred income reported in Tim’s latest financial statements, and
existing at the effective date of the Merger, will be treated in accordance with the specific provisions of Article 172.5 of Presidential Decree No. 917 of 22 December 1986, and, if applicable, will be re-established. 

  

	6.1.2	On the effective date of the Merger, Telecom Italia will assume all of Tim’s rights and obligations in relation to income taxes. In addition, since for accounting and
tax purposes the Merger takes effect, retroactively, as of 1 January of the year in which the it becomes effective, there will not be a separate tax period between the closing date of Tim’s last financial year and the effective date of the
Merger. 

  

	6.1.3	Lastly, concerning the tax regime of the Spin-Off to be effected by Tim before the Merger, whereby it transfers its Domestic Communications Business to Tim Italia, it should
be noted that the Spin-Off is tax neutral for Italian tax purposes and will therefore not give rise to taxable capital gains or tax-deductible losses. 

  

 21 

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6.2.	Italian tax effects on shareholders 

  

	6.2.1	Pursuant to Article 172.3 of Presidential Decree No. 917 of 22 December 1986, the exchange of Tim shares for Telecom Italia shares does not constitute a sale, a distribution
of capital gains or losses, or a source of income, as the transaction merely involves the replacement in shareholders’ portfolios of the shares of Tim by shares of Telecom Italia. Accordingly, the basis in the Tim shares will be transferred to
the shares obtained in the exchange. 

  

	    	Shareholders resident in countries outside Italy are urged to consult their own tax advisors about the tax effects of the Merger in their own jurisdictions.

  

	
6.3.	Indirect taxes 

  

	6.3.1	The merger deed is subject to a registration fee of €129.11, pursuant to Article 4.b) of the first part of the schedule attached to Presidential Decree No. 131 of 22
December 1986. 

  

	
7.	Expected shareholdings in the Post-Merger Company  

  

	
7.1	Tim shareholders 

  

	7.1.1	At 23 January 2005, on the basis of the shareholder register, disclosures made by shareholders and other information available, the following shareholder held more than 2% of
Tim’s ordinary shares: 

  

						
	 Shareholders

	  	Number of
ordinary shares held

	  	% of ordinary
share capital

	 
	 Telecom Italia S.p.A.
	  	4,734,081,519	  	55.07	%

  

	
7.2	Telecom Italia shareholders 

  

	7.2.1	At 23 January 2005, pursuant to the shareholder register, disclosures made by shareholders and other information available, the following shareholders held more than 2% of
Telecom Italia’s ordinary shares: 

  

					
	 Shareholders

	  	Number of
ordinary shares held

	  	% of ordinary
share capital

	 Olimpia S.p.A.
	  	1,751,765,823	  	16.96
	 Brandes Investment Partners LLC(*)
	  	372,896,243	  	3.61
	 Hopa S.p.A.(**)
	  	361,364,703	  	3.50
	 Assicurazioni Generali S.p.A.(***)
	  	288,964,287	  	2.80
	 Bank of Italy(****)
	  	231,499,817	  	2.24

	*	Disclosure pursuant to Article 121.3 of CONSOB Regulation on Issuers. 

  

	**	Shares held through the subsidiary company Holinvest S.p.A. 

  

	***	The list of companies through which the shares are held is available on the Internet at www.consob.it. 

  

	****	Shares partly held by the Bank of Italy’s supplementary pension fund. 

  

	
7.3	Effects of the Merger on shareholders 

  

	7.3.1	Telecom Italia’s post-Merger shareholdings will be affected by a number of factors and, in particular, by the conversion of Telecom Italia (formerly Olivetti) 1.5% 2001-2010
convertible bonds with redemption premium and the number of Telecom Italia and Tim stock options that are exercised. As regards the bonds, the information available to Tim indicates that conversion requests had been received for 463,187,994
additional Telecom Italia shares at 21 January 2005, compared to the share capital recorded in the Company Register. 

  

	    	The following table summarizes the foreseeable composition of Telecom Italia shareholders with holdings in excess of 2% of the ordinary share capital, assuming that no bonds are
converted (in addition to those related to the requests submitted at 21 January 2005 referred to above, which are not yet reflected in the share capital recorded in the Company Register but are considered for purposes of the analysis below) and that
no stock options are exercised. 

  

 22 

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	    	The table is based exclusively on information in the Telecom Italia shareholder register or disclosed by shareholders in accordance with Article 120 of the Consolidated Law.

  

						
	 Shareholders

	  	Number of
ordinary shares held

	  	% of ordinary
share capital

	 
	 Olimpia S.p.A.
	  	1,751,765,823	  	13.46	%
	 Brandes Investment Partners LLC
	  	372,896,243	  	2.87	%
	 Hopa S.p.A.
	  	361,364,703	  	2.78	%
	 Assicurazioni Generali S.p.A.
	  	288,964,287	  	2.22	%

  

	    	It is also worth noting that, on 21 December 2004, Olimpia S.p.A. announced the approval by its extraordinary shareholders’ meeting of an increase in capital of €2 billion
by means of a rights issue, the proceeds of which will be used to purchase Telecom Italia shares. On 23 January 2005, Olimpia S.p.A. further announced that it had entered into two forward contracts to buy Telecom Italia ordinary shares and bonds
convertible into Telecom Italia ordinary shares, respectively. The execution of these contracts – subject to the subscription of the above-mentioned capital increase – will entail an expenditure of approximately €1 billion. On the
same date, Olimpia S.p.A. also announced that the other parties to the contracts already held shares and convertible bonds corresponding to approximately 310 million Telecom Italia ordinary shares. 

  

	    	Upon completion of the Merger, no shareholder is expected to control Telecom Italia. 

  

	
8.	Effects of the Merger on shareholders’ agreements (Article 122 of Italian Legislative Decree 58/1998) relating to the shares of the Companies Participating in the Merger

  

	    	The parties to the shareholders’ agreements falling within the scope of Article 122 of Italian Legislative Decree 58/1998 that concern the Companies Participating in the Merger
have not made any notifications concerning the possible effects of the Merger on such agreements. 

  

	
9.	Bylaw amendments  

  

	
9.1	Telecom Italia’s bylaws and amendments deriving from the Merger 

  

	9.1.1	In connection with the Merger, Telecom Italia will amend the article of its bylaws concerning the company’s share capital to take account of the capital increase for the
issuance of new ordinary and savings shares to be assigned in exchange to the holders of Tim ordinary and savings shares in accordance with the assignment procedure described in Section 4.1 above. 

  

	    	The maximum increase in Telecom Italia’s share capital for the purposes of the share exchange, 

  

	 	•	 	considering the maximum amount by which Tim’s existing share capital may be increased, among other things as a consequence of the exercise of stock options granted and still
valid; and 

  

	 	•	 	on the basis of the Exchange Ratio indicated in Section 3.2 above, will be a maximum of €1,420,690,865.55, through the issuance of a maximum of 2,291,344,587 new Telecom Italia
ordinary shares and a maximum of 291,729,714 new Telecom Italia savings shares, all with a par value of €0.55 per share. The maximum amount of the increase in Telecom Italia’s share capital for purposes of the share exchange has been
calculated without considering the Tim ordinary and savings shares held by Telecom Italia as a result of the Offer or Tim’s treasury shares, which will not be exchanged in the Merger. 

  

	    	Provision has also been made for the amendments needed to permit the Post-Merger Company to take over stock option plans to the extent such plans are still effective.

  

	    	The Absorbing Company will in fact succeed to Tim’s obligations relating to its stock option plans and will therefore approve capital increases for the issuance of the required
number of new ordinary shares, adjusted on the basis of the Exchange Ratio adopted for the Merger. 

  

	    	Consequently, holders of Tim stock options will have the right, when they exercise their options, to purchase at the predetermined strike price not the original number of ordinary
shares of Tim but the larger number of ordinary shares of Telecom Italia, as the Post-Merger Company, determined on the basis of the Exchange Ratio of 1 to 1.73. The unit subscription price of the ordinary shares in respect of which stock options
may be exercised will therefore be adjusted for each plan by dividing the original price by 1.73. 

  

 23 

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	    	More specifically, Telecom Italia will approve an overall maximum increase in capital, divided into the following tranches, each of which is severable: 

  

	 	a)	an increase of up to €11,705,656.05 for the exercise of stock options already granted by Tim under its “2000-2002 Stock-Option Plans”, to be implemented by 31
December 2008 through the issuance of up to 21,283,011 Telecom Italia ordinary shares with a par value of €0.55 per share to be offered to the holders of the above-mentioned stock options on the basis of the Exchange Ratio adopted for Tim
shareholders for purposes of the Merger at a price of €6.42 for each option held (i.e. €3.710983 for each newly issued share); 

  

	 	b)	an increase of up to €1,132,285 for the exercise of stock options already granted by Tim under its “2001-2003 Stock-Option Plans”, to be implemented by 31 December
2005 through the issuance of up to 2,058,700 Telecom Italia ordinary shares with a par value of €0.55 per share to be offered to the holders of the above-mentioned stock options on the basis of the Exchange Ratio adopted for Tim shareholders
for purposes of the Merger at a price of €8.671 for each option held (i.e. €5.012139 for each newly issued share); 

  

	 	c)	an increase of up to €474,798.50 for the exercise of stock options already granted by Tim under its “2001-2003 Supplementary Plans”, to be implemented by 31 December
2005 through the issuance of up to 863,270 Telecom Italia ordinary shares with a par value of €0.55 per share to be offered to the holders of the above-mentioned stock options on the basis of the Exchange Ratio adopted for Tim shareholders for
purposes of the Merger at a price of €7.526 for each option held (i.e. €4.350289 for each newly issued share); 

  

	 	d)	an increase of up to €22,150,920 for the exercise of stock options already granted by Tim under its “2002-2003 Stock-Option Plans”, to be implemented by 31 December
2008 through the issuance of up to 40,274,400 Telecom Italia ordinary shares with a par value of €0.55 per share to be offered to the holders of the above-mentioned stock options on the basis of the Exchange Ratio adopted for Tim shareholders
for purposes of the Merger at a price of €5.67 for each option held (i.e. €3.277457 for each newly issued share); 

  

	 	e)	an increase of up to €3,192,173.05 for the exercise of stock options already granted by Tim under its “2003-2005 Stock-Option Plans”, to be implemented through the
issuance of up to a total of 5,803,951 shares with a par value of €0.55 per share, by 31 December 2008 for the first lot, by 31 December 2009 for the second lot and by 31 December 2010 for the third lot. The shares will be offered to the
holders of the above-mentioned stock options on the basis of the Exchange Ratio adopted for Tim shareholders for purposes of the Merger at a price of €5.07 for each option held (i.e. €2.930636 for each newly issued share).

  

	    	The amendments to the bylaws described above will come into force on the effective date of the Merger pursuant to Article 2504-bis of the Civil Code and as provided for in
the Merger Plan. 

  

	
10.	Evaluation of the conditions for the exercise of the right of withdrawal (Articles 2437, 2437-quinquies and 2497-quater of the Civil
Code) 

  

	
10.1	Evaluation in relation to Article 2437-quinquies of the Civil Code 

  

	10.1.1	Telecom Italia’s ordinary and savings shares are, and following the Merger will remain, listed on the Mercato Telematico, the electronic share market operated by
Borsa Italiana S.p.A. 

  

	    	There is therefore no legal basis for Tim’s shareholders to exercise the right of withdrawal under Article 2437-quinquies of the Civil Code. 

  

	
10.2	Evaluation in relation to Article 2437 of the Civil Code 

  

	10.2.1	As already noted above, both Telecom Italia and Tim engage in telecommunication activities. The Merger will therefore not entail any significant change in the activities
carried out by Telecom Italia and Tim, or in the related business risk. 

  

	    	It follows that it will not be necessary to change the corporate purpose in the bylaws of Telecom Italia, as the post-Merger company. Therefore, as far as this aspect is concerned,
the Merger will not give rise to the conditions for the exercise of the right of withdrawal pursuant to Article 2437, first paragraph, subparagraph a), of the Civil Code. 

  

	10.2.2	 As a result of the Merger, the holders of Tim savings shares will receive, in the share exchange, Telecom Italia savings shares which entitle holders to a
smaller dividend premium than the cancelled Tim shares 

  

 24 

Table of Contents

	 	 
(see Section 1.4.7 above). The Merger will therefore be submitted for approval to the Special Meeting of Tim’s savings shareholders, pursuant to Article
146.1b) of the Consolidated Law. 

  

	  	Moreover, for the reasons explained in Section 1.4.7 above concerning the smaller dividend premium of the Telecom Italia savings shares that will be assigned in the exchange to
holders of Tim savings shares, holders of Tim savings shares who do not vote in favor of the Merger at the Special Meeting will be entitled to withdrawal rights pursuant to Article 2437, first paragraph, subparagraph g) of the Civil Code, since
their property rights will be modified by the share exchange. 

  

	10.2.3	The exercise of the right of withdrawal by Tim’s savings shareholders will be governed by Articles 2437-bis et seq. of the Civil Code. To this end, it should be
noted in particular that, pursuant to the first paragraph of such article, Tim’s savings shareholders who do not vote in favor of the Merger at the Special Meeting will be able to exercise their right of withdrawal within 15 days from the date
of the filing of the merger resolution, which presupposes the approval of the Special Meeting, with the Company Register. This filing will be made public in accordance with applicable law and regulations. It should also be noted that, pursuant to
Article 2437-bis of the Civil Code, shares for which the right of withdrawal is exercised may not be sold or transferred. 

  

	10.2.4	Consistent with its interest in purchasing all of Tim’s savings shares, as evidenced by the Offer, Telecom Italia has indicated that it intends to purchase all the
savings shares for which the right of withdrawal is exercised by exercising its prerogatives in accordance with applicable law. 

  

	
10.3	Evaluation in relation to Article 2497-quater of the Civil Code 

  

	10.3.1	Following the Merger, Telecom Italia would in theory cease to perform its direction and supervision role with respect to Tim. However, since the companies are listed on regulated
securities exchanges, there will be no legal basis for the holders of Tim shares to exercise the right of withdrawal under Article 2497-quater of the Civil Code. 

  
 TELECOM ITALIA MOBILE S.p.A. 
  

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 26 

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 ANNEX IV 
  
  
 

 
  

  
 TELECOM ITALIA S.p.A. 
 INTERIM FINANCIAL STATEMENTS AT SEPTEMBER 30, 2004 

Table of Contents

 BALANCE SHEETS 
  

									
	 ASSETS

	 	September 30, 2004

	 	December 31, 2003

	(in euro)	 	 	 	 	 	 	 	 
	 RECEIVABLES FROM SHAREHOLDERS FOR CAPITAL CONTRIBUTIONS
	 	 	 	 	 	 	 	 
	 INTANGIBLES, FIXED ASSETS AND LONG-TERM INVESTMENTS
	 	 	 	 	 	 	 	 
	 - INTANGIBLE ASSETS
	 	 	 	 	 	 	 	 
	    Start-up and expansion costs
	 	 	 	14,380,062	 	 	 	23,008,099
	    Industrial patents and intellectual property rights
	 	 	 	1,172,266,452	 	 	 	882,699,375
	    Concessions, licenses, trademarks and similar rights
	 	 	 	781,832	 	 	 	850,025
	    Goodwill
	 	 	 	944,333	 	 	 	1,144,583
	    Work in progress and advances to suppliers
	 	 	 	390,789,143	 	 	 	477,639,011
	    Other intangibles
	 	 	 	156,981,657	 	 	 	99,238,269
	 	 	 	 	
	 	 	 	

	    TOTAL INTANGIBLE ASSETS
	 	 	 	1,736,143,480	 	 	 	1,484,579,362
	 	 	 	 	
	 	 	 	

	 - FIXED ASSETS
	 	 	 	 	 	 	 	 
	    Land and buildings
	 	 	 	1,126,560,324	 	 	 	1,106,851,118
	    Plant and machinery
	 	 	 	9,386,824,709	 	 	 	10,050,719,281
	    Manufacturing and distribution equipment
	 	 	 	12,837,708	 	 	 	10,048,945
	    Other fixed assets
	 	 	 	43,960,946	 	 	 	48,846,328
	    Construction in progress and advances to suppliers
	 	 	 	487,972,759	 	 	 	626,257,125
	 	 	 	 	
	 	 	 	

	    TOTAL FIXED ASSETS
	 	 	 	11,058,156,447	 	 	 	11,842,722,798
	 	 	 	 	
	 	 	 	

	 - LONG-TERM INVESTMENTS
	 	 	 	 	 	 	 	 
	    Equity investments in
	 	 	 	 	 	 	 	 
	 subsidiaries
	 	 	 	32,452,610,762	 	 	 	34,188,394,538
	 affiliated companies
	 	 	 	354,385,465	 	 	 	450,394,506
	 other companies
	 	 	 	203,989,644	 	 	 	220,159,093
	 	 	 	 	
	 	 	 	

	    Total equity investments
	 	 	 	33,010,985,870	 	 	 	34,858,948,137
	    Advances on future capital contributions
	 	 	 	1,518,944,440	 	 	 	136,237,932
	    Accounts receivable
	 	(*)	 	 	 	(*)	 	 
	 subsidiaries
	 	 	 	71,380,205	 	2,890,502	 	67,097,561
	 affiliated companies
	 	6,536,092	 	43,005,257	 	95,535	 	54,489,396
	 other receivables
	 	18,193,207	 	103,705,571	 	68,613,790	 	157,428,512
	 	 	
	 	
	 	
	 	

	    Total accounts receivable
	 	24,729,299	 	218,091,033	 	71,599,827	 	279,015,468
	    Treasury stock (total par value euro 700 thousand at 9/30/2004)
	 	 	 	2,298,156	 	 	 	2,298,156
	 	 	 	 	
	 	 	 	

	    TOTAL LONG-TERM INVESTMENTS
	 	 	 	34,750,319,499	 	 	 	35,276,499,693
	 	 	 	 	
	 	 	 	

	 TOTAL INTANGIBLES, FIXED ASSETS AND LONG-TERM INVESTMENTS
	 	 	 	47,544,619,426	 	 	 	48,603,801,852
	 	 	 	 	
	 	 	 	

	 CURRENT ASSETS
	 	 	 	 	 	 	 	 
	 - INVENTORIES
	 	 	 	 	 	 	 	 
	    Contract work in process
	 	 	 	32,885,410	 	 	 	23,341,218
	    Finished goods and merchandise
	 	 	 	 	 	 	 	 
	 merchandise
	 	 	 	107,297,779	 	 	 	65,194,154
	 	 	 	 	
	 	 	 	

	    TOTAL INVENTORIES
	 	 	 	140,183,188	 	 	 	88,535,372
	 	 	 	 	
	 	 	 	

	 - ACCOUNTS RECEIVABLE
	 	(* *)	 	 	 	(* *)	 	 
	    Trade accounts receivable
	 	 	 	3,422,563,556	 	 	 	3,703,449,847
	    Accounts receivable from subsidiaries
	 	 	 	1,921,885,667	 	 	 	3,075,289,042
	    Accounts receivable from affiliated companies
	 	 	 	103,405,375	 	 	 	96,774,507
	    Taxes receivable
	 	 	 	44,826,048	 	 	 	1,362,329,226
	    Deferred tax assets
	 	2,055,138,575	 	2,845,094,308	 	2,055,138,575	 	3,229,915,964
	    Other receivables due from
	 	 	 	 	 	 	 	 
	 Government and other public entities for grants and subsidies
	 	 	 	25,889,157	 	 	 	30,748,076
	 other receivables
	 	 	 	597,277,286	 	 	 	807,653,267
	 	 	 	 	
	 	 	 	

	    Total other receivables
	 	 	 	623,166,443	 	 	 	838,401,344
	 	 	 	 	
	 	 	 	

	    TOTAL ACCOUNTS RECEIVABLE
	 	 	 	8,960,941,398	 	 	 	12,306,159,930
	 	 	 	 	
	 	 	 	

	 - SHORT-TERM FINANCIAL ASSETS
	 	 	 	 	 	 	 	 
	    Equity investments in subsidiaries
	 	 	 	166,933,854	 	 	 	166,190,144
	    Other equity investments
	 	 	 	8,800	 	 	 	21,314
	    Other securities
	 	 	 	7,495,610	 	 	 	16,178,765
	 	 	 	 	
	 	 	 	

	    TOTAL SHORT-TERM FINANCIAL ASSETS
	 	 	 	174,438,265	 	 	 	182,390,223
	 	 	 	 	
	 	 	 	

	 - LIQUID ASSETS
	 	 	 	 	 	 	 	 
	    Bank and postal accounts
	 	 	 	775,813,849	 	 	 	204,634,612
	    Checks
	 	 	 	40,255	 	 	 	47,595
	    Cash and valuables on hand
	 	 	 	602,480	 	 	 	568,855
	 	 	 	 	
	 	 	 	

	    TOTAL LIQUID ASSETS
	 	 	 	776,456,584	 	 	 	205,251,062
	 	 	 	 	
	 	 	 	

	 TOTAL CURRENT ASSETS
	 	 	 	10,052,019,434	 	 	 	12,782,336,589
	 	 	 	 	
	 	 	 	

	 ACCRUED INCOME AND PREPAID EXPENSES
	 	 	 	 	 	 	 	 
	    Issue discounts and similar charges
	 	 	 	115,444,954	 	 	 	110,621,576
	    Accrued income and other prepaid expenses
	 	 	 	431,590,754	 	 	 	453,188,766
	 	 	 	 	
	 	 	 	

	 TOTAL ACCRUED INCOME AND PREPARED EXPENSES
	 	 	 	547,035,708	 	 	 	563,810,342
	 	 	 	 	
	 	 	 	

	 TOTAL ASSETS
	 	 	 	58,143,674,568	 	 	 	61,949,948,783
	 	 	 	 	
	 	 	 	

	(*)       Amounts	due within 12 months 

  

	(*	*)    Amounts due beyond 12 months 

  

 2 

Table of Contents

									
	 LIABILITIES AND SHAREHOLDERS EQUITY

	 	September 30, 2004

	 	December 31, 2003

	(in euro)	 	 	 	 	 	 	 	 
	 SHAREHOLDERS’ EQUITY
	 	 	 	 	 	 	 	 
	 - SHARE CAPITAL
	 	 	 	8,857,834,072	 	 	 	8,853,990,645
	 - ADDITIONAL PAID-IN CAPITAL
	 	 	 	98,943,353	 	 	 	88,376,636
	 - RESERVES FOR INFLATION ADJUSTMENTS - Law No. 413, 12/30/1991
	 	 	 	1,128,827	 	 	 	—
	 - LEGAL RESERVE
	 	 	 	1,834,686,976	 	 	 	1,834,686,976
	 - RESERVE FOR TREASURY STOCK IN PORTFOLIO
	 	 	 	2,298,156	 	 	 	2,298,156
	 - MISCELLANEOUS RESERVES
	 	 	 	 	 	 	 	 
	   .  Reserve Law No. 488/9192
	 	 	 	142,365,063	 	 	 	118,677,664
	   .  Reserve L.D. No. 124/1993, ex art. 13
	 	 	 	185,808	 	 	 	185,808
	   .  Reserve D.P.R. No. 917/1986, ex art. 74
	 	 	 	5,749,710	 	 	 	5,749,710
	   .  Reserve for capital grants
	 	 	 	507,937,032	 	 	 	498,701,503
	   .  Miscellaneous reserves
	 	 	 	119,012,282	 	 	 	119,012,282
	   .  Merger surplus reserve
	 	 	 	2,188,528,994	 	 	 	2,188,528,994
	    TOTAL MISCELLANEOUS RESERVES
	 	 	 	2,963,778,889	 	 	 	2,930,855,961
	 - RETAINED EARNINGS
	 	 	 	881,028,354	 	 	 	—
	 - NET INCOME
	 	 	 	893,615,508	 	 	 	2,645,902,665
	 	 	 	 	
	 	 	 	

	 TOTAL SHAREHOLDERS’ EQUITY
	 	 	 	15,533,314,135	 	 	 	16,356,111,039
	 	 	 	 	
	 	 	 	

	 RESERVES FOR RISKS AND CHARGES
	 	 	 	 	 	 	 	 
	    Reserve for taxes and reserve for deferred taxes
	 	 	 	130,864,595	 	 	 	119,410,092
	    Other reserves
	 	 	 	628,284,150	 	 	 	657,917,133
	 	 	 	 	
	 	 	 	

	 TOTAL RESERVES FOR RISKS AND CHARGES
	 	 	 	759,148,745	 	 	 	777,327,225
	 	 	 	 	
	 	 	 	

	 RESERVE FOR EMPLOYEE TERMINATION INDEMNITIES
	 	 	 	1,035,429,431	 	 	 	972,412,757
	 	 	 	 	
	 	 	 	

	 LIABILITIES
	 	(* *)	 	 	 	(* *)	 	 
	    Debentures
	 	12,660,489,054	 	12,660,489,054	 	8,264,982,800	 	9,764,982,800
	    Convertible debentures
	 	2,827,903,552	 	2,827,903,552	 	2,829,005,585	 	4,159,569,459
	    Due to banks
	 	298,617,539	 	887,379,907	 	286,787,391	 	1,191,093,982
	    Due to other lenders
	 	373,449,579	 	665,308,152	 	462,538,177	 	781,884,860
	    Advances
	 	 	 	28,603,390	 	 	 	22,723,406
	    Trade accounts payable
	 	 	 	1,390,027,240	 	 	 	1,929,794,121
	    Accounts payable to subsidiaries
	 	12,979,857,370	 	18,002,784,906	 	9,071,133,778	 	20,543,520,078
	    Accounts payable to affiliated companies
	 	764	 	95,687,867	 	 	 	84,770,489
	    Taxes payable
	 	 	 	624,095,506	 	 	 	379,080,287
	    Contributions to pension and social security institutions
	 	466,543,787	 	574,589,514	 	466,543,787	 	626,768,912
	    Other liabilities
	 	441,373	 	1,362,979,312	 	441,373	 	1,911,283,963
	 	 	
	 	
	 	
	 	

	 TOTAL LIABILITIES
	 	29,607,303,018	 	39,119,848,400	 	21,381,432,892	 	41,395,472,357
	 	 	
	 	
	 	
	 	

	 ACCRUED EXPENSES AND DEFERRED INCOME
	 	 	 	1,695,933,856	 	 	 	2,448,625,405
	 	 	 	 	
	 	 	 	

	 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
	 	 	 	58,143,674,568	 	 	 	61,949,948,783
	 	 	 	 	
	 	 	 	

	(* *)	Amounts due beyond 12 months 

  

 3 

Table of Contents

					
	 MEMORANDUM ACCOUNTS

	  	September 30, 2004

	  	December 31, 2003

	(in euro)	  	 	  	 
	 GUARANTEES PROVIDED
	  	 	  	 
	    Sureties
	  	 	  	 
	 on behalf of subsidiaries
	  	24,522,456,332	  	29,654,575,978
	 on behalf of affiliated companies
	  	145,542,631	  	106,450,253
	 on behalf of others
	  	127,191,366	  	153,080,279
	 	  	
	  	

	 TOTAL GUARANTEES PROVIDED
	  	24,795,190,330	  	29,914,106,510
	 	  	
	  	

	 COLLATERAL PROVIDED
	  	—	  	—
	 	  	
	  	

	 PURCHASES AND SALES COMMITMENTS
	  	107,383,303	  	159,844,095
	 	  	
	  	

	 OTHER MEMORANDUM ACCOUNTS
	  	13,943,138	  	18,549,141
	 	  	
	  	

	 TOTAL MEMORANDUM ACCOUNTS
	  	24,916,516,771	  	30,092,499,746
	 	  	
	  	

  

 4 

Table of Contents

					
	 STATEMENTS OF INCOME

	  	9 months to September 30, 2004

	  	9 months to September 30, 2003

	(in euro)	  	 	  	 
	 PRODUCTION VALUE
	  	 	  	 
	    Sales and service revenues
	  	11,793,168,540	  	11,872,225,646
	    Changes in inventory of contract work in process
	  	9,544,192	  	5,649,798
	    Increases in capitalized internal construction costs
	  	55,642,562	  	40,360,158
	    Other revenues and income
	  	 	  	 
	 operating grants
	  	2,665,810	  	7,660,921
	 other
	  	128,242,247	  	151,542,073
	 	  	
	  	

	    Total other revenues and income
	  	130,908,057	  	159,202,994
	 	  	
	  	

	 TOTAL PRODUCTION VALUE
	  	11,989,263,350	  	12,077,438,595
	 	  	
	  	

	 PRODUCTION COSTS
	  	 	  	 
	    Raw materials, supplies and merchandise
	  	339,488,147	  	242,372,638
	    Services
	  	3,825,376,273	  	3,844,030,870
	    Use of property not owned
	  	444,939,708	  	532,718,016
	    Personnel costs
	  	 	  	 
	 wages and salaries
	  	1,258,785,266	  	1,303,137,889
	 social security contributions
	  	401,739,890	  	415,688,926
	 termination indemnities
	  	98,373,573	  	101,848,910
	 other costs
	  	29,979,083	  	32,154,514
	 	  	
	  	

	    Total personnel costs
	  	1,788,877,812	  	1,852,830,238
	 	  	
	  	

	    Amortization, depreciation and writedowns
	  	 	  	 
	 amortization of intangible assets
	  	426,637,083	  	417,130,877
	 depreciation of fixed assets
	  	1,576,640,939	  	1,691,810,675
	 writedowns of receivables included in current assets and liquid assets
	  	58,378,971	  	115,092,771
	 	  	
	  	

	    Total amortization, depreciation and writedowns
	  	2,061,656,992	  	2,224,034,323
	 	  	
	  	

	    Changes in inventory of raw materials, supplies and merchandise
	  	-42,103,624	  	-29,418,263
	    Provisions for risks
	  	24,928,671	  	12,311,997
	    Miscellaneous operating costs
	  	 	  	 
	 losses on disposals of assets
	  	15,938,426	  	9,578,329
	 TLC operating fees
	  	17,359,591	  	16,003,662
	 other miscellaneous costs
	  	256,713,934	  	203,702,172
	 	  	
	  	

	    Total miscellaneous operating costs
	  	290,011,951	  	229,284,162
	 	  	
	  	

	 TOTAL PRODUCTION COSTS
	  	-8,733,175,930	  	-8,908,163,982
	 	  	
	  	

	 OPERATING INCOME
	  	3,256,087,420	  	3,169,274,614
	 	  	
	  	

	 FINANCIAL INCOME AND EXPENSE
	  	 	  	 
	    Income from equity investments
	  	 	  	 
	 dividends from subsidiaries
	  	9,804,136	  	597,929,458
	 dividends from affiliated companies
	  	 	  	 
	 dividends from other companies
	  	2,321,999	  	3,128,449
	 other income from equity investments
	  	4,338,123	  	79,216,380
	 	  	
	  	

	    Total income from equity investments
	  	16,464,258	  	680,274,287
	 	  	
	  	

	    Other financial income from
	  	 	  	 
	 accounts receivable included in long-term investments
	  	 	  	 
	 subsidiaries
	  	2,784,382	  	2,563,024
	 affiliated companies
	  	1,577,459	  	4,843,697
	 other
	  	5,355,241	  	5,531,002
	 	  	
	  	

	 Total from accounts receivable included in long-term investments
	  	9,717,082	  	12,937,723
	 	  	
	  	

	 securities, other than equity investments, included in long-term investments
	  	240,725	  	1,642,385
	 other income
	  	 	  	 
	 interest and fees from subsidiaries
	  	23,781,608	  	22,562,732
	 interest and fees from affiliated companies
	  	47,631	  	355,307
	 interest and fees from others and miscellaneous income
	  	120,750,355	  	40,267,853
	 	  	
	  	

	 Total other income
	  	144,579,594	  	63,185,891
	 	  	
	  	

	 Total other financial income
	  	154,537,401	  	77,765,999
	 	  	
	  	

	 Interest and other financial expense
	  	 	  	 
	 interest and fees paid to subsidiaries
	  	566,296,197	  	657,199,262
	 interest and fees paid to affiliated companies
	  	166,660	  	254,211
	 interest and fees paid to others and miscellaneous expense
	  	881,004,217	  	1,384,820,146
	 	  	
	  	

	 Total interest and other financial expense
	  	-1,447,467,074	  	-2,042,273,619
	 	  	
	  	

	 Foreign exchange gains and losses
	  	-426,521	  	4,896,816
	 	  	
	  	

	 TOTAL FINANCIAL INCOME AND EXPENSE
	  	-1,276,891,935	  	-1,279,336,516
	 	  	
	  	

	 VALUE ADJUSTMENTS TO FINANCIAL ASSETS
	  	 	  	 
	    Upward adjustments of equity investments
	  	60,810,259	  	66,902,385
	 	  	
	  	

	    Total upward adjustments
	  	60,810,259	  	66,902,385
	 	  	
	  	

	    Writedowns of equity investments
	  	55,409,287	  	303,812,941
	 securities, other than equity investments, included in current assets
	  	84,337	  	156,338
	 	  	
	  	

	    Total writedowns
	  	-55,493,624	  	-303,969,279
	 	  	
	  	

	 TOTAL VALUE ADJUSTMENTS TO FINANCIAL ASSETS
	  	5,316,635	  	-237,066,894
	 EXTRAORDINARY INCOME AND EXPENSE
	  	 	  	 
	    Income
	  	 	  	 
	 gains on disposals
	  	10,522,928	  	32,969,363
	 elimination of tax interference
	  	932,387	  	—
	 miscellaneous
	  	32,144,743	  	956,589,661
	 	  	
	  	

	    Total income
	  	43,600,059	  	989,559,025
	 	  	
	  	

	    Expense
	  	 	  	 
	 losses on disposals
	  	 	  	387,804,138
	 prior years’ taxes
	  	1,271,238	  	4,697,879
	 provisions and writedowns of equity investments
	  	112,415,547	  	146,139,000
	 miscellaneous
	  	250,654,885	  	725,744,374
	 	  	
	  	

	    Total expense
	  	-364,341,671	  	-1,264,385,392
	 	  	
	  	

	 TOTAL EXTRAORDINARY ITEMS
	  	-320,741,612	  	-274,826,367
	 	  	
	  	

	 INCOME BEFORE TAXES
	  	1,663,770,508	  	1,378,044,836
	 	  	
	  	

	    Income taxes, current and deferred
	  	-770,155,000	  	634,081,000
	 	  	
	  	

	 NET INCOME
	  	893,615,508	  	2,012,125,836
	 	  	
	  	

  

 5 

Table of Contents

 NOTES TO THE FINANCIAL STATEMENTS 
  
 INTRODUCTION 
  
 The interim financial statements for the nine months ended September 30, 2004 of Telecom Italia S.p.A. have been prepared in accordance with the provisions of the Italian
Civil Code pertaining to statutory financial statements and revised by the introduction of the reform of corporate law pursuant to Legislative Decree No. 6 dated January 17, 2003, as amended. 
  
 The accounting policies adopted in preparing the interim financial statements for the nine
months ended September 30, 2004, taking into account the adjustments required by the nature of interim financial reporting, have been applied on a basis consistent with those of the annual financial statements, with the exception of the policies for
charging income taxes for the period (see the accounting policy for “reserves for risks and charges”) and dividends (see the accounting policy for “revenues”) 
  
 During the period, there were no exceptional cases causing recourse to the departures allowed by art. 2423, paragraph 4, of the Italian
Civil Code. 
  
 The interim financial statements include the statement of cash
flows presented in Annex 6. 
  
 All amounts are stated in thousands of euro,
unless otherwise indicated. 
  
 Summary of significant accounting policies

  
 Intangible assets 
  
 Intangible assets are recorded at acquisition or production cost and are amortized using the
straight-line method over their estimated period of benefit. 
  
 Intangible assets
are written down when there is a permanent impairment to below their net book value, in accordance with article 2426, paragraph 1, item 3 of the Italian Civil Code. The original recorded value will be reinstated in subsequent years if the underlying
assumptions are no longer correct. 
  
 Intangible assets specifically refer to the
following: 
  
 “Start-up and expansion costs”: these are
amortized over a period of five years starting from the time the asset produces an economic benefit. 
  
 “Industrial patents and intellectual property rights”: these are amortized over their estimated period of benefit on a five-year basis (industrial patents) or on a three-year basis (software),
starting from the time the asset produces an economic benefit. 
  
 “Concessions, licenses, trademarks and similar rights”: these refer mainly to satellite utilization rights and are amortized over the contract period. 
  
 “Goodwill:, this relates to the acquisition of the “administrative services” business segment from Holding
Media e Comunicazioni, TIM, Finsiel and Telecom Italia Media and is amortized over five years. 
  
 “Other intangibles”: these refer almost entirely to leasehold improvements. Amortization is calculated on the basis of the lesser of the period of future economic benefit or the residual lease period,
starting from the time the expenses are incurred or from the time the asset produces an economic benefit. 
  
 “Research, development and advertising costs” are charged to income in the year incurred. 
  
 Fixed assets 
  
 Fixed assets are recorded at acquisition or production cost and depreciated using the straight-line method at rates determined on the basis of their estimated remaining useful life and include inflation adjustments.

  
 Fixed assets are written down when there is a permanent impairment to below
their net book value, in accordance with article 2426, paragraph 1, item 3 of the Italian Civil Code. The original recorded value will be reinstated in subsequent years if the underlying assumptions are no longer correct. Construction in progress is
stated at the amount of direct costs incurred (materials used for or intended for installations, third-party services, miscellaneous expenses, internal design costs, as well as company labor). The value of fixed assets does not include maintenance
costs incurred for their upkeep to guarantee their expected useful life, their original capacity and productivity, and costs borne to repair malfunctions and failures; such expenses are charged to the statement of income in the year incurred.

  

 6 

Table of Contents

 Depreciation is calculated on the basis of the estimated useful lives of the installations. 
  
 Total accumulated depreciation for fixed assets was upwardly adjusted where called for by
special laws. 
  
 The elimination, disposal or sale of fixed assets is recorded in
the financial statement by eliminating the cost and accumulated depreciation from the financial statements and booking the related gain or loss in the statement of income. 
  
 Equity investments 
  
 Equity investments considered long-term in nature are recorded in long-term investments or, if acquired for subsequent sale, recorded in short-term financial assets.

  
 The cost flow for equity investments recorded in long-term investments and
current assets is calculated by reference to the “weighted average cost per movement” method. 
  
 Acquisition cost is increased by statutory inflation adjustments, as well as the voluntary one made to several investments during the preparation of the financial statements at December 31, 1981, as well as the
cancellation deficit, attributed to Tim shares and which arose from the merger of Telecom Italia S.p.A. in Olivetti S.p.A., being the difference between the carrying value of the cancelled shares and the underlying share of net equity of the merged
company. 
  
 The carrying value of investments recorded in long-term investments
is adjusted for any reasonable expectations of a decline in profitability or recoverability in future years. 
  
 In the case of a permanent impairment, the value of such equity investments is written down and the impairment in value in excess of the corresponding carrying value is recorded in “reserves for risks and
charges”. 
  
 Equity investments included under current assets are stated
at the lower of the cost of acquisition and estimated realizable value, represented by the period-end prices on the electronic trading market of the Italian stock exchange and the NASDAQ. 
  
 The cost of investments in foreign companies has been translated at the historical exchange rates prevailing at the time of acquisition or
subscription or at the period-end rate, if lower, in the case the reduction is considered a permanent impairment. 
  
 Writedowns of investments, whether included in long-term investments or current assets, will be reversed in subsequent years if the underlying assumptions are no longer
correct. 
  
 Other securities (other than equity investments) recorded in
short-term financial assets 
  
 Securities recorded in current assets are
valued at the lower of cost of acquisition and realizable value based on market prices at period-end; if, in future years, the underlying assumptions for the writedowns are no longer correct, the carrying value will be adjusted to market value up to
the amount of original cost. 
  
 Inventories 
  
 Inventories – consisting of goods intended for sale, as well as stock on hand of
technical materials and replacement parts to be used in the business during the year and for maintenance – are valued at the lower of cost, calculated using the weighted-average method, and realizable value. 
  
 The carrying value of goods in stock is reduced, through appropriate writedowns, for obsolete
materials. 
  
 Inventories include the amount of work on behalf of third parties
in progress at the end of the period, valued according to the “costs” already incurred. 
  
 Accounts receivable and liabilities 
  
 Accounts receivable are stated at estimated realizable value and classified under long-term investments or current assets. They include – as far as telecommunications services are concerned – the amount of services already
rendered to customers, already billed or still to be billed, as well as invoices for the sale of telephone and on-line equipment. 
  
 Liabilities are shown at their nominal value. 
  

 7 

Table of Contents

 Transactions in foreign currency 
  
 Monetary assets and liabilities are accounted for at the exchange rate as of the transaction date and updated to the exchange rates
prevailing at period-end, taking into account hedging contracts. Unrealized positive and negative differences arising from recording foreign currency assets and liabilities at the exchange rates at the transaction date and at the period-end date are
recorded in the statement of income and any unrealized net exchange gain is set aside in a specific reserve until realization. 
  
 Securitization 
  
 The total amount of receivables sold under securitization transactions commenced in 2001 is reversed from the balance sheet as the contra-entry for the consideration received on the sale; the amount paid is
represented by the non-repeatable amount received immediately (without recourse) whereas the deferred portion is recorded in Other receivables (financial) in current assets. This balance sheet caption is presented net of the relative
allowance account calculated on the basis of estimated realizable value; the change in the allowance account is booked in Financial expense in the statement of income. The difference between the carrying value of the receivables sold and the
agreed consideration on the sale is recognized in the statement of income in Miscellaneous operating costs, for the trading portion, and in Interest and other financial expense, for the financial portion. The costs and expenses
relating to the start-up and implementation of the securitization program (arrangement, underwriting, legal, rating, audit and other expenses) were charged directly to the 2001 statement of income in Service costs by the merged company.

  
 Accruals and deferrals 
  
 These items are recorded on the accrual basis. “Issue discounts and similar
charges” consist of costs in connection with long-term loans, which are charged to the statement of income over the period of the loan in proportion to the accrued interest. 
  
 Reserves for risks and charges 
  
 “Reserve for taxes and reserve for deferred taxes” 
  
 This includes: i) income taxes for the period calculated on the basis of the best possible estimate using available information and on a reasonable forecast of
performance for the year up to the end of the tax period; ii) provisions for estimated tax charges (including any surtaxes and late payment interest) on positions not yet agreed or in dispute; iii) deferred taxes calculated on the basis of the
temporary differences between the value attributed to the assets and liabilities for statutory purposes and the value attributed to the same assets and liabilities for tax purposes. Whenever the conditions exist, deferred tax liabilities are offset
against deferred tax assets recorded in the caption “Deferred tax assets” in the balance sheet. 
  
 Deferred taxes on tax-deferred reserves and funds are booked if such reserves will be distributed or, in any case, utilized and their distribution or utilization gives rise to a tax charge. 
  
 “Other reserves”: these reserves relate primarily to provisions to cover
risks and charges for losses or liabilities of certain or likely existence whose amount or date of occurrence could, however, not be determined at the end of the period. The provisions reflect the best possible estimate, based on the commitments
made and on the data available. 
  
 Reserve for employee termination
indemnities 
  
 The amount of this reserve is determined in accordance
with current laws (in particular Law No. 297 of May 29, 1982, which provides for fixed and variable cost-of-living adjustments) and collective bargaining agreements. The reserve is adjusted to the liability matured at the end of the period for
personnel in force at that date and is net of advances paid. 
  
 Due to
shareholders for loans 
  
 “Shareholders” are considered
parties which hold directly at least 2% of share capital at the end of the period. At September 30, 2004, shareholders holding at least 2% of the share capital of Telecom Italia had made no loans to the company. 
  

 8 

Table of Contents

 Employee benefit obligations under Law No. 58/1992 
  
 With regard to Telecom Italia’s obligation under Law No. 58/1992 to guarantee a uniform
insurance status under the Telephone Workers’ Social Security Fund (which became part of the general “Employees Pension Fund” beginning January 1, 2000) to all employees in service as of February 20, 1992 in the companies Stet, Sip,
Italcable and Telespazio, as well as those who moved from the Public Administration to Iritel, Article 66, paragraph 1 of Legislative Decree 331/1993 and converted into Law No. 427/1993, specifies that the sums due to the Fund should be recorded in
the financial statements and are tax deductible in the years in which the fifteen equal annual deferred installments are paid to discharge this obligation. 
  
 At the present time, the amount of the liability, which will be determined by the National Social Security Institute (Istituto Nazionale della Previdenza Sociale - INPS),
can be estimated only roughly, due to problems relating to the interpretation and application of the social security legislation and to the lack of certain data which only the social security institutions currently possess (at September 30, 2004,
INPS had notified the Company of around 97% of the positions, the uniform insurance status of which gives rise to expenses for Telecom Italia). 
  
 A dispute concerning the application and interpretation of this law arose with INPS regarding the exclusion from the estimates under Law No. 58/1992 of all employees
(except for employees of the former Iritel) who had already filed an application to join pursuant to Law No. 29/1979 before February 20, 1992, even though that application had not been processed by INPS. The position of the Telecom Italia is that
the criteria set forth in Law No. 29/1979 – and, therefore, payment of the respective obligations – apply to these employees. 
  
 At the present time, the parties have agreed that the differences in interpretation shall be settled through test appeals for a final determination of the correct
interpretation of the law in question. While awaiting these decisions, Telecom Italia has agreed to pay, with reservation, the amounts requested by INPS based on the criteria determined by the latter, subject to subsequent equalization adjustments,
if the Courts ultimately accept the Company’s interpretation. 
  
 Having said
that, a reasonable estimate of the principal amount of the liability attributable to Telecom Italia (net of the amounts attributed to Group companies for the employees transferred to those companies) could vary between euro 954 million (partial
application of Law 29/1979) and euro 1,275 million (full application of Law 58/1992), of which euro 568 million has already been paid, depending on conflicting interpretations and taking into account all personnel involved. In either case, the
impact of the charge should definitely be compatible with the income of future years, since, as allowed under Article 5, paragraph 3 of Law No. 58/1992, the payments requested by INPS are made in fifteen equal annual deferred installments (including
annual interest of 5%), based on notification of the expenses by INPS. 
  
 The
remaining liability for obligations under Law No. 58/1992, to be paid in fifteen annual installments on the basis of the positions notified by INPS up to September 30, 2004 and the interpretation of said positions, totals (net of the amounts
attributed to Group companies for the employees transferred to those companies) euro 946 million, of which euro 691 million is for the principal amount and euro 255 million for accrued interest. 
  
 Nevertheless, these financial statements at September 30, 2004 include euro 530 million of
residual payables to INPS, (net of the amount attributed to Group companies for the employees transferred to those companies), relating to the estimate made for the employees of the former State Company for Telephone Services (ASST) by the special
Ministerial Commission established under Law No. 58/1992 upon the transfer of the assets of the Post and Telecommunications Administration to Iritel, and recorded by the latter company in its financial statements at December 31, 1993. As a result,
these charges will have no impact on the results of future years, since they were already included in the aforementioned calculation. 
  
 The expenses recorded in the first nine months of 2004 in “extraordinary expenses” amount to euro 123 million and include accrued interest. This amount takes
into account the above-mentioned expenses paid by Telecom Italia to INPS also on behalf of other Group companies for those employees transferred to them and covered by the obligation of a uniform insurance status under Law No. 58/1992, recovering
the amounts paid from these same companies. The recovery is recorded in the statement of income under “extraordinary income” and amounts to euro 2 million. 
  
 Grants 
  
 Operating grants (directly credited to the statement of income) and capital grants or grants for installations are recorded in the accounting period in which the
paperwork documenting the grants is received, or in the period in which the respective costs are incurred, provided that the certainty of payment is confirmed by established procedures. 
  

 9 

Table of Contents

 Capital grants and grants for installation are recorded under “deferred income” and credited to the statement
of income in relation to the depreciation taken on the assets to which the grants refer. 
  
 Revenues and expenses 
  
 Revenues
and expenses are recorded on an accrual basis. Revenues relating to telecommunications services are shown gross of the amounts due to other carriers which are recorded, for the same amount, in production costs. 
  
 Fees for new access lines and line transfers are recorded as income when the service is
provided. As usual, dividends from subsidiaries arising from the current year’s earnings are not included in the results for the first nine months of 2004 but are recorded at the end of the year in accordance with the maturity principle.

  
 Dividends from affiliated companies and other companies, on the other hand,
are recognized in the statement of income according to the accrual principle, that is, in the year in which the respective right to the receivable arises, following the declaration of dividends approved by the shareholders’ resolution of those
companies. 
  
 Leased assets 
  
 Capital goods acquired under leasing agreements are recognized in the financial statements
by a method consistent with current legislation, which requires that leasing payments be recorded as operating costs. 
  
 Memorandum accounts 
  
 “Guarantees provided” are shown for the amount of the remaining liability or other obligation guaranteed; those provided in foreign currencies are
translated at period-end exchange rates. 
  
 “Purchases and sales
commitments” are determined on the basis of the unperformed portion of contracts outstanding at the end of the period which do not fall under the normal “operating cycle”. 
  
 Derivative financial instruments 
  
 Derivative financial instruments are used by Telecom Italia S.p.A. to hedge exposure to
interest rate and exchange rate risks. 
  
 For derivative financial instruments
used to hedge interest rate risks, the interest differentials are recorded in the statement of income in “financial income and expense” based on the accrual principle. 
  
 For financial instruments used to hedge exchange rate risks, the cost (or “financial component” calculated as the difference
between the spot rate at the date of stipulating the contract and the forward rate) is recorded in the statement of income in “financial income and expense” based on the accrual principle. 
  
 Premiums relating to option-type financial instruments are recorded in “other
liabilities” or “other receivables” and, if exercised, are considered as an incidental charge to the purchase or sale value of the underlying instruments; if the option is not exercised the premium is recorded in the statement of
income under financial income (financial expense). 
  
 In this manner, the
derivative financial instruments are valued consistently with the underlying asset and liability, for each transaction, and any net expense is recognized in the statement of income. 
  
 Option-type derivative financial instruments existing at the end of the period are valued at the lower of cost and market value at the
balance sheet date. 
  

 10 

Table of Contents

 BALANCE SHEETS - ASSETS 
  

INTANGIBLES, FIXED ASSETS AND LONG-TERM INVESTMENTS 
  

			
	Intangible assets	  	euro 1,736,144 thousand
	 (euro 1,484,579 thousand at December 31, 2003)
	  	 

  
 A summary of the
changes in intangible assets during the period is presented below: 
  

				
	 (in thousands of euro)

	  	9 months to 9/30/2004

	 
	 - additions
	  	688,179	 
	 - amortization
	  	(426,637	)
	 - eliminations and other movements
	  	(9,977	)
	 	  	
	

	 Total
	  	251,565	 
	 	  	
	

  
 An analysis of the composition and the
changes in intangible assets during the period is presented in the following tables: 
  

												
	 12/31/2003

	 (in thousands of euro)

	  	Cost

	  	Upward
adjustments

	  	Writedowns

	  	Accumulated
amortization

	 	 	Total

	 Start-up and expansion costs
	  	152.755	  	 	  	 	  	(129.747	)	 	23.008
	 Industrial patents and intellectual property rights
	  	4.102.823	  	 	  	 	  	(3.220.124	)	 	882.699
	 Concessions, licenses, trademarks and similar rights
	  	92.506	  	 	  	 	  	(91.656	)	 	850
	 Goodwill
	  	1.335	  	 	  	 	  	(190	)	 	1.145
	 Work in progress and advances to suppliers
	  	477.639	  	 	  	 	  	 	 	 	477.639
	 Other intangibles(*)
	  	416.695	  	 	  	 	  	(317.457	)	 	99.238
	 	  	
	  	
	  	
	  	
	
	 	

	 Total
	  	5.243.753	  	—  	  	—  	  	(3.759.174	)	 	1.484.579
	 	  	
	  	
	  	
	  	
	
	 	

	 (*) of which:
	  	 	  	 	  	 	  	 	 	 	 
	 Leasehold improvements
	  	416.294	  	 	  	 	  	(317.056	)	 	99.238

  

															
	 Changes during the period

	 
	 (in thousands of euro)

	  	Additions

	  	Reclassifications

	 	 	Sales/
Retirements/
Other
movements(a)

	 	 	Amortization

	 	 	Total

	 
	 Start-up and expansion costs
	  	 	  	 	 	 	 	 	 	(8.628	)	 	(8.628	)
	 Industrial patents and intellectual property rights
	  	 	  	688.640	 	 	 	 	 	(399.072	)	 	289.568	 
	 Concessions, licenses, trademarks and similar rights
	  	 	  	 	 	 	 	 	 	(68	)	 	(68	)
	 Goodwill
	  	 	  	 	 	 	 	 	 	(201	)	 	(201	)
	 Work in progress and advances to suppliers
	  	688.179	  	(767.997	)	 	(7.032	)	 	 	 	 	(86.850	)
	 Other intangibles(*)
	  	 	  	80.528	 	 	(4.116	)	 	(18.668	)	 	57.744	 
	 	  	
	  	
	
	 	
	
	 	
	
	 	
	

	 Total
	  	688.179	  	1.171	 	 	(11.148	)	 	(426.637	)	 	251.565	 
	 	  	
	  	
	
	 	
	
	 	
	
	 	
	

	
 (*) of which:
	  	 	  	 	 	 	 	 	 	 	 	 	 	 
	 Leasehold improvements
	  	—	  	80.528	 	 	(4.116	)	 	(18.668	)	 	57.744	 

  

 11 

Table of Contents

 (a) Broken down as follows:

  

													
	 	  	Cost

	 	 	Upward
adjustments

	  	Writedowns

	  	Accumulated
amortization

	  	Net
value

	 
	 Industrial patents and intellectual property rights
	  	(156.118	)	 	 	  	 	  	156.118	  	0	 
	 Work in progress and advances to suppliers
	  	(7.032	)	 	 	  	 	  	 	  	(7.032	)
	 Other intangibles
	  	(89.738	)	 	 	  	 	  	85.622	  	(4.116	)
	 	  	
	
	 	
	  	
	  	
	  	
	

	 Total
	  	(252.888	)	 	 	  	 	  	241.740	  	(11.148	)
	 	  	
	
	 	
	  	
	  	
	  	
	

  

												
	 	 	9/30/2004

	 (in thousands of euro)

	 	Cost

	 	 Upward
 adjustments

	 	Writedowns

	 	Accumulated
amortization

	 	 	Total

	 Start-up and expansion costs
	 	152.755	 	 	 	 	 	(138.375	)	 	14.380
	 Industrial patents and intellectual property rights
	 	4.635.345	 	 	 	 	 	(3.463.078	)	 	1.172.267
	 Concessions, licenses, trademarks and similar rights
	 	92.506	 	 	 	 	 	(91.724	)	 	782
	 Goodwill
	 	1.335	 	 	 	 	 	(391	)	 	944
	 Work in progress and advances to suppliers
	 	390.789	 	 	 	 	 	0	 	 	390.789
	 Other intangibles(*)
	 	407.485	 	 	 	 	 	(250.503	)	 	156.982
	 	 	
	 	
	 	
	 	
	
	 	

	 Total
	 	5.680.215	 	—	 	—	 	(3.944.071	)	 	1.736.144
	 	 	
	 	
	 	
	 	
	
	 	

	
 (*) of which:
	 	 	 	 	 	 	 	 	 	 	 
	 Leasehold improvements
	 	407.084	 	—	 	—	 	(250.102	)	 	156.982

  
 In particular: 
  
 “Start-up and expansion costs” consist of underwriting commissions
connected with share capital increases. 
  
 “Industrial patents and
intellectual property rights” consist almost entirely of applications software. 
  
 “Work in progress and advances to suppliers” mainly refer to software projects for network and operating program applications. All acquisitions of intangibles are managed through specific work orders
and recorded in this caption. Reclassifications refer to assets that came into use during the period. 
  
 “Other intangibles” refer to leasehold improvements made to properties owned by third parties and include the costs incurred to meet the operating requirements of the Company in the rented premises.

  

			
	Fixed assets	 	euro 11,058,157 thousand

  
 (euro 11,842,723 thousand at
December 31, 2003) 
  
 A summary of the changes in fixed assets during the
period is presented as follows: 
  

				
	 (in thousands of euro)

	  	9 months to 9/30/2004

	 
	 - additions
	  	805,534	 
	 - disposals and other movements
	  	(13,459	)
	 - depreciation
	  	(1,576,641	)
	 	  	
	

	 Total
	  	(784,566	)
	 	  	
	

  

 12 

Table of Contents

 An analysis of the composition and the changes in fixed assets during the period is presented in the following tables:

  

													
	 12/31/2003

	 (in thousands of euro)

	  	Cost

	  	 Upward
 adjustments

	  	Writedowns

	 	 	 Accumulated
 depreciation

	 	 	Total

	 Land and buildings
	  	 	  	 	  	 	 	 	 	 	 	 
	 .  non-industrial
	  	21.281	  	792	  	 	 	 	(1.189	)	 	20.884
	 .  industrial
	  	1.899.071	  	392.275	  	(4.827	)	 	(1.200.552	)	 	1.085.967
	 	  	
	  	
	  	
	
	 	
	
	 	

	 	  	1.920.352	  	393.067	  	(4.827	)	 	(1.201.741	)	 	1.106.851
	 Plant and machinery
	  	46.662.097	  	730.392	  	(727.730	)	 	(36.614.040	)	 	10.050.719
	 Manufacturing and distribution equipment
	  	767.876	  	2.693	  	 	 	 	(760.520	)	 	10.049
	 Other fixed assets
	  	554.248	  	4.251	  	 	 	 	(509.652	)	 	48.847
	 Construction in progress and advances to supplies
	  	626.257	  	 	  	 	 	 	 	 	 	626.257
	 	  	
	  	
	  	
	
	 	
	
	 	

	 Total
	  	50.530.830	  	1.130.403	  	(732.557	)	 	(39.085.953	)	 	11.842.723
	 	  	
	  	
	  	
	
	 	
	
	 	

  

																	
	 Changes during the period

	 
	 (in thousands of euro)

	 	Additions

	 	Reclassifications

	 	 	Sales/
Retirements/
Other
movements(a)

	 	 	Writedowns/
Writebacks

	 	Depreciation

	 	 	Total

	 
	 Land and buildings
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  non-industrial
	 	 	 	66	 	 	(382	)	 	 	 	(111	)	 	(427	)
	 .  industrial
	 	 	 	80.414	 	 	(2.607	)	 	 	 	(57.671	)	 	20.136	 
	 	 	
	 	
	
	 	
	
	 	
	 	
	
	 	
	

	 	 	0	 	80.480	 	 	(2.989	)	 	0	 	(57.782	)	 	19.709	 
	 Plant and machinery
	 	 	 	846.772	 	 	(15.892	)	 	 	 	(1.494.774	)	 	(663.894	)
	 Manufacturing and distribution equipment
	 	 	 	8.331	 	 	(64	)	 	 	 	(5.478	)	 	2.789	 
	 Other fixed assets
	 	 	 	12.675	 	 	1.046	 	 	 	 	(18.607	)	 	(4.886	)
	 Construction in progress and advances to supplies
	 	805.534	 	(949.429	)	 	5.611	 	 	 	 	 	 	 	(138.284	)
	 	 	
	 	
	
	 	
	
	 	
	 	
	
	 	
	

	 Total “fixed assets”
	 	805.534	 	(1.171	)	 	(12.288	)	 	0	 	(1.576.641	)	 	(784.566	)
	 	 	
	 	
	
	 	
	
	 	
	 	
	
	 	
	

	(a)	Broken down as follows: 

  

														
	 	  	Cost

	 	 	Upward
adjustments

	 	 	Writedowns

	  	Accumulated
depreciation

	  	Net
value

	 
	 Land and buildings
	  	 	 	 	 	 	 	 	  	 	  	 	 
	 .  non-industrial
	  	(458	)	 	 	 	 	 	  	76	  	(382	)
	 .  industrial
	  	(3.704	)	 	(1.250	)	 	55	  	2.292	  	(2.607	)
	 	  	
	
	 	
	
	 	
	  	
	  	
	

	 	  	(4.162	)	 	(1.250	)	 	55	  	2.368	  	(2.989	)
	 Plant and machinery
	  	(184.625	)	 	(2.973	)	 	 	  	171.706	  	(15.892	)
	 Manufacturing and distribution equipment
	  	(239.300	)	 	 	 	 	 	  	239.236	  	(64	)
	 Other fixed assets
	  	(3.479	)	 	(14	)	 	 	  	4.539	  	1.046	 
	 Construction in progress and advances to supplies
	  	5.611	 	 	 	 	 	 	  	 	  	5.611	 
	 	  	
	
	 	
	
	 	
	  	
	  	
	

	 TOTAL
	  	(425.955	)	 	(4.237	)	 	55	  	417.849	  	(12.288	)
	 	  	
	
	 	
	
	 	
	  	
	  	
	

  

 13 

Table of Contents

													
	 9/30/2004

	 (in thousands of euro)

	  	Cost

	  	Upward
adjustments

	  	Writedowns

	 	 	Accumulated
depreciation

	 	 	Total

	 Land and buildings
	  	 	  	 	  	 	 	 	 	 	 	 
	 .  non-industrial
	  	20.889	  	792	  	 	 	 	(1.224	)	 	20.457
	 .  industrial
	  	1.975.661	  	391.025	  	(4.772	)	 	(1.255.811	)	 	1.106.103
	 	  	
	  	
	  	
	
	 	
	
	 	

	 	  	1.996.550	  	391.817	  	(4.772	)	 	(1.257.035	)	 	1.126.560
	 Plant and machinery
	  	47.324.244	  	727.419	  	(727.730	)	 	(37.937.108	)	 	9.386.825
	 Manufacturing and distribution equipment
	  	536.907	  	2.693	  	 	 	 	(526.762	)	 	12.838
	 Other fixed assets
	  	563.444	  	4.237	  	 	 	 	(523.720	)	 	43.961
	 Construction in progress and advances to supplies
	  	487.973	  	 	  	 	 	 	 	 	 	487.973
	 	  	
	  	
	  	
	
	 	
	
	 	

	 Total “fixed assets”
	  	50.909.118	  	1.126.166	  	(732.502	)	 	(40.244.625	)	 	11.058.157
	 	  	
	  	
	  	
	
	 	
	
	 	

  
 All fixed asset purchases are managed
using specific work orders and recorded in “construction in progress and advances to suppliers”. Reclassifications refer to fixed assets that came into use during the period. 
  
 Accumulated depreciation at September 30, 2004 is considered sufficient in relation to the remaining period of utilization of the assets and
is determined on the basis of the estimated useful lives of the installations making up the domestic telecommunications network. Depreciation is calculated at the rates used in the previous year. Accumulated depreciation, net of writedowns, covers
78.4% of fixed assets at September 30, 2004 compared to 76.7% at December 31, 2003. 
  
 In accordance with the contract signed January 16, 2004 by Telecom Italia S.p.A. and Fintecna S.p.A., containing reciprocal options for the purchase and sale (put / call) of seven properties owned by Fintecna S.p.A., at a total price of
euro 72,000 thousand, on June 22, 2004, Telecom Italia S.p.A., after exercising the option in April 2004, signed the deed for the purchase of the seven properties for the contractually agreed price. 
  
 Moreover, in accordance with the changes introduced by Legislative Decree No. 6 dated January
17, 2003 and next changes (Reform of Corporate Law), as well as the principles issued on the subject by the Italian Accounting Board, tax interference relative to accelerated deprecation charges (euro 932 thousand) made in prior years by the merging
company Olivetti, in accordance with tax laws, has been eliminated with a contra-entry to extraordinary income; the relevant reserve for deferred taxes was booked with a contra-entry to other extraordinary expenses (prior years’ taxes).

  
 Leased assets purchased through finance lease contracts

  
 The Company has fixed assets purchased through sale and leaseback
contracts as well as finance lease contracts. These are accounted for using the liability method by which lease payments are charged to costs under the use of property not owned caption. Any gains on the sale of the assets under sale and leaseback
transactions are recognized immediately in the statement of income. Had these contracts been accounted for using the financial method, entries would have been made in the statement of income for the interest on the financed principal and for the
depreciation charge attributable to the leased assets; additionally, entries would have been made to record the assets in fixed assets and the residual debt under liabilities. Furthermore, use of this method would also have resulted in the deferral
of gains, in constant parts, on sale and leaseback transactions over the period of the finance lease contract. 
  

 14 

Table of Contents

 The effects of this accounting treatment are described in the following table: 
  

						
	BALANCE SHEET EFFECT AT SEPTEMBER 30, 2004	  	(millions of euro)

	 
	 a)
	  	Outstanding contracts	  	 	 
	 	  	Book value of leased assets under finance contracts at December 31, 2003, net of euro 27 million and accumulated depreciation of euro 201 million	  	1,434	 
	 	  	 	  	
	

	 	  	Assets acquired under finance lease contracts in the period 1/1 – 9/30/2004 (+)	  	—	 
	 	  	 	  	
	

	 	  	Assets redeemed under finance lease contracts in the period 1/1 – 9/30/2004 (-)	  	—	 
	 	  	 	  	
	

	 	  	Depreciation charge for the period 1/1 – 9/30/2004 (-)	  	(65	)
	 	  	 	  	
	

	 	  	 Writedowns/writebacks on assets under finance lease contracts in the period
1/1 –9/30/2004 (+/-)
	  	—	 
	 	  	 	  	
	

	 	  	Book value of leased assets under finance contracts at September 30, 2004 net of euro 27 million and accumulated depreciation of euro 266 million	  	1,369	 
	 	  	 	  	
	

	 b)
	  	Assets redeemed in the period 1/1 – 9/30/2004	  	 	 
	 	  	Total higher value of assets redeemed, calculated according to the financial method, compared to their accounting net book value	  	—	 
	 	  	 	  	
	

	 c)
	  	Prepaid expenses at September 30, 2004	  	—	 
	 	  	 	  	
	

	 d)
	  	Liabilities	  	 	 
	 	  	Implicit liabilities for finance lease transactions at December 31, 2003 (of which euro 62 million due within 12 months, euro 277 million due between 12 months and 60 months and euro 1,369
million due beyond 60 months)	  	1,708	 
	 	  	 	  	
	

	 	  	Implicit liabilities arising in the period 1/1 – 9/30/2004 (+)	  	1	 
	 	  	 	  	
	

	 	  	Repayment of principal and assets redeemed in the period 1/1 – 9/30/2004 (-)	  	(43	)
	 	  	 	  	
	

	 	  	Implicit liabilities for finance lease transactions at September 30, 2004 (of which euro 67 million due within 12 months, euro 292 million due between 12 months and 60 months and euro 1,307
million due beyond 60 months)	  	1,666	 
	 	  	 	  	
	

	 e)
	  	Total gross effect at September 30, 2004 (a+b+c-d)	  	(297	)
	 	  	 	  	
	

	 f)
	  	Tax effect	  	(76	)
	 	  	 	  	
	

	 	  	Balance sheet effect at September 30, 2004 of leasing transactions recognized using the financial method	  	 	 
	 g)
	  	(e-f)	  	(221	)
	 	  	 	  	
	

		
	STATEMENT OF INCOME EFFECT FOR 9 MONTHS TO SEPTEMBER 30, 2004	  	(million of euro)

	 
	 	  	Reversal of installments on finance lease transactions	  	(143	)
	 	  	 	  	
	

	 	  	Recognition of financial expenses on finance lease transactions	  	100	 
	 	  	 	  	
	

	 	  	Recognition of:	  	 	 
	 	  	- depreciation charge:	  	 	 
	 	  	   .  on outstanding contracts	  	65	 
	 	  	 	  	
	

	 	  	   .  on assets redeemed	  	—	 
	 	  	 	  	
	

	 	  	- writedowns/writebacks on assets under finance lease contracts	  	—	 
	 	  	 	  	
	

	 	  	Effect on income before taxes	  	(22	)
	 	  	 	  	
	

	 	  	Recognition of tax effect	  	(8	)
	 	  	 	  	
	

	 	  	Statement of income effect for 9 months to September 30, 2004 of leasing transactions recognized using the financial method	  	(14	)
	 	  	 	  	
	

  
 The use of financial method relating
to the sale and leaseback transactions would have resulted, at September 30, 2004, a decrease of shareholders’ equity by euro 226 million and a decrease of net income of the first nine months of 2004 by euro 15 million. 
  

 15 

Table of Contents

			
	Long-term investments	  	euro 34,750,319 thousand
	(euro 35,276,500 thousand at December 31, 2003)	  	 
		
	Details are as follows:	  	 

  

					
	 (in thousands of euro)

	  	9/30/2004

	  	12/31/2003

	 Equity investments in:
	  	 	  	 
	 •  subsidiaries
	  	32,452,611	  	34,188,395
	 •  affiliated companies
	  	354,385	  	450,394
	 •  other companies
	  	203,989	  	220,159
	 	  	
	  	

	 	  	33,010,985	  	34,858,948
	 	  	
	  	

	 Advances on future capital contributions
	  	1,518,945	  	136,238
	 Accounts receivable:
	  	 	  	 
	 •  subsidiaries
	  	71,380	  	67,098
	 •  affiliated companies
	  	43,005	  	54,490
	 •  other receivables
	  	103,706	  	157,428
	 	  	
	  	

	 	  	218,091	  	279,016
	 	  	
	  	

	 Treasury stock
	  	2,298	  	2,298
	 	  	
	  	

	 Total
	  	34,750,319	  	35,276,500
	 	  	
	  	

  

			
	Equity investments	  	euro 33,010,985 thousand

  
 Annex 1 presents the movements in
each investment during the period together with the corresponding amount at the beginning of the year and at September 30, 2004. 
  
 In summary, investments in subsidiaries, affiliates and other companies decreased by euro 1,847,963 thousand compared to December 31, 2003 mainly as a result of the
distribution of reserves by Telecom Italia International. 
  
 Changes during the
period are as follows: 
  

					
	 (in thousands of euro)

	  	 	  	 
	 Increases:
	  	 	  	 
	 •      Subscription to capital increases, recapitalizations and loss coverage
of:
	  	 
	        Latin American Nautilus (40,801), Sky Italia (19,315), Edotel (1,459), Consorzio
S.I.A.R.C (1), IM.SER (126), EUROFLY SERVICES (1,334). Consorzio ABI LAB (1), Consorzio DISTRETTO AUDIOVISIVO and ICT (5)
	  	63,042
	 •      Definitive capital increase from advances on future capital contributions
relating to IT Telecom (110,440), Sky Italia (43,780), Edotel (1,200) and Netesi (435)
	  	155,855
	 •      Writebacks of value of Olivetti Tecnost (60,000) and Edotel (46)
	  	60,046
	 	  	 	  	

	 Total increases
	  	 (A)
	  	278,943
	 	  	 	  	

  
 Decreases: 
  

					
	 •    Sales/reductions of shares/quotas in:
	  	 
	     Sky Italia (87,859), Siosistemi (1,600), Pirelli Real Estate (15,199) and TILAB GP (9)
	  	(104,667)
		
	 •    Distribution of reserves of:
	  	 
	     Telecom Italia International (1,800,000), Tiglio I (47,985) and Olivetti Gestioni Ivrea
(4,849)
	  	(1,852,834)
		
	 •    Writedowns for losses of value charged to the statement of income of:
	  	 
	     Telecom Italia Media (112,416), IT Telecom (25,659), Latin American Nautilus (7,093), LI.SIT. (4,338),
PAR.FIN (256), Netesi (79), TILAB SA (48) and TILAB GP (12),
	  	(149,901)
		
	 •    Writedowns for losses of value covered by the reserve for losses of subsidiaries and affiliates
of:
	  	 
	     IM.SER (168), Consorzio S.I.A.R.C. (1), Consorzio CO.TIM (2), Consorzio CI.MARK (3) and Consorzio di
BIOINGEGNERIA ED INFORMATICA MEDICA (15).
	  	(189)
		
	 •    Writedowns for losses of value covered by the reserve for contractual and other risks
of
	  	 
	     Sky Italia (19,315)
	  	(19,315)
	 	  	 	  	

	 Total decreases
	  	 (B)
	  	(2,126,906)
	 	  	 	  	

	 Net change for the period
	  	 (A-B)
	  	(1,847,963)
	 	  	 	  	

  

 16 

Table of Contents

 In particular, the following should be mentioned: 
  

	•	 	on February 20, 2004, the Shareholders’ Meetings of Olivetti International S.A. and Telecom Italia Finance approved the plan for the merger of Olivetti International S.A. in
Telecom Italia Finance. Following this transaction, Telecom Italia Finance issued 30,000,       new shares to Telecom Italia (the sole shareholder of Olivetti International S.A.) in exchange for the shares of the merged
company. The merger is effective for accounting purposes as from January 1, 2004; 

  

	•	 	on September 28, 2004, Telecom Italia sold its 19.9% interest in Sky Italia to the NewsCorp group. Consideration on the sale was euro 88 million. The transaction resulted in a gain
over the carrying value at June 30, 2004 of euro 31.4 million which offsets the effect of the writedown made in the first half of the year. Accordingly, the economic impact of the transaction for Telecom Italia is basically nil.

  

	•	 	under the second stage of the Tiglio project (which calls for an end to the process of enhancing the real estate assets held by Tiglio I and Tiglio II by contributing the assets to
real estate funds or by realizing profits through individual sale transactions), the affiliated company Tiglio I contributed real estate assets: i) to “TECLA – FONDO UFFICI” made up of 65 buildings for a total market value of about
euro 926 million, to which a 15% discount was applied by virtue of their transfer en masse, in addition to a cash contribution of euro 25 million and ii) to “CLOE FONDO UFFICI”, made up of 39 properties for a total market value of euro 877
million, to which a 15% discount was applied by virtue of their transfer en masse. 

  

	    	With reference to “TECLA – FONDO UFFICI”, its placement was concluded on March 1, 2004. The total placement offer, net of indebtedness of 60% of the value
contributed, was equal to euro 288 million. 10% of this amount – as a voluntary gesture – was kept by Tiglio I, 2% was subscribed by Pirelli & C. Real Estate Sgr S.p.A., as manager of the fund, while the remaining 88% was entirely
placed on the market. 

  

	    	As for “CLOE – FONDO UFFICI”, placed on the market on June 29, 2004, the offer totaled euro 298 million. 5% was subscribed by Pirelli & C Real Estate Sgr S.p.A.
as manager of the fund, while the remaining 95% was entirely placed with Italian investors for about 70%, and foreign investors 30%. 

  

	    	Following these transactions, in June and September 2004, Tiglio I proceeded with the distribution in cash (additional paid-in capital) for euro 47,985 thousand;

  

	•	 	for purposes of bringing Telecom Italia Finance’s financial position into equilibrium, with transfer of the liquid resources available at Telecom Italia International, the
following transactions took place during the month of September 2004: 

  

	 	•	 	purchase, by Telecom Italia, of 40% of the investment in Edotel held by TIM for euro 1,939 thousand. After this transaction, Telecom Italia’s holding in Edotel rose from 60% to
100%; 

  

	 	•	 	distribution of additional paid-in capital by Telecom Italia International to Telecom Italia for euro 1,800,000 thousand; 

  

	 	•	 	advance on future capital contribution for euro 1,500,000 thousand made by Telecom Italia to Edotel. 

  

	    	In October 2004, Telecom Italia subscribed to Telecom Italia Finance’s capital increase by contributing the investment in Edotel; 

  

	•	 	some investments in subsidiaries and affiliated companies are recorded at a amount in excess of the corresponding share of the underlying shareholders’ equity, net of dividends
and after consolidation adjustments. These investments are maintained at their carrying values since they are expected to show future earnings and their assets are worth more than their respective book values. In particular, with regard to the
investment in TIM, the higher carrying value compared to the underlying net equity and the stock market price is due to the allocation of the merger deficit on the Olivetti – Telecom Italia merger. However, taking into account the current
strategic positioning of the business as well as its potential for further growth, it is believed, consistent with a recent valuation conducted by an external consultant, that the carrying value is aligned to the effective value of the investment.

  
 A comparison between the market price of listed shares at
September 30, 2004 and their carrying value shows an unrealized loss of euro 6,841,328 thousand (of which euro 6,745,794 thousand can be ascribed to the investment held in TIM). Further details are given in Annex 2. 
  

			
	Advances on future capital contributions	 	euro 1,518,945 thousand

  
 Advances on future
capital contributions increased by euro 1,382,706 thousand compared to December 31, 2003, and are shown net of the relative allowance accounts of euro 38,539 thousand. The increase since 

  

 17 

Table of Contents

 
December 31, 2003 is attributable to the aforementioned advance made to Edotel (euro 1,500,000 thousand). This caption also includes advances made to
Telegono (8,840 thousand), EPIClink (euro 7,209 thousand) and Loquendo (euro 2,896 thousand). 
  

			
	Accounts receivable	 	euro 218,091 thousand

  
 Accounts receivable decreased by euro
60,925 thousand compared to December 31, 2003. Details are as follows: 
  

													
	 	  	12/31/2003

	  	Changes during the period

	 	 	9/30/2004

	 (in thousands of euro)

	  	  	Disburse-
ments

	  	Reimburse-
ments

	 	 	Other
changes

	 	 
	 Subsidiaries
	  	67,098	  	4,197	  	—	 	 	85	 	 	71,380
	 Affiliated companies
	  	54,490	  	1,269	  	(3,914	)	 	(8,840	)	 	43,005
	 Other receivables
	  	157,428	  	11,539	  	(65,261	)	 	—	 	 	103,706
	 	  	
	  	
	  	
	
	 	
	
	 	

	 Total
	  	279,016	  	17,005	  	(69,175	)	 	(8,755	)	 	218,091
	 	  	
	  	
	  	
	
	 	
	
	 	

  

			
	 Subsidiaries
	 	euro 71,380 thousand

  
 Accounts receivables from
subsidiaries refer mainly to loans made to Stet Hellas for the acquisition of the UMTS license (euro 60,000 thousand) and to Mediterranean Nautilus (euro 11,380 thousand) to meet financial requirements. 
  

			
	 Affiliated companies
	 	euro 43,005 thousand

  
 Accounts receivable from affiliated
companies refer mainly to loans made to the companies Aree Urbane (euro 31,616 thousand), Telegono (euro 6,400 thousand), Tiglio II (euro 2,601 thousand for the purchase of properties) and Mirror International Holding (euro 2,252 thousand).

  

			
	 Other receivables
	 	euro 103,706 thousand

  
 Accounts receivable mainly refer to:

  

	•	 	the remaining loans receivable from employees (euro 48,255 thousand); 

  

	•	 	the prepayment of the tax on the reserve for employee termination indemnities (euro 51,195 thousand), required under Law No. 662 of December 23, 1996, revalued as set forth by law;

  

	•	 	security deposits of euro 3,917 thousand. 

  

			
	 Treasury stock
	 	euro 2,298 thousand

  
 Treasury stock remains unchanged
compared to December 31, 2003. Treasury stock refers to 1,272,014 ordinary shares originally held by the merging company Olivetti. 
  
 *    *    * 
  
 As regards accounts receivable included in long-term investments, the portion due within and beyond five years is presented in the attached Annex 3. 
  

 18 

Table of Contents

 Current assets 
  

			
	 Inventories
	  	euro 140,183 thousand
	 (euro 88,535 thousand at December 31, 2003)
	  	 

  
 Inventories increased by euro 51,648
thousand compared to December 31, 2003 principally due to higher inventories connected with the marketing of Aladino cordless phones and videophones. Inventories consist of “contract work in process ” (euro 32,885 thousand) and
“merchandise ” (euro 107,298 thousand). 
  

			
	 Accounts receivable
	  	euro 8,960,942 thousand
	 (euro 12,306,160 thousand at December 31, 2003)
	  	 

  
 Accounts receivable decreased by euro
3,345,218 thousand compared to December 31, 2003. A breakdown and the changes that occurred during the period are provided in the table below: 
  

																		
	 	  	12/31/2003

	 	 	Changes during the period

	 	 	9/30/2004

	 
	 (in thousands of euro)

	  	 	Utilizations

	  	Provisions

	 	 	Other

	 	 	Total
changes

	 	 
	 Trade accounts receivable
	  	4,021,325	 	 	 	  	 	 	 	(264,298	)	 	(264,298	)	 	3,757,027	 
	 .  allowance for doubtful accounts
	  	(317,875	)	 	41,792	  	(58,379	)	 	 	 	 	(16,587	)	 	(334,462	)
	 Total trade accounts receivable
	  	3,703,450	 	 	41,792	  	(58,379	)	 	(264,298	)	 	(280,885	)	 	3,422,565	 
	 	  	
	
	 	
	  	
	
	 	
	
	 	
	
	 	
	

	 Accounts receivable from subsidiaries
	  	3,078,742	 	 	 	  	 	 	 	(1,153,404	)	 	(1,153,404	)	 	1,925,338	 
	 .  allowance for doubtful accounts of subsidiaries
	  	(3,453	)	 	 	  	 	 	 	 	 	 	 	 	 	(3,453	)
	 Total accounts receivable from subsidiaries
	  	3,075,289	 	 	 	  	 	 	 	(1,153,404	)	 	(1,153,404	)	 	1,921,885	 
	 .  of which financial receivables
	  	823,919	 	 	 	  	 	 	 	302,751	 	 	302,751	 	 	1,126,670	 
	 	  	
	
	 	 	  	 	 	 	
	
	 	
	
	 	
	

	 Accounts receivable from affiliated companies
	  	123,574	 	 	 	  	 	 	 	(20,168	)	 	(20,168	)	 	103,406	 
	 .  allowance for doubtful accounts of affiliated companies
	  	(26,800	)	 	 	  	 	 	 	26,800	 	 	26,800	 	 	—	 
	 Total accounts receivable from affiliated companies
	  	96,774	 	 	 	  	 	 	 	6,632	 	 	6,632	 	 	103,406	 
	 .  of which financial receivables
	  	13,718	 	 	 	  	 	 	 	(11,361	)	 	(11,361	)	 	2,357	 
	 	  	
	
	 	 	  	 	 	 	
	
	 	
	
	 	
	

	 Taxes receivable
	  	1,362,329	 	 	 	  	 	 	 	(1,317,503	)	 	(1,317,503	)	 	44,826	 
	 	  	
	
	 	 	  	 	 	 	
	
	 	
	
	 	
	

	 Deferred tax assets
	  	3,229,916	 	 	 	  	 	 	 	(384,822	)	 	(384,822	)	 	2,845,094	 
	 	  	
	
	 	
	  	
	
	 	
	
	 	
	
	 	
	

	 Other receivables
	  	838,402	 	 	18,230	  	 	 	 	(233,466	)	 	(215,236	)	 	623,166	 
	 .  Government and other public entities for grants and subsidies
	  	30,748	 	 	 	  	 	 	 	(4,859	)	 	(4,859	)	 	25,889	 
	 .  other receivables
	  	860,176	 	 	 	  	 	 	 	(227,924	)	 	(227,924	)	 	632,252	 
	 .  allowance for doubtful accounts
	  	(52,522	)	 	18,230	  	 	 	 	(683	)	 	17,547	 	 	(34,975	)
	 	  	
	
	 	
	  	
	
	 	
	
	 	
	
	 	
	

	 Total
	  	12,306,160	 	 	60,022	  	(58,379	)	 	(3,346,861	)	 	(3,345,218	)	 	8,960,942	 
	 	  	
	
	 	
	  	
	
	 	
	
	 	
	
	 	
	

  

			
	 Trade accounts receivable
	 	euro 3,422,565 thousand

  
 Trade accounts receivable decreased by
euro 280,885 thousand compared to December 31, 2003 and are shown net of the relative allowance accounts (euro 334,462 thousand, of which euro 58,379 thousand was provided during the period). 
  
 They include euro 567,194 thousand of receivables from other wireline and mobile
telecommunications operators. 
  

 19 

Table of Contents

 Furthermore, the following accounts receivable discounting and securitization transactions were carried out: 

 

	•	 	Securitization 

  

	  	The program for the securitization of trade accounts receivable generated by services rendered to Telecom Italia Wireline clientele began during 2001 has continued during the
period. 

  

	  	In the first nine months of 2004, the total amount of trade accounts receivable sold under the securitization program were equal to euro 6,586 million and refers to Telecom
Italia’s receivables from consumer and microbusiness customers. At September 30, 2004, receivables sold amount to euro 811,066 thousand (euro 874,368 thousand at December 31, 2003), of which euro 682,000 thousand is not yet due.

  

	  	The securitization transaction led to a reduction in net financial indebtedness of euro 789,566 thousand at September 30, 2004 (euro 851,302 thousand at December 31, 2003).

  

	  	Furthermore, Telecom Italia posted a short-term financial payable (euro 209,814 thousand) for loans made by TI Securitisation Vehicle S.r.l. out of the excess liquid resources
generated by the securitization transaction. 

  

	•	 	Factoring 

  

	  	In the first nine months of 2004, trade accounts receivable without recourse were sold to leading factoring companies for a total amount of euro 92,839 thousand (euro 379,271
thousand at December 31, 2003). The factoring transactions by Telecom Italia led to a reduction in net financial indebtedness at September 30, 2004 of euro 136,378 thousand (euro 334,909 thousand at December 31, 2003). 

  

			
	 Accounts receivable from subsidiaries
	 	euro 1,921,885 thousand

  
 Accounts receivable from subsidiaries
decreased by euro 1,153,404 thousand, compared to December 31, 2003, and include trade, financial and other receivables. The reduction is mainly due to the collection of dividends from subsidiaries accrued at December 31, 2003. 
  
 Financial receivables, equal to euro 1,126,670 thousand, reflect current account transactions
carried out at market rates for cash management purposes and loans. They principally include accounts receivable from Olivetti Tecnost (euro 468,106 thousand), Telecom Italia Media (euro 256,071 thousand), IT Telecom (euro 284,251
thousand) and Finsiel (euro 23,632 thousand). Trade accounts receivable (euro 551,595 thousand) relate to TLC services rendered mainly to Telecom Italia Sparkle (euro 77,105 thousand), TIM (euro 188,844 thousand), IT Telecom (euro 89,420
thousand), Telecom Italia Media (euro 31,808 thousand), Path.Net (euro 49,083 thousand), Telecom Italia Learning Services (euro 27,637 thousand) and management fees from Telecom Italia International (euro 23,104 thousand). Other
receivables (euro 243,620 thousand) mainly include the receivables connected with the Group’s VAT settlement system, specifically from TIM (euro 211,812 thousand) and Telecom Italia Sparkle (euro 25,751 thousand).  
  

			
	 Accounts receivable from affiliated companies
	 	euro 103,406 thousand

  
 Accounts receivable from affiliated
companies increased by euro 6,632 thousand compared to December 31, 2003, and include trade, financial and other receivables. 
  
 Financial receivables total euro 2,357 thousand. Trade accounts receivable (euro 84,883 thousand) refer to Teleleasing (euro 30,787 thousand) for the sale of TLC
products and services and LI.SIT (euro 40,814 thousand) for the supply of health cards to the Lombardy Region. Other receivables (euro 16,166 thousand) mainly refer to transactions with Tiglio I (euro 7,035 thousand) and LI.SIT. (euro
9,131 thousand).  
  
 The allowance for doubtful accounts was completely
utilized during the period following the waiver of receivables due by the Telecom Italia Group from Sky Italia, sold on September 28, 2004. 
  

			
	 Taxes receivable
	 	euro 44,826 thousand

  
 Taxes receivable decreased by euro
1,317,503 thousand, compared to December 31, 2003, mainly due to the sale of IRPEG receivables of euro 1,103,000 thousand to TIM to be used to pay the 2004 on-account payment for IRES. 
  

 20 

Table of Contents

 They specifically include: 
  

	•	 	VAT receivable, euro 11,991 thousand; 

  

	•	 	direct income taxes receivable, euro 20,311 thousand; 

  

	•	 	other indirect taxes receivable, euro 12,524 thousand. 

  

			
	 Deferred tax assets
	 	euro 2,845,094 thousand

  
 Deferred tax assets decreased by euro
384,822 thousand, compared to December 31, 2003, due to the set-off against the reserve for deferred taxes. 
  

			
	 Other receivables
	 	euro 623,166 thousand

  
 Other receivables principally regard:
credit positions (net of the relative allowance account) from TI Securitisation Vehicle S.r.l. for the deferred portion of trade accounts receivable securitization transactions (euro 241,213 thousand), customer payments in transit with the
banking and postal systems (euro 129,524 thousand), employee-related receivables (euro 52,349 thousand), receivables from the Ministry of Industry, Commerce and Handicrafts, the European Union and the Ministry of Instruction, University and Research
for grants in respect of research and training projects (euro 25,889 thousand) and advances to suppliers (euro 20,599 thousand). 
  
 * * * 
  
 Disclosure required by art. 2427, art. 6 of the Italian Civil Code regarding the breakdown of receivables by geographical area is presented in Annex 5. 
  

 21 

Table of Contents

			
	 Short-term financial assets
	 	euro 174,439 thousand
	(euro 182,390 thousand at December 31, 2003)	 	 

  
 The composition and changes during
the period are shown in the following table: 
  

																
	 	  	12/31/2003

	  	Changes during the period

	 	 	9/30/2004

	 (in thousands of euro)

	  	  	Acquisitions

	  	Sales/Re-
imbursements

	 	 	Writedowns/
Writebacks

	 	 	Total
changes

	 	 
	 Equity investments in subsidiaries
	  	166,190	  	—	  	—	 	 	744	 	 	744	 	 	166.934
	 Other equity investments
	  	21	  	—	  	—	 	 	(12	)	 	(12	)	 	9
	 Other securities
	  	16,179	  	—	  	(8,599	)	 	(84	)	 	(8,683	)	 	7,496
	 	  	
	  	
	  	
	
	 	
	
	 	
	
	 	

	 Total
	  	182,390	  	—	  	(8,599	)	 	648	 	 	(7,951	)	 	174,439
	 	  	
	  	
	  	
	
	 	
	
	 	
	
	 	

  
 Short-term financial assets total euro
174,439 thousand and mainly include the following: 
  

	 	•	 	euro 166,899 thousand relating to 38,192,000 TIM ordinary shares and euro 35 thousand relating to 164,997 Telecom Italia Media savings shares purchased for subsequent trading;

  

	 	•	 	C.C.T. and B.T.P. treasury bills for a total of euro 7,496 thousand. 

  
 Further details are provided in Annex 2. 
  

			
	 Liquid assets
	 	euro 776,457 thousand
	 (euro 205,251 thousand at December 31, 2003)
	 	 

  
 Liquid assets rose by euro 571,206
thousand principally as a result of higher cash resources in Italian and foreign bank accounts. 
  
 Liquid assets are composed of the following: 
  

					
	 (in thousands of euro)

	  	12/31/2003

	  	9/30/2004

	 Bank and postal accounts
	  	204,635	  	775,814
	 Checks
	  	47	  	40
	 Cash and valuables on hand
	  	569	  	603
	 	  	
	  	

	 Total
	  	205,251	  	776,457
	 	  	
	  	

  

			
	 Accrued income and prepaid expenses
	 	euro 547,036 thousand
	 (euro 563,811 thousand at December 31, 2003)
	 	 

  
 Accrued income and prepaid expenses
decreased by euro 16,775 thousand compared to December 31, 2003, and include the following: 
  

					
	 (in thousands of euro)

	  	12/31/2003

	  	9/30/2004

	 Issue discounts and similar charges
	  	110,622	  	115,445
	 Accrued income
	  	 	  	 
	 .  financial income
	  	20,423	  	43,008
	 .  other
	  	275	  	1,030
	 	  	
	  	

	 	  	20,698	  	44,038
	 	  	
	  	

	 Other prepaid expenses
	  	 	  	 
	 .  trading expense
	  	90,299	  	91,012
	 .  financial expense
	  	325,261	  	286,046
	 .  other
	  	16,931	  	10,495
	 	  	
	  	

	 	  	432,491	  	387,553
	 	  	
	  	

	 Accrued income and other prepaid expenses
	  	453,189	  	431,591
	 	  	
	  	

	 Total
	  	563,811	  	547,036
	 	  	
	  	

  

 22 

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	 Issue discounts and similar charges
	 	euro 115,445 thousand

  
 “Issue discounts and similar
charges” refer to incidental costs on loans (euro 74,179 thousand) and costs relating to the issue of bonds (euro 41,266 thousand). 
  

			
	 Accrued income and other prepaid expenses
	 	euro 431,591 thousand

  
 Accrued financial income mainly
includes euro 33,802 thousand of income on derivative financial instruments, euro 3,497 thousand of sundry financial income, euro 2,809 thousand of income from long-term loans made to subsidiaries, as well as euro 1,531 thousand of interest income
subsidized until 1991 by the government under Law No. 67/1988, equivalent to three percentage points of the cost of the loans which replaced those assigned to the Company, through Cassa Depositi e Prestiti, under Law No. 887/1984. 
  
 Other prepaid expenses mainly pertain to building rents (euro 35,824 thousand), financial
expenses (euro 284,310 thousand) for the portion of the premium on the redemption of convertible bonds relating to future years, fees regarding facilities (euro 10,495 thousand), insurance premiums (euro 13,248 thousand) and rental and maintenance
charges (euro 7,691 thousand). 
  
 *** 
  
 A breakdown of receivables and accrued income by maturity and type is presented in Annex 3.

  

 23 

Table of Contents

 BALANCE SHEETS - LIABILITIES AND SHAREHOLDERS’ EQUITY 
  

			
	Shareholders’ equity	 	euro 15,533,314 thousand

 (euro 16,356,111 thousand at December 31, 2003) 
  
 Shareholders’ equity includes the following: 
  

					
	 (in thousands of euro)

	  	12/31/2003

	  	9/30/2004

	 Share capital
	  	8,853,991	  	8,857,834
	 Additional paid-in capital
	  	88,377	  	98,943
	 Revaluation reserve Law No. 413, 12/31/1991
	  	—	  	1,129
	 Legal reserve
	  	1,834,687	  	1,834,687
	 Reserve for treasury stock in portfolio
	  	2,298	  	2,298
	 Miscellaneous reserves
	  	 	  	 
	   .  Reserve Law No. 488/92
	  	118,678	  	142,365
	   .  Reserve, L.D. No. 124/93, ex art. 13
	  	185	  	185
	   .  Reserve D.P.R. No. 917/86 ex art. 74
	  	5,750	  	5,750
	   .  Reserve for capital grants
	  	498,701	  	507,937
	   .  Miscellaneous reserves
	  	119,012	  	119,012
	   .  Merger surplus reserve
	  	2,188,529	  	2,188,529
	 Retained earnings
	  	—	  	881,029
	 Net income for the year
	  	2,645,903	  	—
	 	  	
	  	

	 	  	16,356,111	  	14,639,698
	 Net income for the period
	  	 	  	893,616
	 	  	
	  	

	 Total
	  	16,356,111	  	15,533,314
	 	  	
	  	

  
 Share capital 
  
 The share capital of Telecom Italia S.p.A. at September 30, 2004 amounts to euro 8,857,834
thousand and consists of 10,309,231,790 ordinary shares and 5,795,921,069 savings shares, all with a par value of euro 0.55 each. 
  
 Share capital increased by euro 3,843 thousand compared to December 31, 2003 due to the following movements: 
  

	 	•	 	conversion of 1,182,574 “Telecom Italia 1.5% 2001 – 2010 convertible bonds with a premium on redemption” for the issue of 557,554 new shares for a par value of euro
306 thousand; 

  

	 	•	 	exercise of 1,948,120 stock options set aside for employees of the company for the issue of 6,430,493 new shares for a par value of euro 3,537 thousand. 

  
 Additional paid-in capital 
  
 Additional paid-in capital at September 30, 2004 amounts to euro 98,943 thousand, with an
increase of euro 10,566 thousand compared to December 31, 2003. The change in this caption is due to the additional paid-in capital on the foregoing capital increases. 
  
 Reserves for inflation adjustments - Law No. 413, 12/30/1991 
  
 This reserve for inflation adjustments, which showed a nil balance at December 31, 2003 following its complete utilization to cover the loss
for the year 2002 of the merging company Olivetti, was replenished at June 30, 2004 for the entire amount, equal to euro 1,129 thousand, pursuant to the resolution passed by the Shareholders’ Meeting on May 6, 2004 
  
 Legal reserve 
  
 The legal reserve amounts to euro 1,834,687 thousand at September 30, 2004, unchanged from December 31, 2003. 
  
 Reserve for treasury stock in portfolio 
  
 This reserve amounts to euro 2,298 thousand at September 30, 2004, unchanged from December
31, 2003. 
  

 24 

Table of Contents

 Miscellaneous reserves 
  

Miscellaneous reserves amount in total to euro 2,963,778 thousand at September 30, 2004, with an increase of euro 32,923 thousand compared to December 31, 2003. The
various components of miscellaneous reserves are analyzed in the following paragraphs. 
  
 Reserve Law No. 488/1992: this reserve, euro 142,365 thousand, increased by euro 23,687 thousand compared to December 31, 2003 as a result of the appropriation of net income for the year 2003, as voted by the Shareholders’
Meeting on May 6, 2004, in order to obtain the benefits stated in Law 488/92 under the projects for investments in the South of Italy. 
  
 Reserve Law No. 124/1993, ex art. 13: this reserve, euro 185 thousand at September 30, 2004, is unchanged from December 31, 2003. 
  
 Reserve DPR No. 917/1986, ex art. 74: this reserve, euro 5,750 thousand at September
30, 2004, is unchanged from December 31, 2003. 
  
 Reserve for capital
grants: this reserve, equal to euro 507,937 thousand at September 30, 2004, increased by euro 9,236 thousand compared to December 31, 2003 due to the transfer from the “reserves for risks and charges” of the portion of grants that
became available during the period. 
  
 Miscellaneous reserves: these
reserves, euro 119,012 thousand at September 30, 2004, are unchanged from December 31, 2003. 
  
 Merger surplus reserve: this reserve, euro 2,188,529 thousand at September 30, 2004, is unchanged from December 31, 2003. 
  

Retained earnings 
  
 Retained earnings refer to the appropriation of net income for the year 2003, euro 881,029 thousand, pursuant to the resolution passed by the Shareholders’ Meeting of May 6, 2004. 
  
 In order to complete disclosure on shareholders’ equity, the following statements are
presented: 
  

	•	 	statement showing the reserves subject to restrictions for statutory purposes and the tax treatment applicable in the event of distribution; 

  

	•	 	statement prepared according to ex art. 2427, paragraph 7 - bis, showing the items in shareholders’ equity separately according to their source, possibility of utilization and
distribution, in addition to their utilization in prior years; 

  

	•	 	statement of changes in shareholders’ equity during the prior year and in the first nine months of 2004. 

  

 25 

Table of Contents

 Shareholders’ equity reserves – Restrictions for statutory purposes and tax treatment 
  

													
	 	 	 Amounts not
subject to
statutory
restrictions
 (a)        

	 	 Amounts
subject to
statutory
restrictions
 (b)      

	 	 September 30,
2004
 (c)=(a+b)=(d+e+f)

	 	 Amounts of
reserves
which, in the
event
of
distribution,
form part of the
taxable income
of the company
 (d)          

	 	 Amounts of
other income
reserves
 (e)        

	 	 Amount of
reserves
which, in the
event of
distribution, do
not form
part
of the taxable
income of the
company
 (f)        

	 (in thousands of euro)

	 	 	 	 	 	 
	 Reserves and retained earnings
	 	 	 	 	 	 	 	 	 	 	 	 
	   Additional paid-in capital
	 	98,943	 	—	 	98,943	 	—	 	—	 	98,943
	   Legal reserve
	 	63,120	 	1,771,567	 	1,834,687	 	1,834,667	 	—	 	20
	   Reserve for treasury stock in portfolio
	 	—	 	2,298	 	2,298	 	—	 	2,298	 	—
	   Merger surplus reserve
	 	2,188,529	 	—	 	2,188,529	 	—	 	—	 	2,188,529
	   Reserve Law No. 488/92
	 	—	 	142,365	 	142,365	 	—	 	122,090	 	20,275
	   Reserve, L.D. No. 124/93, ex art. 13
	 	185	 	—	 	185	 	185	 	—	 	—
	   Reserve D.P.R. No. 917/86 ex art. 74
	 	5,750	 	—	 	5,750	 	5,750	 	—	 	—
	   Reserve for capital grants
	 	507,937	 	—	 	507,937	 	507,937	 	—	 	—
	   Revaluation reserve Law No. 413/91
	 	1,129	 	—	 	1,129	 	1,129	 	—	 	—
	   Miscellaneous reserves
	 	104,632	 	14,380	 	119,012	 	—	 	643	 	118,369
	   Retained earnings
	 	881,029	 	—	 	881,029	 	—	 	881,029	 	—
	 	 	
	 	
	 	
	 	
	 	
	 	

	 Total reserves and retained earnings
	 	3,851,254	 	1,930,610	 	5,781,864	 	2,349,668	 	1,006,060	 	2,426,136
	 	 	
	 	
	 	
	 	
	 	
	 	

  
 The amount of distributable reserves
on which the Company does not bear tax charges is equal to euro 3,273,153 thousand. 
  

 26 

Table of Contents

 Statement according to ex art. 2427, no. 7-bis of the Italian Civil Code 
  

											
	 Nature/description

	 	Amount

	 	Possibility of
utilization

	 	Amount available

	 	Summary of the amounts utilized
during the last three years

	 (in thousands
of
euro)                    

	 	 	 	 	for absorption of
losses

	 	for other reasons (*)

	 	 	 	 	Total

	 	Total

	 Share capital
	 	8,857,834	 	 	 	 	 	0	 	10,961
	 Capital reserves:
	 	 	 	 	 	 	 	 	 	 
	 Additional paid-in capital
	 	98,943	 	A, B, C	 	98,943	 	3,700,751	 	 
	 Legal reserve
	 	1,834,687	 	A, B, C	 	63,120	 	920,810	 	 
	 Reserve Law No. 488/92
	 	20,275	 	A, B	 	20,275	 	 	 	 
	 Reserve, L.D. No. 124/93, ex art. 13
	 	185	 	A, B, C	 	185	 	 	 	 
	 Reserve D.P.R. No. 917/86 ex art. 74
	 	5,750	 	A, B, C	 	5,750	 	 	 	 
	 Reserve for capital grants
	 	507,937	 	A, B, C	 	507,937	 	 	 	 
	 Miscellaneous reserves
	 	118,369	 	A, B, C	 	118,369	 	28,816	 	 
	 Merger surplus reserve
	 	2,188,529	 	A, B, C	 	2,188,529	 	 	 	 
						
	 Income reserves:
	 	 	 	 	 	 	 	 	 	 
	 Revaluation reserve Law No. 413/91
	 	1,129	 	A, B, C	 	1,129	 	1,129	 	 
	 Reserve for treasury stock in portfolio
	 	2,298	 	—	 	0	 	 	 	 
	 Reserve Law No. 488/92
	 	122,090	 	A, B	 	122,090	 	 	 	 
	 Miscellaneous reserves
	 	643	 	A, B, C	 	643	 	 	 	 
	 Retained earnings
	 	881,029	 	A, B, C	 	881,029	 	 	 	 
	 	 	
	 	 	 	
	 	
	 	

	 Total
	 	14,639,698	 	 	 	4,007,999	 	4,651,505	 	10,961
	 	 	
	 	 	 	
	 	
	 	

	 Amount not distributable(1)
	 	 	 	 	 	156,745	 	 	 	 
	 	 	 	 	 	 	
	 	 	 	 
	 Remaining amount distributable
	 	 	 	 	 	3,851,254	 	 	 	 
	 	 	 	 	 	 	
	 	 	 	 

 Key: 
  
 A: for share capital increase 
 B: for absorption of losses 
 C: for distribution to
shareholders 
  

	(*)	The amounts utilized do not include reclassifications among individual captions of shareholders’ equity. 

  

	(1)	Represents the amount not distributable due to: the reserve Law No. 488/1922 (euro 142,365 thousand) and the part set aside to cover unamortized intangible assets according to ex
art. 2426, paragraph 5 (euro 14,380 thousand). 

  

 27 

Table of Contents

 Statement of changes in shareholders’ equity 
  

																																																
	 (in thousands of euro)

	 	Share
capital

	 	 	Capital
increases
awaiting
registration
in
Companies
Register

	 	 	Additional
paid-in
capital

	 	 	Additional
paid-in
capital on
capital
increases
awaiting
registration
in
Companies
Register

	 	 	Revaluation
reserve
Law No.
413/91

	 	 	Legal
reserve

	 	 	Reserve
for
treasury
stock in
portfolio

	 	Reserve
Law No.
488/92

	 	Reserve
L.D. No.
124/93,
ex art.
13

	 	Reserve
D.P.R.
No.
917/86
ex art.
74

	 	Special
reserve

	 	 	Reserve
for
capital
grants

	 	Miscellaneous
reserves

	 	 	Merger
surplus
reserve

	 	 	Retained
earnings

	 	 	 Net
 income
for the
 year

	 	 	Net
income
for the
period

	 	Total

	 Balance at January 1, 2003
	 	8,845,240	 	 	200	 	 	3,765,365	 	 	127	 	 	1,129	 	 	920,810	 	 	2,298	 	 	 	 	 	 	 	1,888,261	 	 	 	 	147,828	 	 	 	 	 	(299,930	)	 	(6,239,963	)	 	 	 	9,031,365
	 	 	
	
	 	
	
	 	
	
	 	
	
	 	
	
	 	
	
	 	
	 	
	 	
	 	
	 	
	
	 	
	 	
	
	 	
	
	 	
	
	 	
	
	 	
	 	

	 Appropriation of 2002 profit:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 - Absorption of loss for the year (as voted by the Shareholders’ Meeting of May 26, 2003)
	 	 	 	 	 	 	 	(3,400,820	)	 	(127	)	 	(1,129	)	 	(920,810	)	 	 	 	 	 	 	 	 	 	(1,888,261	)	 	 	 	(28,816	)	 	 	 	 	 	 	 	6,239,963	 	 	 	 	0
	 Other changes:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 - Absorption of the accumulated deficit (as voted by the Shareholders’ Meeting of May 26, 2003)
	 	 	 	 	 	 	 	(299,930	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	299,930	 	 	 	 	 	 	 	0
	 - Changes connected with the Olivetti-Telecom Italia merger
	 	(10,961	)	 	 	 	 	 	 	 	 	 	 	 	 	 	20	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	4,633,630	 	 	 	 	 	 	 	 	 	 	4,622,689
	 - Reclassification of merger surplus
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,834,667	 	 	 	 	118,678	 	185	 	5,750	 	 	 	 	485,821	 	 	 	 	(2,445,101	)	 	 	 	 	 	 	 	 	 	0
	 - Conversion of 385,731 “Telecom Italia 1.5% 2001-2004 convertible bonds with a premium on redemption” and 19,623,310
“Telecom Italia 1.5% 2001-2010 convertible bonds with a premium on redemption”
	 	13,457	 	 	 	 	 	7,170	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	20,627
	 - Exercise of stock options
	 	6,055	 	 	 	 	 	16,592	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	22,647
	 - Transfer from the “Reserves for risks and charges” of the portion of grants which became available during the
year
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	12,880	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	12,880
	 - Other changes
	 	200	 	 	(200	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0
	 Net income for the year 2003
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2,645,903	 	 	 	 	2,645,903
	 	 	
	
	 	
	
	 	
	
	 	
	
	 	
	
	 	
	
	 	
	 	
	 	
	 	
	 	
	
	 	
	 	
	
	 	
	
	 	
	
	 	
	
	 	
	 	

	 Balance at December 31, 2003
	 	8,853,991	 	 	0	 	 	88,377	 	 	0	 	 	0	 	 	1,834,687	 	 	2,298	 	118,678	 	185	 	5,750	 	0	 	 	498,701	 	119,012	 	 	2,188,529	 	 	0	 	 	2,645,903	 	 	0	 	16,356,111
	 	 	
	
	 	
	
	 	
	
	 	
	
	 	
	
	 	
	
	 	
	 	
	 	
	 	
	 	
	
	 	
	 	
	
	 	
	
	 	
	
	 	
	
	 	
	 	

  

 28 

Table of Contents

 Statement of changes in shareholders’ equity (Continued) 
  

																																							
	 (in thousands of euro)

	 	Share
capital

	 	Capital
increases
awaiting
registration
in
Companies
Register

	 	Additional
paid-in
capital

	 	Additional
paid-in
capital on
capital
increases
awaiting
registration
in
Companies
Register

	 	Revaluation
reserve
Law No.
413/91

	 	Legal
reserve

	 	Reserve
for
treasury
stock in
portfolio

	 	Reserve
Law No.
488/92

	 	Reserve
L.D. No.
124/93,
ex art.
13

	 	Reserve
D.P.R.
No.
917/86
ex art.
74

	 	Special
reserve

	 	Reserve
for
capital
grants

	 	Miscellaneous
reserves

	 	Merger
surplus
reserve

	 	Retained
earnings

	 	 Net
 income
 for the
 year

	 	 	Net
income
for the
period

	 	Total

	 
	 Appropriation of 2002 profit (as voted by the Shareholders’ Meeting of May 6, 2004)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 – Declaration of dividends (€0.1041 per ordinary share; €0.1151 per savings share)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(1,740,058	)	 	 	 	(1,740,058	)
	 – Other appropriations
	 	 	 	 	 	 	 	 	 	1,129	 	 	 	 	 	23,687	 	 	 	 	 	 	 	 	 	 	 	 	 	881,029	 	(905,845	)	 	 	 	0	 
	 Other changes:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 – Conversion of 1,182,574 “Telecom Italia 1.5% 2001-2010 convertible bonds with a premium on redemption”
	 	306	 	 	 	875	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,181	 
	 – Exercise of stock options
	 	3,537	 	 	 	9,691	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	13,228	 
	 – Exercise of warrants for shares of Telecom Italia ex Olivetti 1999-2004
	 	 	 	 	 	0	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0	 
	 – Transfer from the “Reserves for risks and charges” of the portion of grants which became available during the
period
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	9,236	 	 	 	 	 	 	 	 	 	 	 	 	9,236	 
	 Net income for the 9 months to September 30, 2004
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	893,616	 	893,616	 
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	
	 	
	 	
	

	 Balance at September 30, 2004
	 	8,857,834	 	0	 	98,943	 	0	 	1,129	 	1,834,687	 	2,298	 	142,365	 	185	 	5,750	 	0	 	507,937	 	119,012	 	2,188,529	 	881,029	 	0	 	 	893,616	 	15,533,314	 
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	
	 	
	 	
	

  

 29 

Table of Contents

 As far as future potential changes in share capital are concerned, at September 30, 2004, the following are still
outstanding: 
  

	–	2,388,870,888 “Telecom Italia 1.5% 2001 – 2004 convertible bonds with a premium on redemption” (formerly known as “Olivetti 1.5% 2001 – 2004 convertible
bonds with a premium on redemption”), including 116,204 bonds for which conversion into shares had already been requested on September 30, 2004, with the consequent reduction in the quantity of bonds still convertible with a contra-entry for a
liability with future shareholders (the corresponding 54,791 ordinary shares for a par value of euro 30 thousand plus additional paid-in capital of euro 86 thousand were issued on October 14, 2004). 

  

	    	Such bonds originally allowed conversion into Olivetti shares, in a ratio of one Olivetti share for every bond converted. 

  

	    	As a result of the merger of Telecom Italia S.p.A. in Olivetti S.p.A., following the process to redistribute the share capital of the merging company and in light of the ratio
indicated above, such bonds now allow the conversion to Telecom Italia shares in a ratio of 0.471553 Telecom Italia ordinary shares for every bond converted. 

  

	    	Against the above bonds that can still be converted, therefore, besides the above 54,791 shares, a further maximum 1,126,424,442 Telecom Italia ordinary shares could be issued, for
a total par value of euro 619,533 thousand, plus additional paid-in capital of euro 1,769,221 thousand. 

  

	–	800,000 options of the ex Olivetti “Stock Option Plan 2002-2004”. 

  

	    	Such options were originally valid for the subscription of the same number of Olivetti shares at a price which, after the adjustment for the capital increases against payment by
Olivetti in 2001, was equal to euro 3.308 for every option exercised. 

  

	    	Subsequent to the merger of Telecom Italia S.p.A. in Olivetti S.p.A., following the process to redistribute share capital and on the basis of the exchange ratio indicated above,
such options are now valid for the subscription of 0.471553 Telecom Italia ordinary shares each, at a price of about euro 7.015 per share. 

  

	    	Against the above options that can still be exercised, taking into account the maximum quantities of the shares that can be subscribed by each beneficiary, therefore, a maximum
377,241 new Telecom Italia ordinary shares could be issued, for a total par value of euro 207 thousand, plus additional paid-in capital of euro 2,439 thousand. 

  

	–	5,940,000 options of the “Three-year Stock Option Plan February 2002-December 2004” ex Olivetti. 

  

	    	Such options were originally valid for the subscription of the same number of Olivetti shares at a price which, after the adjustment for the capital increases against payment by
Olivetti in 2001, was equal to euro 2.515 for every option exercised. 

  

	    	Subsequent to the merger of Telecom Italia S.p.A. in Olivetti S.p.A., following the process to redistribute share capital and on the basis of the exchange ratio indicated above,
such options are now valid for the subscription of 0.471553 Telecom Italia ordinary shares each, at a price of about euro 5.333 per share. 

  

	    	Against the above options that can still be exercised, taking into account the maximum quantities of the shares that can be subscribed by each beneficiary, therefore, a maximum
2,604,518 new Telecom Italia ordinary shares could be issued, for a total par value of euro 1,432 thousand, plus additional paid-in capital of euro 12,459 thousand. 

  

	–	3,147,309,291 options of the “Stock Option Plan 1999” ex Telecom Italia, net of 11,196,439 options for which exercise had already been requested at September 30, 2004 (the
corresponding 36,958 shares for a par value of euro 20 thousand plus additional paid-in capital of euro 56 thousand were issued in October 2004). 

  

	    	Such options were originally valid for the subscription of the same number of ordinary shares of the merged company Telecom Italia at a price of euro 6.79 for every option
exercised. 

  

	    	Subsequent to the merger of Telecom Italia S.p.A. in Olivetti S.p.A., following the process to redistribute the share capital and in light of the exchange ratio of 3.300871 new
Telecom Italia S.p.A. (former Olivetti S.p.A.) ordinary shares for every old Telecom Italia ordinary share, such options are now valid for the subscription of 3.300871 Telecom Italia ordinary shares each, at a price of about euro 2.057 per share.

  

	    	Against the above options that can still be exercised, taking into account the maximum quantities of the shares that can be subscribed by each beneficiary, therefore, besides the
above 36,958 shares, a further maximum 10,388,791 new Telecom Italia ordinary shares could be issued, for a total par value of euro 5,714 thousand, plus additional paid-in capital of euro 15,656 thousand. 

  

 30 

Table of Contents

	–	10,699,996 options of the “Stock Option Plan 2000” ex Telecom Italia. 

  

	    	Such options were originally valid for the subscription of the same number of ordinary shares of the merged company Telecom Italia at a price of euro 13.815 for every option
exercised. 

  

	    	Subsequent to the merger of Telecom Italia S.p.A. in Olivetti S.p.A., following the process to redistribute the share capital and in light of the exchange ratio indicated above,
such options are now valid for the subscription of 3.300871 Telecom Italia ordinary shares each, at a price of about euro 4.185 per share. 

  

	    	Against the above options that can still be exercised, taking into account the maximum quantities of the shares that can be subscribed by each beneficiary, therefore, a maximum
35,319,216 new Telecom Italia ordinary shares could be issued, for a total par value of euro 19,426 thousand, plus additional paid-in capital of euro 128,394 thousand. 

  

	–	32,080,000 options of the “Stock Option Plan 2001” ex Telecom Italia. 

  

	    	Such options were originally valid for the subscription of the same number of ordinary shares of the merged company Telecom Italia at a price of euro 10.488 for every option
exercised. 

  

	    	Subsequent to the merger of Telecom Italia S.p.A. in Olivetti S.p.A., following the process to redistribute the share capital and in light of the exchange ratio indicated above,
such options are now valid for the subscription of 3.300871 Telecom Italia ordinary shares each, at a price of about euro 3.177 per share. 

  

	    	Against the above options that can still be exercised, taking into account the maximum quantities of the shares that can be subscribed by each beneficiary, therefore, a maximum
105,891,314 new Telecom Italia ordinary shares could be issued, for a total par value of euro 58,240 thousand, plus additional paid-in capital of euro 278,213 thousand. 

  

	–	11,250,000 options of the “Stock Option Plan 2002 Top” ex Telecom Italia. 

  

	    	Such options were originally valid for the subscription of the same number of ordinary shares of the merged company Telecom Italia at a price of euro 9.203 for every option
exercised. 

  

	    	Subsequent to the merger of Telecom Italia S.p.A. in Olivetti S.p.A., following the process to redistribute the share capital and in light of the exchange ratio indicated above,
such options are now valid for the subscription of 3.300871 Telecom Italia ordinary shares each, at a price of about 2.788 per share. 

  

	    	Against the above options that can still be exercised, taking into account the maximum quantities of the shares that can be subscribed by each beneficiary, therefore, a maximum
37,134,780 new Telecom Italia ordinary shares could be issued, for a total par value of euro 20,424 thousand, plus additional paid-in capital of euro 83,110 thousand. 

  

	–	24,283,200 options of the “Stock Option Plan 2002” ex Telecom Italia. 

  

	    	Such options were originally valid for the subscription of the same number of ordinary shares of the merged company Telecom Italia at the following prices for each option held:
23,243,200 options at a price of euro 9.665, 840,000 options at a price of euro 7.952 and 200,000 options at the price of euro 7.721. 

  

	    	Subsequent to the merger of Telecom Italia S.p.A. in Olivetti S.p.A., following the process to redistribute the share capital and in light of the exchange ratio indicated above,
such options are now valid for the subscription of 3.300871 Telecom Italia ordinary shares each, at a price of, respectively, about euro 2.928, about euro 2.409 and about euro 2.339 per share. 

  

	    	Against the above options that can still be exercised, taking into account the maximum quantities of the shares that can be subscribed by each beneficiary and the different
subscription prices, therefore, a maximum 80,155,261 new Telecom Italia ordinary shares could be issued, for a total par value of euro 44,085 thousand, plus additional paid-in capital of euro 188,783 thousand. 

  
 The Shareholders’ Meeting of May 6, 2004 also conferred the Board of Directors with the
right (which, to date, has not been exercised), for a maximum period of five years beginning May 6, 2004, to increase against payment, at one or more times, the share capital for a maximum total amount of euro 880,000,000, through the issue of a
maximum of 1,600,000,000 ordinary shares, in whole or in part 
  

	(i)	to be offered as option rights to the shareholders and convertible bondholders, or 

  

	(ii)	to be offered for subscription to the employees of Telecom Italia S.p.A. or to the companies which it controls, with the exclusion of the option rights, pursuant to the combined
provision of art. 2441, last paragraph, of the Italian Civil Code, and art. 134, second paragraph, of Legislative Decree 58/1998. 

  

 31 

Table of Contents

 The resolutions for capital increases passed by the Board of Directors in exercising the aforementioned right shall
establish the subscription price (including any additional paid-in capital) and shall fix a specific deadline for the subscription of the shares; they may also provide that, in the event the increase voted by the Board is not subscribed to by the
deadline set each time for that purpose, the capital shall be increased for an amount equal to the subscriptions received up to that deadline date. 
  

			
	 Reserves for risks and charges
	  	euro 759,149 thousand
	 (euro 777,327 thousand at December 31, 2003)
	  	 

  
 The reserves for risks and charges
decreased by euro 18,178 thousand compared to December 31, 2003. The composition and changes in these reserves are described as follows: 
  

																			
	 	 	12/31/2003

	 	Changes during the period

	 	 	9/30/2004

	 (in thousands of euro)

	 	 	Provisions

	 	Utilizations

	 	 	Released
to income

	 	 	Reclassi-
fications/
Other

	 	 	Total
changes

	 	 
	Reserve for taxes, reserve for deferred taxes	 	119,410	 	800,155	 	(26,549	)	 	—	 	 	(762,151	)	 	11,455	 	 	130,865
								
	 Other reserves
	 	657,917	 	38,742	 	(51,771	)	 	(1,140	)	 	(15,464	)	 	(29,633	)	 	628,284
	 Reserve for litigation
	 	113,489	 	24,929	 	(22,362	)	 	—	 	 	—	 	 	2,567	 	 	116,056
	 Reserve for capital grants
	 	88,876	 	—	 	—	 	 	—	 	 	(9,236	)	 	(9,236	)	 	79,640
	Reserve for losses of subsidiaries and affiliates	 	10,264	 	11,313	 	(250	)	 	—	 	 	—	 	 	11,063	 	 	21,327
	Reserve for corporate restructuring	 	121,144	 	—	 	(4,729	)	 	—	 	 	—	 	 	(4,729	)	 	116,415
	Reserve for contractual risks and other risks	 	324,144	 	2,500	 	(24,430	)	 	(1,140	)	 	(6,228	)	 	(29,298	)	 	294,846
	 	 	
	 	
	 	
	
	 	
	
	 	
	
	 	
	
	 	

	 Total
	 	777,327	 	838,897	 	(78,320	)	 	(1,140	)	 	(777,615	)	 	(18,178	)	 	759,149
	 	 	
	 	
	 	
	
	 	
	
	 	
	
	 	
	
	 	

  
 Reserve for taxes, reserve for
deferred taxes 
  
 These reserves amount to euro 130,865 thousand and
increased by euro 11,455 thousand compared to December 31, 2003. The increase refers to the provision for income taxes for the period. Reclassifications refer to the set off of the reserve for taxes and the reserve for deferred taxes with taxes
receivable and deferred tax assets. 
  
 Other reserves 
  
 Other reserves amount to euro 628,284 thousand and decreased by euro 29,633 thousand
compared to December 31, 2003. 
  
 In particular: 
  

	•	 	the provision to the reserve for losses of subsidiaries and affiliates, euro 11,313 thousand, is principally due to losses in excess of the carrying values of Telecom Italia
Learning Services for euro 10,036 thousand and Trainet for euro 1,000 thousand; 

  

	•	 	the movements in the reserve for contractual risks and other risks mainly regard utilizations for euro 24,430 thousand and reclassifications/other changes for euro 6,228 thousand.

  

	    	Utilizations mainly refer to expenses incurred both for the dispute with OP Computers of euro 5,907 thousand and guarantees provided by Telecom Italia with regard to the sale of
Telespazio (euro 5,867 thousand). 

  

	    	Reclassifications principally relate to transfers to the allowance for doubtful accounts of affiliated companies for a total of euro 5,328 thousand as a result of receivables due
from Sky Italia waived by the Telecom Italia Group. 

  

 32 

Table of Contents

			
	 Reserve for employee termination indemnities
	  	euro 1,035,429 thousand
	 (euro 972,413 thousand at December 31, 2003)
	  	 

  
 The reserve for employee termination
indemnities increased by euro 63,016 thousand compared to December 31, 2003. The amount and changes during the period are presented below: 
  

				
	 (in thousands of euro)

	  	 	 
	 Balance at December 31, 2003
	  	972,413	 
	 	  	
	

	 Changes during the period:
	  	 	 
	- Provisions charged to income for amounts to fund employee termination indemnities accrued in favor of employees during the period plus the fixed and variable cost-of-living adjustments
required under Law No. 297/1982	  	98,373	 
	 - Utilizations for:
	  	 	 
	 •     Indemnities paid to employees who took retirement or resigned during the period
	  	(8,234	)
	 •     Advances
	  	(7,285	)
	 •     Supplementary benefits (Telemaco)
	  	(13,045	)
	 •     Substitute tax on the revaluation of the reserve
	  	(3,067	)
	 - Transfers to/from subsidiaries and other movements
	  	(3,726	)
	 	  	
	

	 Balance at September 30, 2004
	  	1,035,429	 
	 	  	
	

  

			
	 Liabilities
	  	euro 39,119,848 thousand
	 (euro 41,395,472 thousand at December 31, 2003)
	  	 

  
 Liabilities decreased by euro
2,275,624 thousand compared to December 31, 2003. Details are as follows : 
  

													
	 	 	9/30/2004

	 	12/31/2003

	 (in thousands of euro)

	 	Financial

	 	Trade and
other

	 	Total

	 	Financial

	 	Trade and
other

	 	Total

	 Debentures
	 	12,660,489	 	—	 	12,660,489	 	9,764,983	 	—	 	9,764,983
	 Convertible debentures
	 	2,827,904	 	—	 	2,827,904	 	4,159,570	 	—	 	4,159,570
	 Due to banks
	 	887,380	 	—	 	887,380	 	1,191,094	 	—	 	1,191,094
	 Due to other lenders
	 	665,308	 	—	 	665,308	 	781,885	 	—	 	781,885
	 Advances
	 	—	 	28,603	 	28,603	 	—	 	22,273	 	22,723
	 Trade accounts payable
	 	—	 	1,390,028	 	1,390,028	 	—	 	1,929,794	 	1,929,794
	 Accounts payable to subsidiaries
	 	16,874,656	 	1,128,128	 	18,002,784	 	19,303,264	 	1,240,256	 	20,543,520
	Accounts payable to affiliated companies	 	419	 	95,269	 	95,688	 	1,027	 	83,744	 	84,771
	 Taxes payable
	 	70	 	624,025	 	624,095	 	23,430	 	355,650	 	379,080
	Contributions to pension and social security institutions	 	—	 	574,590	 	574,590	 	626,769	 	—	 	626,769
	 Other liabilities
	 	6,035	 	1,356,944	 	1,362,979	 	62,245	 	1,849,038	 	1,911,283
	 	 	
	 	
	 	
	 	
	 	
	 	

	 Total
	 	33,922,261	 	5,197,587	 	39,119,848	 	35,287,498	 	6,107,974	 	41,395,472
	 	 	
	 	
	 	
	 	
	 	
	 	

  

			
	 Debentures
	 	euro 12,660,489 thousand

  
 Debentures include the following:

  

	•	euro 6,898,572 thousand relating to notes issued under the “Global Note Program” as follows: 

  

	 	•	 	euro 2,500,000 thousand fixed-rate notes issued on February 1, 2002 in two tranches of euro 1,250,000 thousand each, maturing February 1, 2007 and February 1, 2012;

  

	 	•	 	euro 3,000,000 thousand notes issued January 29, 2004, divided into three tranches: the first for euro 1,000,000 thousand, maturing October 29, 2007; the second for euro 750,000
thousand, maturing January 28, 2011; the third for euro 1,250,000 thousand, maturing January 29, 2019; 

  

	 	•	 	euro 110,000 thousand notes issued April 8, 2004, maturing March 30, 2009; 

  

	 	•	 	GBP 850 million notes (for an equivalent amount of euro 1,288,572 thousand) issued June 24, 2004, maturing June 24, 2019; 

  

 33 

Table of Contents

	•	euro 211,917 thousand relating to the 2002 – 2022 notes reserved for subscription by employees, in service and retired, of companies, directly and indirectly, controlled by
Telecom Italia with headquarters in Italy. The 20-year notes, with a face value of euro 50 each, issued at face value, are not listed and can only be traded with Telecom Italia at face value. The semi-annual interest is payable in arrears on January
1 and July 1 of every year and is indexed to the 6-month Euribor; 

  

	•	euro 2,500,000 thousand 2002-2012 fixed-rate notes originally subscribed to by the subsidiary Olivetti Finance N.V. (merged in Telecom Italia Finance effective June 1, 2004), issued
June 26, 2002: 

  

	•	euro 1,400,000 thousand 2002-2012 fixed-rate notes originally subscribed to by the subsidiary Olivetti Finance N.V. (merged in Telecom Italia Finance effective June 1, 2004), issued
December 23, 2002: 

  

	•	euro 1,500,000 thousand 2001-2011 fixed-rate notes subscribed to by Telecom Italia Finance, issued May 31, 2001: 

  

	•	euro 150,000 thousand 2001-2011 fixed-rate notes subscribed to by Telecom Italia Finance issued December 28, 2001. 

  

			
	 Convertible debentures
	 	euro 2,827,904 thousand

  
 Details are as follows: 
  

								
	 (in thousands of euro)

	  	12/31/2003

	  	Changes during
the period

	 	 	9/30/2004

	Telecom Italia 1.5% 2001-2004 convertible notes with a premium on redemption	  	 	  	 	 	 	 
	 . Residual face value
	  	1,266,268	  	(1,266,268	)	 	—
	 . Premium on redemption
	  	64,296	  	(64,296	)	 	—
	 	  	
	  	
	
	 	

	 Total
	  	1,330,564	  	(1,330,564	)	 	—
	 	  	
	  	
	
	 	

	Telecom Italia 1.5% 2001-2010 convertible notes with a premium on redemption	  	 	  	 	 	 	 
	 . Residual face value
	  	2,389,802	  	(931	)	 	2,388,871
	 . Premium on redemption
	  	439,204	  	(171	)	 	439,033
	 Total
	  	2,829,006	  	(1,102	)	 	2,827,904
	 	  	
	  	
	
	 	

	 TOTAL
	  	4,159,570	  	(1,331,666	)	 	2,827,904
	 	  	
	  	
	
	 	

  
 Telecom Italia 1.5% 2001 – 2004
convertible bonds with a premium on redemption were fully repaid on January 1, 2004. 
  

			
	 Due to banks
	 	euro 887,380 thousand

  
 Due to banks decreased by euro
303,714 thousand compared to December 31, 2003. They include medium/long-term debt totaling euro 518,046 thousand and short-term borrowings amounting to euro 369,334 thousand, relating to bank overdrafts. 
  

			
	 Due to other lenders
	 	euro 665,308 thousand

  
 Due to other lenders decreased by
euro 116,577 thousand compared to December 31, 2003. They consist of medium/long-term financing totaling euro 455,430 thousand and short-term loans payable amounting to euro 209,878 thousand. 
  
 Medium/long-term financing principally refers to liabilities for transactions in derivatives
(euro 239,351 thousand) put into place with various banks to hedge loans made by subsidiaries, loans made by Cassa Depositi ePrestiti (euro 176,218 thousand) and by the Fondo per l’innovazione tecnologica (euro 34,459 thousand). 
  
 Short-term loans refer almost entirely to loans made by TI Securitisation Vehicle S.r.l.
(euro 209,814 thousand) deriving from excess financial resources generated by securitization transactions. 
  

			
	 Trade accounts payable
	 	euro 1,390,028 thousand

  
 Trade accounts payable decreased by
euro 539,766 thousand compared to December 31, 2003. The balance includes euro 287,027 thousand due to other telecommunications operators. 
  

 34 

Table of Contents

			
	 Accounts payable to subsidiaries
	 	euro 18,002,784 thousand

  
 Accounts payable to subsidiaries
decreased by euro 2,540,736 thousand compared to December 31, 2003. They consist of financial payables, trade accounts payable and other payables. Financial payables (euro 16,874,656 thousand) refer to current account transactions negotiated at
market rates for cash management purposes and mainly include loans payable to Telecom Italia Finance (euro 12,979,857 thousand), Telecom Italia Capital (euro 3,223,467 thousand), TIM (euro 498,684 thousand) and Telecom Italia Sparkle (euro 59,806
thousand). Trade accounts payable (euro 1,085,364 thousand) mainly consist of accounts payable to TIM (euro 168,691 thousand), Telecom Italia Sparkle (euro 240,457 thousand), and Telecom Italia Media (euro 31,801 thousand) for the portion
of TLC services invoiced by Telecom Italia to customers, and IT Telecom (euro 553,674 thousand) for supply transactions. Other payables (euro 42,764 thousand) mainly refer to payable payables for capital contributions particularly to
Path.Net (euro 18,074 thousand), and sundry payables to IT Telecom (euro 9,324 thousand) and Telecom Italia Sparkle (euro 6,681 thousand). 
  

			
	 Accounts payable to affiliated companies
	 	euro 95,688 thousand

  
 Accounts payable to affiliated
companies increased by euro 10,917 thousand compared to December 31, 2003. They consist of financial payables, trade accounts payable and other payables. Financial payables (euro 419 thousand) refer to current account transactions negotiated at
market rates for cash management purposes mainly due to Consorzio Telcal (euro 405 thousand). Trade accounts payable (euro 95,269 thousand) mainly refer to supply transactions with Italtel (euro 68,461 thousand) and Siemens
Informatica (euro 15,329 thousand) and rents payable to Tiglio II (euro 4,712 thousand).  
  

			
	 Taxes payable
	 	euro 624,095 thousand

  
 Taxes payable increased by euro
245,015 thousand, compared to December 31, 2003, and mainly refer to: 
  

	 	•	 	VAT payable, euro 574,701 thousand; 

  

	 	•	 	withholding taxes payable to the Italian Treasury as the substitute taxpayer, euro 28,475 thousand; 

  

	 	•	 	local other taxes payable, euro 20,850 thousand. 

  

			
	Contributions to pension and social security institutions	 	euro 574,590 thousand

  
 Contributions to pension and social
security institutions decreased by euro 52,179 thousand compared to December 31, 2003 They include amounts owed to social security and health institutions with regard to personnel. These specifically comprise euro 529,869 thousand payable to INPS
for the estimated charges assessed pursuant to Law No. 58/1992, described under the accounting policies. 
  

			
	 Other liabilities
	 	euro 1,362,979 thousand

  
 Other liabilities decreased by euro
548,304 thousand compared to December 31, 2003. They include, in particular, liabilities for: 
  

	 	•	 	customer-related items totaling euro 757,586 thousand, comprising, among other things, deposits by subscribers against telephone conversations and pre-billed basic charges;

  

	 	•	 	employee-related items amounting to euro 445,094 thousand. 

  

 35 

Table of Contents

			
	 Accrued expenses and deferred income
	 	euro 1,695,934 thousand
	 (euro 2,448,626 thousand at December 31, 2003)
	 	 

  
 Accrued expenses and deferred income
decreased by euro 752,692 thousand compared to December 31, 2003, and included the following: 
  

					
	 (in thousands of euro)

	  	12/31/2003

	  	9/30/2004

	 Accrued expenses
	  	 	  	 
	 .  trade
	  	89	  	8,082
	 .  financial
	  	1,828,233	  	844,356
	 .  other
	  	—	  	19
	 	  	
	  	

	 	  	1,828,322	  	852,457
	 	  	
	  	

	 Deferred income
	  	 	  	 
	 .  trade
	  	504,084	  	738,189
	 .  financial
	  	3,880	  	3,695
	 .  other
	  	112,340	  	101,593
	 .  of which capital grants (unavailable portion)
	  	110,532	  	97,376
	 	  	
	  	

	 	  	620,304	  	843,477
	 	  	
	  	

	 Total
	  	2,448,626	  	1,695,934
	 	  	
	  	

  
 Accrued trade expenses primarily
relate to lease payments. 
  
 Accrued financial expenses mainly regard interest on
long-term loans from subsidiaries (euro 328,540 thousand) relating entirely to Telecom Italia Finance, interest on bonds (euro 424,072 thousand), as well as interest on derivative financial transactions (euro 68,661 thousand). 
  
 Deferred income mainly includes pre-billed basic subscriber charges, rentals and maintenance
of telephone equipment (euro 602,713 thousand), interconnecting fees and line lease revenues from Telecom Italia Sparkle and TIM, the unavailable portion of capital grants received after December 31, 1992 and financial items principally connected
with loans to employees. 
  
 * * * 
  
 An analysis of liabilities and accrued expenses by maturity and type is provided in Annex 4.

  
 Disclosure required by art. 2427, art. 6 of the Italian Civil Code regarding
the breakdown of liabilities by geographical area is presented in Annex 5. 
  

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Table of Contents

 MEMORANDUM ACCOUNTS 
  
 Memorandum accounts total euro 24,916,517 thousand at September 30, 2004 and can be analyzed as follows: 
  

			
	 Guarantees provided
	 	euro 24,795,190 thousand

  
 Guarantees provided consist of
sureties (net of counter-guarantees received totaling euro 1,328,533 thousand), of which euro 24,522,456 thousand are provided on behalf of subsidiaries, euro 145,543 thousand on behalf of affiliated companies and euro 127,191 thousand on behalf of
others. The guarantees are given mainly in respect of the notes issued by Telecom Italia Finance (under the Global Medium Term Note Program) for euro 19,973,351 thousand, by Telecom Italia Capital for euro 4,271,094 thousand, and other
medium/long-term financial transactions, supply contracts and guarantees on bids to acquire licenses abroad. 
  

			
	 Purchases and sales commitments
	 	euro 107,384 thousand

  
 This item consists of commitments for
purchases of euro 101,249 thousand and commitments for sales of euro 6,135 thousand. 
  
 Commitments for purchases particularly include future lease obligations plus related purchase options (euro 56,268 thousand). 
  
 Commitments for sales refer to the sale of the investment in LI.SIT to Lombardia Informatica for euro 1,573 thousand, at the expiry of the contract (September 15, 2009),
as well as the commitment to sell the 80.1% holding in Atesia for euro 4,562 thousand (transaction finalized on November 12, 2004). 
  

			
	 Other memorandum accounts
	 	euro 13,943 thousand

  
 Other memorandum accounts mainly
refer to assets of third parties on loan, on deposit for safekeeping and securities of third parties held as guarantees. 
  
 *** 
  
 Moreover: 
  

	 	•	 	the Company issued weak letters of patronage totaling euro 967,257 thousand, chiefly on behalf of subsidiaries and affiliated companies to guarantee insurance polices, lines of
credit and overdraft arrangements; 

  

	 	•	 	assets held by third parties on loan, on deposit for safekeeping or for similar purposes amount to euro 212,453 thousand, and mainly consist of equipment leased to customers;

  

	 	•	 	guarantees provided by others for company obligations amount to euro 530,876 thousand to guarantee the proper performance of non-financial contractual obligations;

  

	 	•	 	the shares of employees and private shareholders deposited at September 30, 2004 with Telecom Italia, and therefore subdeposited with Monte Titoli S.p.A., are equal to euro 66,243
thousand, whereas those awaiting assignment or in the process of being replaced total euro 67 thousand 

  

	 	•	 	the expense fund to safeguard the holders of savings shares, set up by resolution of the Shareholders’ Meeting of June 21, 1999, amounts to euro 2,087 thousand at September 30,
2004; 

  

	 	•	 	the total amount of commitments at September 30, 2004 for building lease obligations on contracts covering periods between 9 and 21 years amount to euro 4,089,641 thousand.

  
 Derivative financial instruments 
  
 Transactions in derivative financial instruments at September 30, 2004 include combined
cross currency & interest rate swaps (to covert some loan contracts in British pounds, US dollars and JPY to euro) and interest rate swaps (to covert loans originally at floating interest rates to fixed interest rates and to convert the indexing
of debt linked with domestic parameters to the 6-month Euribor). The following table shows the notional values of the derivatives hedging medium/long-term debt at September 30, 2004. 
  

			
	 DESCRIPTION

	  	Notional
amount in
millions of
euro

	 Floating to fixed IRS transactions put into place by Telecom Italia S.p.A.
	  	6
	 Floating to floating IRS transactions put into place by Telecom Italia S.p.A.
	  	197
	 CCIRS transactions put into place by Telecom Italia S.p.A. (*)
	  	5,193
	 	  	

	 TOTAL
	  	5,396
	 	  	

  

 37 

Table of Contents

	*	The protection structure is conditional on the loans being maintained performing by Telecom Italia S.p.A. for euro 345 million. 

  

	 	•	 	The floating to fixed IRS transactions (4.68%) put into place by Telecom Italia S.p.A. for a notional amount of euro 6 million refer to EIB loans at floating rates;

  

	 	•	 	The floating to floating IRS transactions put into place by Telecom Italia S.p.A. for a notional amount of euro 197 million refer to the indexed loans at domestic parameters
(Rendint, Rolint, Robot) with conversion to the 6-month Euribor; 

  

	 	•	 	CCIRS transactions put into place by Telecom Italia S.p.A. amounting to euro 5,193 million refer: 

  

	 	•	 	for euro 3,409 million, to the floating rate infragroup loan in USD, received from the subsidiary Telecom Italia Capital S.A. following the bonds issued in October 2003 for a
total amount of US$ 4,000 million, with conversion of the loan to: 

  

	 	•	 	quarterly floating rate in euro maturing November 2008 for euro 851 million; 

  

	 	•	 	semiannual average 5.04% fixed rate in euro maturing November 2013 for euro 1,709 million, of which euro 470 million through two distinct and linked transactions ;

  

	 	•	 	semiannual 5.99% fixed rate in euro maturing November 2033 for euro 849 million. 

  
 Moreover, against the issue of fixed rate bonds for USD 4,000 million (euro 3,223 million at the euro/USD exchange rate of
September 30, 2004), Telecom Italia Capital S.A. signed IRS contracts converting the semiannual 4% fixed rate coupon on USD 1,000 million maturing November 2008, the 5.25% rate on USD 2,000 million maturing November 2013, the 6.38% rate on USD 1,000
million maturing November 2033 to quarterly floating rates in USD; 
  

	 	•	 	for euro 174 million, with reference to the Dual Currency loan with a notional principal of JPY 20 billion with a 5% fixed interest rate with a step-up of +0.45% in USD
maturing October 2029, originally received by Olivetti International Finance N.V., now carried by Telecom Italia Finance S.A., the following was put into place: 

  

	 	•	 	by Telecom Italia S.p.A., a CCIRS in which Telecom Italia S.p.A., with regard to the infragroup loan in JPY, receives 6-month Libor in JPY and pays 6-month Euribor. This protection
structure is conditional on the loan being maintained performing by Telecom Italia S.p.A.; 

  

	 	•	 	by Telecom Italia S.p.A., an IRS with the conversion of the semiannual floating rate in euro to a 6.13% fixed rate up to October 2004 and after that to an annual 6.68% fixed rate
(or a semiannual floating rate in euro as elected by the counterpart) up to maturity; 

  

	 	•	 	for euro 171 million with reference to the bonds 2002/2032 of JPY 20 billion with a 3.55% fixed rate coupon maturing May 2032 originally issued by Olivetti Finance N.V., the
following was put into place: 

  

	 	•	 	by Telecom Italia S.p.A., a CCIRS contract on a floating rate infragroup loan in JPY in which Telecom Italia S.p.A. receives 6-month Libor in JPY and pays 6-month Euribor. This
protection structure is conditional on the loan being maintained performing by Telecom Italia S.p.A.; 

  

	 	•	 	for euro 150 million, CCIRSs linked to an EIB loan in USD with conversion to a floating rate in euro; 

  

	 	•	 	for euro 1,289 million, with regard to bonds 2004/2019 with an annual 6.375% fixed rate in GBP, maturing June 2019, CCIRSs with three-year maturities with conversion to the
semiannual Euribor. 

  
 At September 30, 2004, Telecom Italia S.p.A.
has exchange rate transactions put into place for treasury management purposes for a notional amount of euro 180 million. 
  
 Consistent with the accounting principles disclosed previously, the negative difference, if any, on the valuation of the above detailed derivative financial instruments
at fair value, is recognized in the statement of income under financial expenses. 
  

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Table of Contents

 STATEMENTS OF INCOME 
  

			
	PRODUCTION VALUE	 	euro 11,989,264 thousand
	(euro 12,077,438 thousand in the first nine months of 2003) 

  
 Production value includes the
following captions: 
  

			
	 Sales and service revenues
	 	euro 11,793,169 thousand

  
 Sales and service revenues decreased
by euro 79,057 thousand compared to the first nine months of 2003 and are shown gross of the amount due to other operators (euro 2,250,267 thousand), which are included in “service costs“. 
  
 The breakdown of revenues by business segment, expressly required by art. 2427, point 10, of
the Italian Civil Code, is presented in the following table, while the breakdown of revenues by geographical area, also required by the same article of the Italian Civil Code, is presented in Annex 5. 
  
 Breakdown by business segment 
  

								
	 (in thousands of euro)

	  	9 months to 9/30/2004

	  	9 months to 9/30/2003

	  	Change

	 
	 Sales:
	  	 	  	 	  	 	 
	 - telephone products
	  	372,985	  	241,923	  	131,062	 
	 - other goods
	  	192	  	193	  	(1	)
	 	  	
	  	
	  	
	

	 	  	373,177	  	242,116	  	131,061	 
	 	  	
	  	
	  	
	

	 Services:
	  	 	  	 	  	 	 
	 - Traffic
	  	4,882,953	  	5,148,313	  	(265,360	)
	 - Basic subscription charges (of which)
	  	5,948,010	  	5,896,528	  	51,482	 
	       . for lines leased to other TLC operators
	  	834,171	  	863,992	  	(29,821	)
	 - Fees
	  	255,202	  	210,776	  	44,426	 
	 - Miscellaneous income
	  	333,827	  	374,493	  	(40,666	)
	 	  	
	  	
	  	
	

	 	  	11,419,992	  	11,630,110	  	(210,118	)
	 	  	
	  	
	  	
	

	 Total
	  	11,793,169	  	11,872,226	  	(79,057	)
	 	  	
	  	
	  	
	

  
 Traffic revenues are detailed as
follows: 
  

								
	 (in thousands of euro)

	  	9 months to 9/30/2004

	  	9 months to 9/30/2003

	  	Change

	 
	 • Retail traffic:
	  	 	  	 	  	 	 
	 - phone
	  	3,437,352	  	3,550,296	  	(112,944	)
	 - internet (online dial-up and ADSL)
	  	390,507	  	351,254	  	39,253	 
	 - VAS and data
	  	505,004	  	713,114	  	(208,110	)
	 	  	4,332,863	  	4,614,664	  	(281,801	)
	 	  	
	  	
	  	
	

	 • National wholesale traffic
	  	550,090	  	533,649	  	16,441	 
	 	  	
	  	
	  	
	

	 Total
	  	4,882,953	  	5,148,313	  	(265,360	)
	 	  	
	  	
	  	
	

  
 Revenues from basic subscription
charges are detailed below: 
  

								
	 (in thousands of euro)

	  	9 months to 9/30/2004

	  	9 months to 9/30/2003

	  	Change

	 
	 • Retail subscription charges:
	  	 	  	 	  	 	 
	 - phone
	  	3,711,161	  	3,769,575	  	(58,414	)
	 - ADSL
	  	264,754	  	164,827	  	99,927	 
	 - VAS and data
	  	1,137,840	  	1,098,134	  	39,706	 
	 	  	5,113,755	  	5,032,536	  	81,219	 
	 	  	
	  	
	  	
	

	 • National wholesale subscription Charges
	  	834,255	  	863,992	  	(29,737	)
	 	  	
	  	
	  	
	

	 Total
	  	5,948,010	  	5,896,528	  	51,482	 
	 	  	
	  	
	  	
	

  

 39 

Table of Contents

								
	 Revenues from fees to activate service are detailed below:
	  

				
	 (in thousands of euro)

	  	9 months to
9/30/2004

	  	9 months to
9/30/2003

	  	Change

	 
	 • Retail fees:
	  	 	  	 	  	 	 
	 - phone
	  	113,116	  	96,412	  	16,704	 
	 - ADSL
	  	49,265	  	6,699	  	42,566	 
	 - VAS and data
	  	34,737	  	23,931	  	10,806	 
	 	  	197,118	  	127,042	  	70,076	 
	 	  	
	  	
	  	
	

	 •   National wholesale fees
	  	58,084	  	83,734	  	(25,650	)
	 	  	
	  	
	  	
	

	 Total
	  	255,202	  	210,776	  	44,426	 
	 	  	
	  	
	  	
	

  
 Revenues from sales (euro 373,177
thousand) increased by euro 131,061 thousand compared to the first nine months of 2003. The increase is mainly due to higher sales of cordless phones (in particular, the Aladino model) and web service products. 
  
 Transactions for revenues from sales and services with subsidiaries and affiliated
companies total euro 946,300 thousand. In particular, they refer to: 
  

	•	 	TIM (euro 453,567 thousand) - revenues for mobile-fixed interconnections and lines leased; 

  

	•	 	Telecom Italia Media (euro 118,208 thousand) – telecommunications services; 

  

	•	 	Teleleasing (euro 95,790 thousand) - sales of telecommunications products and services; 

  

	•	 	Path.Net (euro 84,712 thousand) - TLC services and infrastructures dedicated to the Public Administration; 

  

	•	 	Telecom Italia Sparkle (euro 45,225 thousand) – telecommunications services; 

  

	•	 	LI.SIT. (euro 29,001 thousand) – supply of health cards to the Lombardy Region; 

  

	•	 	IT Telecom (euro 26,834 thousand) – telecommunications services. 

  

			
	Changes in inventory of contract work in process	 	euro 9,544 thousand

  
 Changes in inventory of contract work
in process represents the increase for new work (in particular, for LI.SIT., the sanitary paper for the Lombardy Region) and the decrease as a result of completed contracts. 
  

			
	Increases in capitalized internal construction costs	 	euro 55,643 thousand

  
 These consist entirely of capitalized
labor costs. Increases in capitalized internal construction costs rose by euro 15,283 thousand compared to the first nine months of 2003. 
  

			
	Other revenues and income	 	euro 130,908 thousand

  
 Other revenues and income decreased
by euro 28,294 thousand compared to the first nine months of 2003. They include the following: 
  

								
	 (in thousands of euro)

	  	9 months to 9/30/2004

	  	9 months to 9/30/2003

	  	Change

	 
	 Operating grants
	  	2,666	  	7,661	  	(4,995	)
	 Gains on disposal of assets used in the production process
	  	3,541	  	3,161	  	380	 
	 Reimbursements of costs for employees on loan at Group companies
	  	16,683	  	21,044	  	(4,361	)
	 Capital grants recorded in income
	  	14,783	  	18,044	  	(3,261	)
	 Late payment fees
	  	50,734	  	58,954	  	(8,220	)
	 Indemnification, reimbursements and recoveries and other miscellaneous income
	  	42,501	  	50,338	  	(7,837	)
	 	  	
	  	
	  	
	

	 Total
	  	130,908	  	159,202	  	(28,294	)
	 	  	
	  	
	  	
	

  

 40 

Table of Contents

 Transactions involving other revenues and income with subsidiaries and affiliated companies total euro 46,818
thousand. They refer to the recovery of costs for personnel on loan and sundry services, mainly in respect of: 
  

	•	 	TIM (euro 14,412 thousand); 

  

	•	 	Telecom Italia Sparkle (euro 10,221 thousand); 

  

	•	 	IT Telecom (euro 9,433 thousand); 

  

	•	 	Finsiel (euro 3,227 thousand). 

  

			
	PRODUCTION COSTS	 	euro 8,733,176 thousand

 (euro 8,908,163 thousand in the first nine months of 2003) 
  
 Production costs include the following: 
  

			
	Raw materials, supplies and merchandise	 	euro 339,488 thousand

  
 Raw materials, supplies and
merchandise increased by euro 97,116 thousand, compared to the first nine months of 2003 (euro 242,372 thousand), mainly on account of higher purchases of telephone equipment for sale to customers. 
  
 They principally include “costs for purchases of telephone equipment to be resold to
customers” for euro 171,741 thousand, “costs for purchases of inventory materials” for euro 122,402 thousand, “costs for purchases of materials for the management of corporate assets” for euro 24,643 thousand and “costs
for purchases of supply materials” for euro 17,751 thousand. 
  
 Raw
materials, supplies and merchandise costs include transactions with subsidiaries and affiliated companies of euro 29,939 thousand mainly in reference to IT Telecom (euro 12,029 thousand), Teleleasing (euro 7,329 thousand), TIM (euro 1,750 thousand)
and Olivetti Tecnost (euro 2,947 thousand). 
  

			
	Services	 	euro 3,825,376 thousand

  
 Costs for services decreased by euro
18,655 thousand compared to the first nine months of 2003. They consist of the following: 
  

								
	 (in thousands of euro)

	  	9 months to 9/30/2004

	  	9 months to 9/30/2003

	  	Change

	 
	 Advertising and promotion
	  	107,816	  	100,492	  	7,324	 
	 Selling expenses
	  	204,263	  	187,882	  	16,381	 
	 Maintenance
	  	225,543	  	164,851	  	60,692	 
	 Professional and consulting fees
	  	114,989	  	112,734	  	2,255	 
	 Electricity and water
	  	119,151	  	121,660	  	(2,509	)
	 Telephone bill mailing expenses
	  	32,531	  	32,313	  	218	 
	 Interconnection costs
	  	26,213	  	26,640	  	(427	)
	 Insurance
	  	20,399	  	17,657	  	2,742	 
	 Amounts due to other operators
	  	2,250,267	  	2,337,705	  	(87,438	)
	 Distribution and logistics expenses
	  	36,167	  	33,699	  	2,468	 
	 Other services
	  	688,037	  	708,398	  	(20,361	)
	 	  	
	  	
	  	
	

	 Total
	  	3,825,376	  	3,844,031	  	(18,655	)
	 	  	
	  	
	  	
	

  
 Service costs include euro
1,622,607 thousand of transactions with subsidiaries and affiliated companies. They mainly regard: 
  

	•	 	TIM (euro 746,494 thousand) - telecommunications services and interconnection costs; 

  

	•	 	IT Telecom (euro 253,834 thousand) – professional fees, maintenance and selling expenses; 

  

	•	 	Telecom Italia Sparkle (euro 276,745 thousand) – telecommunications services and interconnection costs; 

  

	•	 	Telecom Italia Media (euro 136,594 thousand) – telecommunications services and selling expenses; 

  

	•	 	Telenergia (euro 97,139 thousand) – electricity; 

  

	•	 	Atesia (euro 13,213 thousand) – outsourcing costs for call center and assistance activities. 

  

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	Use of property not owned	 	euro 444,940 thousand

  
 Use of property not owned decreased
by euro 87,778 thousand, compared to the first nine months of 2003, mainly due to the absence of costs for the purchase of satellite capacity after Telespazio directly took over business dealings with the satellite consortia. 
  
 These costs consist of: 
  

								
	 (in thousands of euro)

	  	9 months to 9/30/2004

	  	9 months to 9/30/2003

	  	Change

	 
	 Rentals
	  	347,206	  	333,343	  	13,863	 
	 Hires
	  	80,458	  	186,725	  	(106,267	)
	 Lease installments
	  	13,870	  	11,091	  	2,779	 
	 Other
	  	3,406	  	1,559	  	1,847	 
	 	  	
	  	
	  	
	

	 Total
	  	444,940	  	532,718	  	(87,778	)
	 	  	
	  	
	  	
	

  
 This item comprises euro 191,284
thousand of costs for the use of property not owned relating to transactions with subsidiaries and affiliated companies, specifically with Tiglio I (euro 45,310 thousand) and Tiglio II (euro 18,685 thousand) for building rentals, Telecom Italia
Sparkle (euro 58,063 thousand) for line leases, IT Telecom (euro 20,739 thousand) for hardware and software rentals, Teleleasing (euro 3,928 thousand) for hire and leasing installments. 
  

			
	Personnel costs	 	euro 1,788,878 thousand

  
 Personnel costs decreased by euro
63,952 thousand compared to the first nine months of 2003. They comprise “wages and salaries” (euro 1,258,785 thousand), “social security contributions” (euro 401,740 thousand), employee “termination indemnities” (euro
98,374 thousand) and “other costs” (euro 29,979 thousand). Personnel costs include the costs of employees on loan to other Group companies (euro 16,683 thousand) and recovered from the same Group companies; the income from the recovery of
such costs is recorded in “Other revenues and income”. 
  
 A
comparative breakdown of the average number of employees by professional category in the first nine months of 2004 is presented as follows: 
  

					
	 	  	9 months to 9/30/2004

	  	9 months to 9/30/2003

	 Executives
	  	904	  	927
	 Middle management
	  	1,975	  	1,884
	 Clerical staff
	  	47,144	  	46,297
	 Technicians
	  	234	  	4,310
	 	  	
	  	

	 Total
	  	50,257	  	53,418
	 	  	
	  	

  

			
	Amortization, depreciation and writedowns	 	euro 2,061,657 thousand

  
 Details of this caption are provided
as follows: 
  

			
	Amortization of intangible assets	 	euro 426,637 thousand

  
 Amortization of intangible assets
increased by euro 9,506 thousand, compared to the first nine months of 2003, and refers to the following assets: 
  

								
	 (in thousands of euro)

	  	9 months to 9/30/2004

	  	9 months to 9/30/2003

	  	Change

	 
	 Start-up and expansion costs
	  	8,628	  	20,794	  	(12,166	)
	 Industrial patents and intellectual property rights
	  	399,072	  	374,848	  	24,224	 
	 Concessions, licenses, trademarks and similar rights
	  	68	  	7,480	  	(7,412	)
	 Goodwill
	  	201	  	120	  	81	 
	 Other intangibles
	  	18,668	  	13,889	  	4,779	 
	 	  	
	  	
	  	
	

	 Total
	  	426,637	  	417,131	  	9,506	 
	 	  	
	  	
	  	
	

  
  

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	Depreciation of fixed assets	 	euro 1,576,641 thousand

  
 Depreciation of fixed assets
decreased by euro 115,170 thousand compared to the first nine months of 2003, and refers to the following assets: 
  

								
	 (in thousands of euro)

	  	9 months to 9/30/2004

	  	9 months to 9/30/2003

	  	Change

	 
	 Land and building
	  	57,782	  	60,296	  	(2,514	)
	 Plant and machinery
	  	1,494,774	  	1,589,182	  	(94,408	)
	 Manufacturing and distribution equipment
	  	5,478	  	8,559	  	(3,081	)
	 Other fixed assets
	  	18,607	  	33,774	  	(15,167	)
	 	  	
	  	
	  	
	

	 	  	1,576,641	  	1,691,811	  	(115,170	)
	 	  	
	  	
	  	
	

  

			
	Writedowns of receivables included in current assets and liquid assets	  	euro 58,379 thousand

  
 This caption includes the provision to
the allowance for doubtful trade customers. accounts receivables from 
  

			
	Changes in inventories of raw materials, supplies and merchandise	  	- euro 42,104 thousand

  
 The change reflects purchases of
equipment destined for sale and goods for maintenance unused and also takes into account writedowns for obsolete materials and materials with diminished utilization. The amount primarily refers to inventories connected with the marketing of Aladino
cordless phone and videophones. 
  

			
	Provisions for risks	 	euro 24,929 thousand

  
 Provisions for risks refer to
provisions made to the “reserve for litigation” to cover expenses connected with the probable outcome of disputes with third parties. 
  

			
	Miscellaneous operating costs	 	euro 290,012 thousand

  
 Miscellaneous operating costs
increased by euro 60,729 thousand, compared to the first nine months of 2003, and include the following: 
  

			
	Losses on disposal of assets	 	euro 15,938 thousand

  
 These losses mainly refer to the
disposal of fixed assets. 
  

			
	TLC operating fees	 	euro 17,360 thousand

  
 TLC operating fees mainly include the
fee for the assignment of available numbers (euro 6,575 thousand) and the fee for the use of radio frequencies (euro 6,487 thousand) established by the Ministerial Decree of February 5, 1998, in addition to the fee for the operation of the
regulatory body (euro 3,983 thousand). 
  

			
	Other miscellaneous costs	 	euro 256,714 thousand

  
 Other miscellaneous costs increased by
euro 53,012 thousand, compared to the first nine months of 2003, and include the following: 
  

								
	 (in thousands of euro)

	  	9 months to 9/30/2004

	  	9 months to 9/30/2003

	  	Change

	 
	 • other indirect duties and annual taxes, relating mainly to local property taxes, local duties, stamp and register tax, vehicle tax,
production and electrical energy consumption taxes and permits and government concession taxes
	  	69,323	  	74,500	  	(5,177	)
	 • association dues and membership fees
	  	12,667	  	13,263	  	(596	)
	 • losses due to settlements
	  	63,549	  	17,979	  	45,570	 
	 • losses on the sale of receivables
	  	59,231	  	41,957	  	17,274	 
	 • other costs, essentially relating to compensation due to customers under service regulations for delays in hookups or line transfers,
damages paid to third parties for line installations and maintenance
	  	51,944	  	56,003	  	(4,059	)
	 	  	
	  	
	  	
	

	 Total
	  	256,714	  	203,702	  	53,012	 
	 	  	
	  	
	  	
	

  

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	FINANCIAL INCOME AND EXPENSE	 	- euro 1,276,892 thousand
	 (- euro 1,279,337 thousand in the first nine months of 2003)

  
 Financial income and expense shows an
expense balance of euro 1,276,892 thousand. Details are as follows: 
  

												
	 (in thousands of euro)

	 	 	  	9 months to 9/30/2004

	 	 	9 months to 9/30/2003

	 	 	Change

	 
	 Income from equity investments
	 	 (A)
	  	16,464	 	 	680,274	 	 	(663,810	)
	 Other financial income
	 	 (B)
	  	154,538	 	 	77,766	 	 	76,772	 
	 Interest and other financial expense
	 	 (C)
	  	1,447,467	 	 	2,042,273	 	 	(594,806	)
	 Foreign exchange gains and losses
	 	 (D)
	  	(427	)	 	4,896	 	 	(5,323	)
	 	 	
	  	
	
	 	
	
	 	
	

	 Total
	 	 (A+B-C+D)
	  	(1,276,892	)	 	(1,279,337	)	 	2,445	 
	 	 	
	  	
	
	 	
	
	 	
	

  
 Income from equity investments
refers to the following: 
  

								
	 (in thousands of euro)

	  	9 months to 9/30/2004

	  	9 months to 9/30/2003

	  	Change

	 
	 Dividends from subsidiaries, affiliated companies and other companies
	  	12,126	  	601,058	  	(588,932	)
	 Other income from equity investments
	  	4,338	  	79,216	  	(74,878	)
	 	  	
	  	
	  	
	

	 Total
	  	16,464	  	680,274	  	(663,810	)
	 	  	
	  	
	  	
	

  
 Dividends from subsidiaries,
affiliated companies and other companies mainly refer to TIM shares recorded in current assets (euro 9,804 thousand). Dividends decreased by euro 588,932 thousand, compared to the first nine months of 2003, following the collection, in the
period under comparison, of both dividends pre-merger by the merged company Telecom Italia (euro 511,245 thousand), and the reserves of the subsidiary TIM (euro 80,770 thousand). 
  
 Other income from equity investments refer to the recovery of the share premium from the company LI.SIT. and decreased by euro 74,878
thousand owing to the elimination of the tax credit on dividends following the tax reform introduced by Legislative Decree No. 344/2003. 
  
 Other financial income includes the following: 
  

												
	 	  	9 months to 9/30/2004

	  	 	  	9 months to 9/30/2003

	  	Change

	 
	 (in thousands of euro)

	  	Included in long-
term investments

	  	Included in
current assets

	  	Total

	  	  
	 Interest and fees on:
	  	 	  	 	  	 	  	 	  	 	 
	 • accounts receivable
	  	 	  	 	  	 	  	 	  	 	 
	 . from subsidiaries
	  	2,784	  	23,782	  	26,566	  	25,126	  	1,440	 
	 . from affiliated companies
	  	1,578	  	48	  	1,626	  	5,199	  	(3,573	)
	 . other
	  	5,355	  	 	  	5,355	  	8,837	  	(3,482	)
	 • securities
	  	—	  	241	  	241	  	1,642	  	(1,401	)
	 • banks and the Postal Administration
	  	—	  	15,752	  	15,752	  	10,981	  	(4,771	)
	 	  	
	  	
	  	
	  	
	  	
	

	 	  	9,717	  	39,823	  	49,540	  	51,785	  	(2,245	)
	 	  	
	  	
	  	
	  	
	  	
	

	 Income on derivative financial instruments
	  	 	  	 	  	88,885	  	14,661	  	74,224	 
	 Other income
	  	 	  	 	  	16,113	  	11,320	  	4,793	 
	 	  	 	  	 	  	
	  	
	  	
	

	 	  	 	  	 	  	154,538	  	77,766	  	76,772	 
	 	  	 	  	 	  	
	  	
	  	
	

  

	    	Other financial income includes euro 28,218 thousand of interest and fees on receivables from subsidiaries and affiliated companies, almost all of which refers to accrued
interest on current accounts for cash management purposes, mainly with: 

  

	 	•	 	Olivetti Tecnost (euro 9,017 thousand); 

  

	 	•	 	IT Telecom (euro 5,909 thousand); 

  

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	 	•	 	Stet Hellas (euro 2,560 thousand) relating to income on long-term receivables described in the note on long-term investments; 

  

	 	•	 	Telecom Italia Finance (euro 2,039 thousand, financial fees); 

  

	 	•	 	TIM (euro 1,326 thousand). 

  

	    	Interest and other financial expense can be analyzed as follows: 

  

												
	 	  	9 months to 9/30/2004

	  	9 months to
9/30/2003

	  	Change

	 
	 (in thousands of euro)

	  	Medium/long
-term debt

	  	Short-term
borrowings

	  	Total

	  	  
	 Interest and fees paid to subsidiaries
	  	424,495	  	141,801	  	566,296	  	657,199	  	(90,903	)
	 Interest and fees paid to affiliated

 companies
	  	—	  	167	  	167	  	254	  	(87	)
	Interest and fees paid to others and miscellaneous expenses	  	 	  	 	  	 	  	 	  	 	 
	•  on due to banks	  	14,191	  	6,569	  	20,760	  	90,060	  	(69,300	)
	 •  on debentures
	  	596,799	  	—	  	596,799	  	1,093,328	  	(496,529	)
	 •  on due to other lenders
	  	8,315	  	11,013	  	19,328	  	24,366	  	(5,038	)
	 •  on other items
	  	 	  	 	  	 	  	 	  	 	 
	 -  Accrued portion of issue discounts and similar charges on loans
	  	—	  	41,942	  	41,942	  	45,852	  	(3,910	)
	 -  Provision to the allowance for doubtful accounts for the “Deferred Purchasing Price”
	  	—	  	9,755	  	9,755	  	19,993	  	(10,238	)
	 -  Expenses on derivative financial instruments
	  	—	  	153,886	  	153,886	  	44,008	  	109,878	 
	 -  Other financial expense
	  	14,417	  	24,117	  	38,534	  	67,213	  	(28,679	)
	 	  	
	  	
	  	
	  	
	  	
	

	 Total
	  	1,058,217	  	389,250	  	1,447,467	  	2,042,273	  	(594,806	)
	 	  	
	  	
	  	
	  	
	  	
	

  

	    	Interest on debentures (euro 596,799 thousand) includes interest by Telecom Italia Finance (euro 296,483 thousand) for bonds subscribed to by this company and described in a
specific note. 

  

	    	Interest and other financial expense includes euro 566,293 thousand of interest and fees on payables to subsidiaries and affiliated companies principally with regard to:

  

	 	•	 	Telecom Italia Finance (euro 430,440 thousand), Olivetti Holding B.V. (euro 43,273 thousand), Telecom Italia Capital (euro 55,389 thousand) and TIM (euro 29,693 thousand) –
mainly for interest expenses accrued on current accounts for cash management purposes. 

  
 Foreign exchange gains and losses include the following: 
  

											
	 (in thousands of euro)

	 	 	  	9 months to 9/30/2004

	 	 	9 months to 9/30/2003

	  	Change

	 
	 Foreign exchange gains
	 	 	  	 	 	 	 	  	 	 
	 .  from amounts realized
	 	 	  	1,966	 	 	11,441	  	(9,475	)
	 .  from adjustments
	 	 	  	3,693	 	 	6,520	  	(2,827	)
	 	 	 	  	
	
	 	
	  	
	

	 Total
	 	 (A)
	  	5,659	 	 	17,961	  	(12,302	)
	 	 	 	  	
	
	 	
	  	
	

	 Foreign exchange losses
	 	 	  	 	 	 	 	  	 	 
	 .  from amounts realized
	 	 	  	2,661	 	 	3,013	  	(352	)
	 .  from adjustments
	 	 	  	3,425	 	 	10,052	  	(6,627	)
	 	 	 	  	
	
	 	
	  	
	

	 Total
	 	 (B)
	  	6,086	 	 	13,065	  	(6,979	)
	 	 	
	  	
	
	 	
	  	
	

	 Total
	 	 (A-B)
	  	(427	)	 	4,896	  	(5,323	)
	 	 	
	  	
	
	 	
	  	
	

  
  

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	VALUE ADJUSTMENTS TO FINANCIAL ASSETS	  	euro 5,317 thousand

 (- euro 237,067 thousand in the first nine months of 2003) 
  
 Value adjustments to financial assets include upward adjustments (euro 60,810 thousand) and
writedowns of equity investments (euro 55,409 thousand) and writedowns of securities, other than equity investments, included in current assets (euro 84 thousand). 
  
 Upward adjustments relate to the writeback of value regarding the investment in Olivetti Tecnost (euro 60,000 thousand) carried out when the
underlying assumption which gave rise to the writedowns in prior years no longer applied. 
  
 The writedowns of equity investments regarded the following companies: 
  

															
	 	 	 	 	 	9 months to 9/30/2004

	 	9 months to 9/30/2003

	 	Change

	 
	 (in thousands of euro)

	 	 	 	 	Writedowns
to carrying
values

	 	Writedowns
recorded in the
reserve for
losses of
subsidiaries
and affiliates

	 	Total

	 	 
	 Included in long-term investments
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  Netesi
	 	 	 	 	79	 	—	 	79	 	1,950	 	(1,871	)
	 .  EPIClink
	 	 	 	 	3,729	 	—	 	3,729	 	—	 	3,729	 
	 .  Latin American Nautilus
	 	 	 	 	7,093	 	—	 	7,093	 	12,506	 	(5,413	)
	 .  TILAB S.A.
	 	 	 	 	48	 	277	 	325	 	7,062	 	(6,737	)
	 .  IT Telecom
	 	 	 	 	25,659	 	—	 	25,659	 	101,227	 	(75,568	)
	 .  Sky Italia
	 	 	 	 	—	 	—	 	—	 	64,248	 	(64,248	)
	 .  Telecom Italia Learning Services
	 	 	 	 	2,521	 	10,036	 	12,557	 	32,631	 	(20,074	)
	 .  Olivetti Tecnost
	 	 	 	 	—	 	—	 	—	 	16,571	 	(16,571	)
	 .  Olivetti International
	 	 	 	 	—	 	—	 	—	 	33,200	 	(33,200	)
	 .  Trainet
	 	 	 	 	—	 	1,000	 	1,000	 	900	 	100	 
	 .  Olivetti Finance
	 	 	 	 	—	 	—	 	—	 	3,611	 	(3,611	)
	 .  Telecom Italia America Latina
	 	 	 	 	—	 	—	 	—	 	1,533	 	(1,533	)
	 .  Edotel
	 	 	 	 	—	 	—	 	—	 	6,759	 	(6,759	)
	 .  Loquendo
	 	 	 	 	329	 	—	 	329	 	—	 	329	 
	 .  Siosistemi
	 	 	 	 	—	 	—	 	—	 	1,405	 	(1,405	)
	 .  LI.SIT
	 	 	 	 	4,338	 	—	 	4,338	 	—	 	4,338	 
	 .  PAR.FIN
	 	 	 	 	255	 	—	 	255	 	—	 	255	 
	 .  Other companies
	 	 	 	 	12	 	—	 	12	 	8,022	 	(8,010	)
	 	 	
	
	 	
	 	
	 	
	 	
	 	
	

	 	 	(A	)	 	44,063	 	11,313	 	55,376	 	291,625	 	(236,249	)
	 	 	
	
	 	
	 	
	 	
	 	
	 	
	

	 Included in short-term financial assets
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  TIM
	 	 	 	 	—	 	—	 	—	 	12,031	 	(12,031	)
	 .  Telecom Italia Media
	 	 	 	 	20	 	—	 	20	 	33	 	(13	)
	 .  Portal Software
	 	 	 	 	13	 	—	 	13	 	—	 	13	 
	 .  Biesse
	 	 	 	 	—	 	—	 	—	 	121	 	(121	)
	 .  Other companies
	 	 	 	 	—	 	—	 	—	 	3	 	(3	)
	 	 	
	
	 	
	 	
	 	
	 	
	 	
	

	 	 	(B	)	 	33	 	—	 	33	 	12,188	 	(12,155	)
	 	 	
	
	 	
	 	
	 	
	 	
	 	
	

	 Total
	 	(A+B	)	 	44,096	 	11,313	 	55,409	 	303,813	 	(248,404	)
	 	 	
	
	 	
	 	
	 	
	 	
	 	
	

  

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	EXTRAORDINARY INCOME AND EXPENSE	 	- euro 320,742 thousand
	(- euro 274,826 thousand in the first nine months of 2003)

  
 Details of the balance are as follows:

  

													
	 (in thousands of euro)

	  	 	 	 	9 months to 9/30/2004

	 	 	9 months to 9/30/2003

	 	 	Change

	 
	 Income
	  	 	 	 	 	 	 	 	 	 	 	 
	 . gains on disposals
	  	 	 	 	10,523	 	 	32,969	 	 	(22,446	)
	 . elimination of tax interference
	  	 	 	 	932	 	 	—	 	 	932	 
	 . release of liability and reserve for risks for grants under Law 488/1998
	  	 	 	 	—	 	 	921,872	 	 	(921,872	)
	 . recoveries under Law 58/1992 and damage compensation
	  	 	 	 	7,725	 	 	4,709	 	 	3,016	 
	 . other
	  	 	 	 	24,420	 	 	30,009	 	 	(5,589	)
	 	  	
	
	 	
	
	 	
	
	 	
	

	 	  	(A	)	 	43,600	 	 	989,559	 	 	(945,959	)
	 	  	
	
	 	
	
	 	
	
	 	
	

	 Expense
	  	 	 	 	 	 	 	 	 	 	 	 
	 . expenses under Law 58/1992
	  	 	 	 	123,075	 	 	122,490	 	 	585	 
	 . losses on sale of Seat Pagine Gialle
	  	 	 	 	—	 	 	347,703	 	 	(347,703	)
	 . loss on sale of buildings
	  	 	 	 	—	 	 	40,096	 	 	(40,096	)
	 . provisions and writedowns of equity investments
	  	 	 	 	112,416	 	 	146,139	 	 	(33,723	)
	 . restructuring costs (employee reduction plans, territorial and other layoffs, CIGS)
	  	 	 	 	59,572	 	 	75,645	 	 	(16,073	)
	 . prior period expenses for telephone cards
	  	 	 	 	—	 	 	56,434	 	 	(56,434	)
	 . expenses on Olivetti/Telecom Italia merger and sale of Nuova Seat
	  	 	 	 	—	 	 	173,037	 	 	(173,037	)
	 . expenses for Pagine Italia settlement
	  	 	 	 	—	 	 	55,000	 	 	(55,000	)
	 . prior years’ receivables writeoffs
	  	 	 	 	—	 	 	182,992	 	 	(182,992	)
	 . expenses for damages by third parties
	  	 	 	 	14,142	 	 	13,022	 	 	1,120	 
	 . expenses and provisions for corporate transactions
	  	 	 	 	6,348	 	 	6,000	 	 	348	 
	 . prior years’ taxes
	  	 	 	 	1,271	 	 	4,698	 	 	(3,427	)
	 . other
	  	 	 	 	47,518	 	 	41,129	 	 	6,389	 
	 	  	
	
	 	
	
	 	
	
	 	
	

	 	  	(B	)	 	364,342	 	 	1,264,385	 	 	(900,043	)
	 	  	
	
	 	
	
	 	
	
	 	
	

	 Total
	  	(A-B	)	 	(320,742	)	 	(274,826	)	 	(45,916	)
	 	  	
	
	 	
	
	 	
	
	 	
	

  
 Extraordinary income, equal to euro
43,600 thousand, relates to the following: 
  

	 	•	 	gains (euro 10,523 thousand) realized principally on the sale of a part of Pirelli Real Estate shares (euro 9,044 thousand) and the sale of the “Document Management”
business segment (euro 1,000 thousand); 

  

	 	•	 	elimination of prior period tax interference (euro 932 thousand), pursuant to Legislative Decree No. 6 dated January 17, 2003, as amended, introducing the reform of corporate law,
following accelerated depreciation taken in prior years by the acquiring company Olivetti as allowed by tax laws; 

  

	 	•	 	recovery of expenses from companies of the Group relating to Law 58/1992 (euro 1,540 thousand) and from third parties for damage compensation (euro 6,185 thousand);

  

	 	•	 	other prior period income of euro (euro 24,420 thousand). 

  
 The reduction of euro 945,959 thousand, compared to the first nine months of 2003, is principally attributable to prior period income (euro 921,872 thousand) booked in
2003 as a result of the elimination of the telecommunications license fee and lower gains on the sale of fixed assets and long-term investments. 
  
 Extraordinary expense, equal to euro 364,342 thousand, comprises the following: 
  

	 	•	 	expenses under Law 58/1992 (euro 123,075 thousand) to cover employees under the former fund “Telephone Employees Pension Fund” (FPT), which became part of the general
“Employees Pension Fund”, in accordance with the 2000 Finance Bill; 

  

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	 	•	 	provisions on the equity investment in Telecom Italia Media (euro 112,416 thousand); 

  

	 	•	 	expenses (euro 59,572 thousand) for corporate restructuring relating to employee cutbacks and layoffs; 

  

	 	•	 	expenses for damages sustained to the assets as a result of natural disasters or caused by third parties (euro 14,142 thousand); 

  

	 	•	 	expenses (euro 3,848 thousand) following the guarantees connected with corporate transactions and the provisions associated with the sale of the “Document Management”
business segment (euro 2,500 thousand); 

  

	 	•	 	prior period taxes (euro 1,271 thousand); 

  

	 	•	 	other prior period expenses (euro 47,518 thousand). 

  
 The reduction of euro 900,043 thousand, compared to the first nine months of 2003, is essentially due to the posting of the following items in 2003:

  

	 	•	 	loss on the sale of Nuova Seat Pagine Gialle (euro 347,703 thousand); 

  

	 	•	 	expenses connected with the Olivetti - Telecom Italia merger and the sale of the company Nuova Seat Pagine Gialle (euro 173,037 thousand); 

  

	 	•	 	prior period expenses relating to both the writeoff of accounts receivables balances in prior years (euro 182,992 thousand) and the adjustment of estimates regarding the value of
prepaid telephone cards (euro 56,434 thousand); 

  

	 	•	 	writedowns of the investments in EPIClink (euro 105,991 thousand) and Loquendo (euro 10,148 thousand) and provisions for guarantees provided upon the sale of the satellite consortia
(euro 30,000 thousand); 

  

	 	•	 	expenses relating to the settlement with Pagine Italia (euro 55,000 thousand). 

  

			
	 Income taxes for the period, current and deferred
	 	euro 770,155 thousand

  
 Income taxes for the period totaling
euro 770,155 thousand consist of current income taxes calculated on the basis of the best possible estimate using available information and on a reasonable projection of performance for the year up to the end of the tax period. 
  
 Income taxes increased by euro 1,404,236 thousand compared to the corresponding period of
2003 which, as stated, had benefited from the posting of deferred tax credits (euro 1,286,000 thousand) which became recoverable thanks to the Olivetti – Telecom Italia merger. 
  
 * * 
  
 The following Annexes numbered 1 to 6 are an integral part of these notes. 
  

 48 

Table of Contents

 ANNEXES 
  
 ANNEX 1 
  
 LONG-TERM INVESTMENTS AND ADVANCES ON FUTURE CAPITAL CONTRIBUTIONS OF SUBSIDIARIES AND AFFILIATED COMPANIES 
  

																																			
	 	 	12/31/2003

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	9/30/2004

	 (in thousands of euro)

	 	Cost

	 	 Upward
 adjust-
ments

	 	Writedowns

	 	 	 Carrying
 value

	 	 Purchases /
 Subscrip-
tions

	 	Reclassi-
fications/

	 	 	Disposals(1)

	 	 	Writedowns(-) /
Writebacks of
value(+)

	 	 	Capital
Replenish-
ments

	 	Total

	 	 	Cost

	 	Upward
adjust-
ments

	 	Writedowns

	 	 	Carrying
value

	 Equity investments in subsidiaries
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ATESIA
	 	3,707	 	—	 	—	 	 	3,707	 	 	 	(380	)	 	 	 	 	 	 	 	 	 	(380	)	 	3,327	 	—	 	—	 	 	3,327
	 Consorzio Energia Gruppo Telecom Italia
	 	5	 	—	 	—	 	 	5	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	5	 	—	 	—	 	 	5
	 DOMUS ACCADEMY
	 	2,400	 	—	 	—	 	 	2,400	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	2,400	 	—	 	—	 	 	2,400
	 EDOTEL
	 	9,056	 	—	 	(6,914	)	 	2,142	 	1,459	 	1,200	 	 	 	 	 	46	 	 	 	 	2,705	 	 	4,847	 	—	 	 	 	 	4,847
	 EMSA SERVIZI
	 	5,000	 	—	 	—	 	 	5,000	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	5,000	 	—	 	—	 	 	5,000
	 EPIClink
	 	450	 	—	 	(450	)	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	450	 	—	 	(450	)	 	—
	 FINSIEL
	 	364,680	 	—	 	(115,000	)	 	249,680	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	364,680	 	—	 	(115,000	)	 	249,680
	 I.T. TELECOM
	 	171,521	 	—	 	(114,871	)	 	56,650	 	 	 	110,440	 	 	 	 	 	(25,659	)	 	 	 	84,781	 	 	167,090	 	—	 	(25,659	)	 	141,431
	 INTELCOM SAN MARINO
	 	—	 	—	 	—	 	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	—	 	—	 	 	—
	 IRIDIUM ITALIA (in liquidation)
	 	775	 	—	 	(775	)	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	775	 	—	 	(775	)	 	—
	 LATIN AMERICAN NAUTILUS S.A.
	 	5,241	 	—	 	(3,268	)	 	1,973	 	40,801	 	 	 	 	 	 	 	(7,093	)	 	 	 	33,708	 	 	46,042	 	—	 	(10,361	)	 	35,681
	 LOQUENDO
	 	7,820	 	—	 	(7,820	)	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	7,820	 	—	 	(7,820	)	 	—
	 MED-1 Submarine Cables
	 	5	 	—	 	—	 	 	5	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	5	 	—	 	—	 	 	5
	 MEDITERRANEAN NAUTILUS S.A.
	 	14,352	 	—	 	—	 	 	14,352	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	14,352	 	—	 	—	 	 	14,352
	 NETESI
	 	14,745	 	—	 	(14,745	)	 	—	 	 	 	435	 	 	 	 	 	(79	)	 	 	 	356	 	 	435	 	—	 	(79	)	 	356
	 OFI CONSULTING (ex-OLIVETTI FINANZIARIA
	 	 	 	 	 	 	 	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	 	 	 	 	 	 	 	 
	 INDUSTRIALE
	 	78,940	 	—	 	(43,831	)	 	35,109	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	78,940	 	—	 	(43,831	)	 	35,109
	 OLIVETTI GESTIONI IVREA (ex-THEMA)
	 	7,516	 	—	 	—	 	 	7,516	 	 	 	 	 	 	(4,849	)	 	 	 	 	 	 	(4,849	)	 	2,667	 	—	 	—	 	 	2,667
	 OLIVETTI INTERNATIONAL
	 	442,740	 	—	 	(162,177	)	 	280,563	 	 	 	(280,563	)	 	 	 	 	 	 	 	 	 	(280,563	)	 	—	 	—	 	—	 	 	—
	 OLIVETTI MULTISERVICES
	 	41,042	 	—	 	(639	)	 	40,403	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	41,042	 	—	 	(639	)	 	40,403
	 OLIVETTI TECNOST
	 	78,000	 	—	 	(27,749	)	 	50,251	 	 	 	 	 	 	 	 	 	60,000	 	 	 	 	60,000	 	 	110,251	 	—	 	—	 	 	110,251
	 PATH.NET
	 	25,820	 	—	 	—	 	 	25,820	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	25,820	 	—	 	—	 	 	25,820
	 SAIAT
	 	34,743	 	11,616	 	—	 	 	46,359	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	34,743	 	11,616	 	—	 	 	46,359
	 TECNO SERVIZI MOBILI
	 	53	 	—	 	—	 	 	53	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	53	 	—	 	—	 	 	53
	 TELECOM ITALIA AMERICA LATINA
	 	13,220	 	—	 	(13,220	)	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	13,220	 	—	 	(13,220	)	 	—
	 TELECOM ITALIA AUDIT (ex-IN.TEL.AUDIT)
	 	1,750	 	—	 	—	 	 	1,750	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	1,750	 	—	 	—	 	 	1,750
	 TELECOM ITALIA CAPITAL SA
	 	2,388	 	—	 	—	 	 	2,388	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	2,388	 	—	 	—	 	 	2,388
	 TELECOM ITALIA DEUTSCHLAND HOLDING
	 	243,201	 	—	 	—	 	 	243,201	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	243,201	 	—	 	—	 	 	243,201
	 TELECOM ITALIA INTERNATIONAL
	 	7,851,463	 	—	 	(3,545,848	)	 	4,305,615	 	 	 	 	 	 	(1,800,000	)	 	 	 	 	 	 	(1,800,000	)	 	4,629,735	 	—	 	(2,124,120	)	 	2,505,615
	 TELECOM ITALIA LEARNING SERVICES
	 	1,560	 	—	 	(1,560	)	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	1,560	 	—	 	(1,560	)	 	—
	 TELECOM ITALIA MEDIA
	 	1,974,913	 	—	 	(1,227,787	)	 	747,126	 	 	 	 	 	 	 	 	 	(112,416	)	 	 	 	(112,416	)	 	1,974,913	 	—	 	(1,340,203	)	 	634,710
	 TELECOM ITALIA MOBILE
	 	27,182,687	 	84,144	 	—	 	 	27,266,831	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	27,182,687	 	84,144	 	—	 	 	27,266,831
	 TELECONTACTCENTER
	 	110	 	—	 	—	 	 	110	 	 	 	380	 	 	 	 	 	 	 	 	 	 	380	 	 	490	 	—	 	—	 	 	490
	 TELENERGIA
	 	40	 	—	 	—	 	 	40	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	40	 	—	 	—	 	 	40
	 TELSY
	 	14,512	 	—	 	—	 	 	14,512	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	14,512	 	—	 	—	 	 	14,512
	 TI FINANCE
	 	607,507	 	38,057	 	(645,564	)	 	—	 	 	 	280,563	 	 	 	 	 	 	 	 	 	 	280,563	 	 	888,070	 	38,057	 	(645,564	)	 	280,563
	 TI LAB GENERAL PARTNER
	 	33	 	—	 	(12	)	 	21	 	 	 	 	 	 	(9	)	 	(12	)	 	 	 	(21	)	 	—	 	—	 	—	 	 	—
	 TI LAB SA
	 	131	 	—	 	(83	)	 	48	 	 	 	 	 	 	 	 	 	(48	)	 	 	 	(48	)	 	131	 	—	 	(131	)	 	—
	 TI SPARKLE
	 	784,765	 	—	 	—	 	 	784,765	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	784,765	 	—	 	—	 	 	784,765
	 TRAINET (in liquidation)
	 	674	 	—	 	(674	)	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	674	 	—	 	(674	)	 	—
	 	 	
	 	
	 	
	
	 	
	 	
	 	
	
	 	
	
	 	
	
	 	
	 	
	
	 	
	 	
	 	
	
	 	

	 	 	39,987,565	 	133,817	 	(5,932,987	)	 	34,188,395	 	42,260	 	112,075	 	 	(1,804,858	)	 	(85,261	)	 	—	 	(1,735,784	)	 	36,648,880	 	133,817	 	(4,330,086	)	 	32,452,611
	 	 	
	 	
	 	
	
	 	
	 	
	 	
	
	 	
	
	 	
	
	 	
	 	
	
	 	
	 	
	 	
	
	 	

 (1) 

																		
	 	  	OLIVETTI
GESTIONI
IVREA

	  	I.T. TELECOM

	 	 	NETESI

	 	 	TILAB GP (in
liquidation)

	 	 	EDOTEL

	 	  	TELECOM ITALIA
INTERNATIONAL

	 
	 Cost
	  	4,849	  	114,871	 	 	15,960	 	 	33	 	 	6,868	 	  	3,221,727	 
	 Writedowns
	  	 	  	(114,871	)	 	(15,960	)	 	(24	)	 	(6,868	)	  	(1,421,727	)
	 	  	
	  	
	
	 	
	
	 	
	
	 	
	
	  	
	

	 	  	4,849	  	—	 	 	—	 	 	9	 	 	—	 	  	1,800,000	 
	 	  	
	  	
	
	 	
	
	 	
	
	 	
	
	  	
	

  

 49 

Table of Contents

																																			
	 	  	12/31/2003

	  	 	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	9/30/2004

	 (in thousands of euro)

	  	Cost

	  	 Upward
 adjust-
ments

	  	Write-
downs

	 	 	 Carrying
 value

	  	 Purchases /
Subscrip-
 tions

	  	Reclassi-
fications/

	 	 	Disposals
(1)

	 	 	 Writedowns(-) /
Writebacks
 of value(+)

	 	 	 Capital
Replenish-
 ments

	  	Total

	 	 	Cost

	  	 Upward
adjust-
 ments

	  	Write-
downs

	 	 	Carrying
value

	 Equity investments in affiliated companies
	  	 	  	 	  	 	 	 	 	  	 	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	  	 	  	 	 	 	 
	 AREE URBANE
	  	5,589	  	—	  	—	 	 	5,589	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	5,589	  	—	  	—	 	 	5,589
	 ASSCOM INSURANCE BROKERS
	  	20	  	—	  	—	 	 	20	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	20	  	—	  	—	 	 	20
	 CARTESIA
	  	50	  	—	  	—	 	 	50	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	50	  	—	  	—	 	 	50
	 Consorzio ARS (in liquidation)
	  	—	  	—	  	—	 	 	—	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	—	  	—	  	—	 	 	—
	 Consorzio DREAM FACTORY
	  	89	  	—	  	(89	)	 	—	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	89	  	—	  	(89	)	 	—
	 Consorzio EO (in liquidation)
	  	16	  	—	  	—	 	 	16	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	16	  	—	  	—	 	 	16
	 Consorzio LABORATORIO DELLA CONOSCENZA
	  	14	  	—	  	(4	)	 	10	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	14	  	—	  	(4	)	 	10
	 Consorzio NAVIGATE CONSORTIUM
	  	300	  	—	  	—	 	 	300	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	300	  	—	  	—	 	 	300
	 Consorzio S.I.A.R.C. (in liquidation)
	  	1	  	—	  	—	 	 	1	  	1	  	(1	)	 	 	 	 	 	 	 	 	  	—	 	 	1	  	—	  	—	 	 	1
	 Consorzio TELCAL
	  	211	  	—	  	—	 	 	211	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	211	  	—	  	—	 	 	211
	 Consorzio TELEMED (in liquidation)
	  	10	  	—	  	—	 	 	10	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	10	  	—	  	—	 	 	10
	 EUROFLY SERVICE
	  	—	  	—	  	—	 	 	—	  	 	  	2,035	 	 	 	 	 	 	 	 	 	  	2,035	 	 	2,312	  	—	  	(277	)	 	2,035
	 IM.SER
	  	399	  	—	  	—	 	 	399	  	 	  	(168	)	 	 	 	 	 	 	 	126	  	(42	)	 	357	  	—	  	—	 	 	357
	 IN.VA.
	  	206	  	—	  	(45	)	 	161	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	206	  	—	  	(45	)	 	161
	 LI.SIT.
	  	37,400	  	—	  	(3,258	)	 	34,142	  	 	  	 	 	 	 	 	 	(4,338	)	 	 	  	(4,338	)	 	37,400	  	—	  	(7,596	)	 	29,804
	 LOCALPORT
	  	145	  	—	  	(145	)	 	—	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	—	  	—	  	—	 	 	—
	 MIRROR INTERNATIONAL HOLDING
	  	124,689	  	—	  	(70,000	)	 	54,689	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	124,689	  	—	  	(70,000	)	 	54,689
	 NORDCOM
	  	29,045	  	—	  	(26,902	)	 	2,143	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	29,045	  	—	  	(26,902	)	 	2,143
	 OCN TRADING (in liquidation)
	  	1	  	—	  	—	 	 	1	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	1	  	—	  	—	 	 	1
	 SIEMENS INFORMATICA
	  	2,417	  	1,424	  	—	 	 	3,841	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	2,417	  	1,424	  	—	 	 	3,841
	 SINOPIA INFORMATICA (in bankruptcy)
	  	—	  	—	  	—	 	 	—	  	 	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	—	  	—	  	—	 	 	—
	 SIOSISTEMI
	  	3,305	  	—	  	(1,705	)	 	1,600	  	 	  	 	 	 	(1,600	)	 	 	 	 	 	  	(1,600	)	 	—	  	—	  	—	 	 	—
	 SITEBA
	  	—	  	—	  	—	 	 	—	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	—	  	—	  	—	 	 	—
	 SKY ITALIA (ex-Stream)
	  	282,358	  	—	  	(238,279	)	 	44,079	  	19,315	  	24,465	 	 	(87,859	)	 	 	 	 	 	  	(44,079	)	 	—	  	—	  	—	 	 	—
	 SOFORA TELECOMUNICACIONES S.A.
	  	1	  	—	  	—	 	 	1	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	1	  	—	  	—	 	 	1
	 TELBIOS
	  	3,375	  	—	  	—	 	 	3,375	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	3,375	  	—	  	—	 	 	3,375
	 TELEGONO
	  	413	  	—	  	—	 	 	413	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	413	  	—	  	—	 	 	413
	 TIGLIO I
	  	227,273	  	—	  	—	 	 	227,273	  	 	  	 	 	 	(47,985	)	 	 	 	 	 	  	(47,985	)	 	179,288	  	—	  	—	 	 	179,288
	 TIGLIO II
	  	72,070	  	—	  	—	 	 	72,070	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	72,070	  	—	  	—	 	 	72,070
	 VOICE MAIL INTERNATIONAL (in liquidation)
	  	3,801	  	—	  	(3,801	)	 	—	  	 	  	 	 	 	 	 	 	 	 	 	 	  	—	 	 	3,801	  	—	  	(3,801	)	 	—
	 	  	
	  	
	  	
	
	 	
	  	
	  	
	
	 	
	
	 	
	
	 	
	  	
	
	 	
	  	
	  	
	
	 	

	 	  	793,198	  	1,424	  	(344,228	)	 	450,394	  	19,316	  	26,331	 	 	(137,444	)	 	(4,338	)	 	126	  	(96,009	)	 	461,675	  	1,424	  	(108,714	)	 	354,385
	 	  	
	  	
	  	
	
	 	
	  	
	  	
	
	 	
	
	 	
	
	 	
	  	
	
	 	
	  	
	  	
	
	 	

 (1) 
  

																		
	 	  	SIOSISTEMI

	 	 	LOCALPORT

	 	 	Cons. S.I.A.R.C.

	 	 	IM.SER

	 	 	TIGLIO I

	  	Sky
Italia

	 
	 Cost
	  	3,305	 	 	145	 	 	1	 	 	168	 	 	47,985	  	345,453	 
	 Writedowns
	  	(1,705	)	 	(145	)	 	(1	)	 	(168	)	 	—	  	(257,594	)
	 	  	
	
	 	
	
	 	
	
	 	
	
	 	
	  	
	

	 	  	1,600	 	 	—	 	 	—	 	 	—	 	 	47,985	  	87,859	 
	 	  	
	
	 	
	
	 	
	
	 	
	
	 	
	  	
	

  

 50 

Table of Contents

																																			
	 	 	12/31/2003

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	9/30/2004

	 (in thousands of euro)

	 	Cost

	 	 Upward
 adjust-
ments

	 	Writedowns

	 	 	Carrying
value

	 	Purchases /
Subscriptions

	 	Reclassi-
fications/

	 	 	Disposals(1)

	 	 	 Writedowns(-) /
 Writebacks
 of value(+)

	 	 	Capital
Replenishments

	 	Total

	 	 	Cost

	 	Upward
adjustments

	 	Writedowns

	 	 	Carrying
value

	 Equity investments in other companies
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ANCITEL
	 	93	 	—	 	—	 	 	93	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	93	 	—	 	—	 	 	93
	 AZIENDA ESERCIZIO GAS
	 	1	 	—	 	—	 	 	1	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	1	 	—	 	—	 	 	1
	 BIOINDUSTRY PARK DEL CANAVESE
	 	52	 	—	 	—	 	 	52	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	52	 	—	 	—	 	 	52
	 CAF ITALIA 2000
	 	—	 	—	 	—	 	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	—	 	 	 	 	 	 	 
	 CERM L’AQUILA
	 	266	 	—	 	—	 	 	266	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	266	 	—	 	—	 	 	266
	 CONSORTIUM
	 	19,527	 	—	 	—	 	 	19,527	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	19,527	 	—	 	—	 	 	19,527
	 Consorzio ABI LAB
	 	—	 	—	 	—	 	 	—	 	1	 	 	 	 	 	 	 	 	 	 	 	 	1	 	 	1	 	—	 	—	 	 	1
	 Consorzio C.I. MARK
	 	3	 	—	 	—	 	 	3	 	 	 	(3	)	 	 	 	 	 	 	 	 	 	(3	)	 	—	 	 	 	 	 	 	 
	 Consorzio CAISI (in liquidation)
	 	—	 	—	 	—	 	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	—	 	 	 	 	 	 	 
	 Consorzio CEFRIEL
	 	36	 	—	 	—	 	 	36	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	36	 	—	 	—	 	 	36
	 Consorzio CIES
	 	26	 	—	 	—	 	 	26	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	26	 	—	 	—	 	 	26
	 Consorzio CO.TIM (in liquidation)
	 	4	 	—	 	(2	)	 	2	 	 	 	(2	)	 	 	 	 	 	 	 	 	 	(2	)	 	—	 	 	 	 	 	 	 
	 Consorzio COREP
	 	10	 	—	 	—	 	 	10	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	10	 	—	 	—	 	 	10
	 Consorzio CRATI
	 	—	 	—	 	—	 	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	—	 	 	 	 	 	 	 
	 Consorzio BIOINGEGNERIA INFORMATICA MEDICA
	 	15	 	—	 	—	 	 	15	 	 	 	(15	)	 	 	 	 	 	 	 	 	 	(15	)	 	—	 	 	 	 	 	 	 
	 Consorzio DISTRETTO AUDIOVISIVO E dell’ICT
	 	—	 	—	 	—	 	 	—	 	5	 	 	 	 	 	 	 	 	 	 	 	 	5	 	 	5	 	—	 	—	 	 	5
	 Consorzio DISTRETTO TECNOLOGICO CANAVESE
	 	117	 	—	 	—	 	 	117	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	117	 	—	 	—	 	 	117
	 Consorzio ELIS
	 	3	 	—	 	—	 	 	3	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	3	 	—	 	—	 	 	3
	 Consorzio ENERGIA FIERA DISTRICT
	 	2	 	—	 	—	 	 	2	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	2	 	—	 	—	 	 	2
	 Consorzio GE.SE.CE.DI.
	 	73	 	—	 	—	 	 	73	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	73	 	—	 	—	 	 	73
	 Consorzio MULTIMEDIA
	 	—	 	—	 	—	 	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	—	 	 	 	 	 	 	 
	 Consorzio Nazionale Imballaggi - CONAI
	 	1	 	—	 	—	 	 	1	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	1	 	—	 	—	 	 	1
	 Consorzio NETTUNO
	 	41	 	—	 	—	 	 	41	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	41	 	—	 	—	 	 	41
	 Consorzio QUALITAL
	 	—	 	—	 	—	 	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	—	 	 	 	 	 	 	 
	 Consorzio TECHNAPOLI
	 	206	 	—	 	—	 	 	206	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	206	 	—	 	—	 	 	206
	 Consorzio TECNEDIN (in liquidation)
	 	—	 	—	 	—	 	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	—	 	 	 	 	 	 	 
	 Consorzio TOPIX
	 	100	 	—	 	—	 	 	100	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	100	 	—	 	—	 	 	100
	 DIOMEDEA (in liquidation)
	 	6	 	—	 	—	 	 	6	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	6	 	—	 	—	 	 	6
	 EDINDUSTRIA
	 	44	 	—	 	(6	)	 	38	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	44	 	—	 	(6	)	 	38
	 EMITTENTI TITOLI
	 	424	 	—	 	—	 	 	424	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	424	 	—	 	—	 	 	424
	 EUROFLY SERVICE
	 	978	 	—	 	(277	)	 	701	 	1,334	 	(2,035	)	 	 	 	 	 	 	 	 	 	(701	)	 	—	 	 	 	 	 	 	 
	 FIN. - PRIV.
	 	15,375	 	—	 	—	 	 	15,375	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	15,375	 	—	 	—	 	 	15,375
	 Fratelli ALINARI
	 	2,974	 	—	 	(2,273	)	 	701	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	2,974	 	—	 	(2,273	)	 	701
	 FUNIVIE DEL PICCOLO S. BERNARDO
	 	—	 	—	 	—	 	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	—	 	 	 	 	 	 	 
	 IDROENERGIA
	 	1	 	—	 	—	 	 	1	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	1	 	—	 	—	 	 	1
	 IMSER 60
	 	59	 	—	 	—	 	 	59	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	59	 	—	 	—	 	 	59
	 INSULA
	 	248	 	—	 	—	 	 	248	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	248	 	—	 	—	 	 	248
	 IST. ENCICLOPEDIA ITALIANA G. TRECCANI
	 	5,256	 	—	 	(1,424	)	 	3,832	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	5,256	 	—	 	(1,424	)	 	3,832
	 ISTUD
	 	6	 	—	 	—	 	 	6	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	6	 	—	 	—	 	 	6
	 ITALTEL CERM PALERMO
	 	217	 	—	 	(24	)	 	193	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	217	 	—	 	(24	)	 	193
	 ITALTEL CERM S. MARIA CAPUA VETERE
	 	255	 	—	 	(63	)	 	192	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	255	 	—	 	(63	)	 	192
	 MCC
	 	36,018	 	—	 	—	 	 	36,018	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	36,018	 	—	 	—	 	 	36,018
	 MEDIOBANCA
	 	113,119	 	—	 	—	 	 	113,119	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	113,119	 	—	 	—	 	 	113,119
	 MIX
	 	10	 	—	 	—	 	 	10	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	10	 	—	 	—	 	 	10
	 MONTEROSA
	 	20	 	—	 	—	 	 	20	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	20	 	—	 	—	 	 	20
	 PAR. FIN. (in bankruptcy)
	 	256	 	—	 	—	 	 	256	 	 	 	 	 	 	 	 	 	(256	)	 	 	 	(256	)	 	256	 	—	 	(256	)	 	—
	 PILA
	 	6	 	—	 	—	 	 	6	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	6	 	—	 	—	 	 	6
	 PIRELLI RE
	 	15,199	 	—	 	—	 	 	15,199	 	 	 	 	 	 	(15,199	)	 	 	 	 	 	 	(15,199	)	 	—	 	 	 	 	 	 	 
	 S.A.G.I.T.
	 	1	 	—	 	—	 	 	1	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	1	 	—	 	—	 	 	1
	 SIA
	 	11,278	 	—	 	—	 	 	11,278	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	11,278	 	—	 	—	 	 	11,278
	 SODETEL
	 	4	 	—	 	—	 	 	4	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	4	 	—	 	—	 	 	4
	 TELEPORTO ADRIATICO
	 	—	 	—	 	—	 	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	—	 	 	 	 	 	 	 
	 UBAE
	 	1,898	 	—	 	—	 	 	1,898	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	 	1,898	 	—	 	—	 	 	1,898
	 	 	
	 	
	 	
	
	 	
	 	
	 	
	
	 	
	
	 	
	
	 	
	 	
	
	 	
	 	
	 	
	
	 	

	 	 	224,228	 	—	 	(4,069	)	 	220,159	 	1,340	 	(2,055	)	 	(15,199	)	 	(256	)	 	—	 	(16,170	)	 	208,035	 	—	 	(4,046	)	 	203,989
	 	 	
	 	
	 	
	
	 	
	 	
	 	
	
	 	
	
	 	
	
	 	
	 	
	
	 	
	 	
	 	
	
	 	

	 Total equity investments
	 	41,004,991	 	135,241	 	(6,281,284	)	 	34,858,948	 	62,916	 	136,351	 	 	(1,957,501	)	 	(89,855	)	 	126	 	(1,847,963	)	 	37,318,590	 	135,241	 	(4,442,846	)	 	33,010,985
	 	 	
	 	
	 	
	
	 	
	 	
	 	
	
	 	
	
	 	
	
	 	
	 	
	
	 	
	 	
	 	
	
	 	

  

 51 

Table of Contents

 (1) 
  

												
	 	  	 Consorzio
 BIOINGEGNERIA
INFORMATICA

	 	 	Consorzio
C.I.MARK

	 	 	 Consorzio
COTIM
 (in liquidation)

	 	 	PIRELLI
RE

	 Cost
	  	15	 	 	3	 	 	4	 	 	15,199
	 Writedowns
	  	(15	)	 	(3	)	 	(4	)	 	—
	 	  	
	
	 	
	
	 	
	
	 	

	 	  	—	 	 	—	 	 	—	 	 	15,199
	 	  	
	
	 	
	
	 	
	
	 	

  
 Advances on future capital
contributions of subsidiaries and affiliated companies 
  

																																		
	 	 	12/31/2003

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	9/30/2004

	 (in thousands of euro)

	 	Cost

	 	 Upward
 adjust-
ments

	 	Writedowns

	 	 	Carrying
value

	 	 Purchases/
Subscrip-
 tions

	 	Reclassi-
fications/

	 	 	Disposals(1)

	 	 Writedowns(-) /
 Writebacks
 of value(+)

	 	 	Capital
Replenishments

	 	Total

	 	 	Cost

	 	 Upward
adjust-
 Ments

	 	Writedowns

	 	 	Carrying
value

	 EDOTEL
	 	720	 	 	 	 	 	 	720	 	1,500,480	 	(1,200	)	 	 	 	 	 	 	 	 	1,499,280	 	 	1,500,000	 	 	 	 	 	 	1,500,000
	 EPIClink
	 	14,029	 	—	 	(3,091	)	 	10,938	 	 	 	 	 	 	 	 	(3,729	)	 	 	 	(3,729	)	 	14,029	 	—	 	(6,820	)	 	7,209
	 IT TELECOM
	 	110,440	 	—	 	—	 	 	110,440	 	 	 	(110,440	)	 	 	 	 	 	 	 	 	(110,440	)	 	—	 	 	 	 	 	 	 
	 LOCALPORT
	 	—	 	—	 	—	 	 	—	 	61	 	(61	)	 	 	 	 	 	 	 	 	—	 	 	—	 	 	 	 	 	 	 
	 LOQUENDO
	 	3,270	 	—	 	(46	)	 	3,224	 	 	 	 	 	 	 	 	(328	)	 	 	 	(328	)	 	3,270	 	—	 	(374	)	 	2,896
	 NETESI
	 	1,650	 	—	 	(1,215	)	 	435	 	 	 	(435	)	 	 	 	 	 	 	 	 	(435	)	 	—	 	 	 	 	 	 	 
	 SKY ITALIA (ex-Stream)
	 	7,960	 	—	 	—	 	 	7,960	 	35,820	 	(43,780	)	 	 	 	 	 	 	 	 	(7,960	)	 	—	 	—	 	 	 	 	 
	 TELECOM ITALIA LEARNING SERVICES
	 	31,344	 	—	 	(28,823	)	 	2,521	 	 	 	 	 	 	 	 	(2,521	)	 	 	 	(2,521	)	 	31,344	 	—	 	(31,344	)	 	—
	 TELEGONO
	 	—	 	—	 	—	 	 	—	 	 	 	8,840	 	 	 	 	 	 	 	 	 	8,840	 	 	8,840	 	 	 	—	 	 	8,840
	 Total advances on future capital contributions of subsidiaries and affiliated companies
	 	169,413	 	—	 	(33,175	)	 	136,238	 	1,536,361	 	(147,076	)	 	—	 	(6,578	)	 	—	 	1,382,707	 	 	1,557,483	 	—	 	(38,538	)	 	1,518,945

 (1) 
  

				
	 	  	LOCALPORT

	 
	 Cost
	  	61	 
	 Writedowns
	  	(61	)
	 	  	
	

	 	  	—	 
	 	  	
	

  

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Table of Contents

 ANNEX 2 
  
 COMPARISON OF THE CARRYING VALUE OF LISTED SHARES WITH MARKET PRICES AT SEPTEMBER 30, 2004 
  

															
	 	 	Number of
shares held

	 	Market value

	 	Carrying value

	 	Difference

	 	 	 	Unit price
(in euro)

	 	Total
(thousands of euro)

	 	Unit price
(in euro)

	 	Total
(thousands of euro)

	 	Unit price
(in euro)

	  	Total
(thousands of euro)

	 	 	 	 	(A)	 	(B)	 	(A-B)
	 Long-term investments
	 	 	 	 	 	 	 	 	 	 	 	 	  	 
	 MEDIOBANCA
	 	14,118,350	 	10.77	 	152,055	 	8.01	 	113,119	 	2.76	  	38,936
	 	 	
	 	 	 	
	 	 	 	
	 	 	  	

	 TELECOM ITALIA MOBILE
	 	 	 	 	 	 	 	 	 	 	 	 	  	 
	 -  ordinary shares
	 	4,695,889,519	 	4.37	 	20,521,037	 	5.81	 	27,266,831	 	-1.44	  	-6,745,794
	 	 	
	 	 	 	
	 	 	 	
	 	 	  	

	 TELECOM ITALIA MEDIA
	 	 	 	 	 	 	 	 	 	 	 	 	  	 
	 -  ordinary shares
	 	1,859,629,225	 	0.27	 	500,240	 	0.34	 	634,710	 	-0.07	  	-134,470
	 	 	
	 	 	 	
	 	 	 	
	 	 	  	

	 Short-term financial assets
	 	 	 	 	 	 	 	 	 	 	 	 	  	 
	 TELECOM ITALIA MOBILE
	 	 	 	 	 	 	 	 	 	 	 	 	  	 
	 -  ordinary shares
	 	38,192,000	 	4.37	 	166,899	 	4.35	 	166,135	 	0.02	  	764
	 	 	
	 	 	 	
	 	 	 	
	 	 	  	

	 TELECOM ITALIA MEDIA
	 	 	 	 	 	 	 	 	 	 	 	 	  	 
	 -  saving shares
	 	164,997	 	0.21	 	35	 	0.21	 	35	 	—	  	—
	 	 	
	 	 	 	
	 	 	 	
	 	 	  	

	 PORTAL SOFTWARE INC.
	 	4,000	 	2.20	 	9	 	2.20	 	9	 	—	  	—
	 	 	
	 	 	 	
	 	 	 	
	 	 	  	

  

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 ANNEX 3 
  
 ACCOUNTS RECEIVABLE AND ACCRUED INCOME BY MATURITY AND TYPE 
 (in
thousands of euro) 
  

																	
	 	 	9/30/2004

	 	12/31/2003

	 	 	Amounts due

	 	Amounts due

	 	 	Within one
year

	 	From two
to five years

	 	Beyond
five years

	 	Total

	 	Within one
year

	 	From two
to five years

	 	Beyond
five years

	 	Total

	 Accounts receivable in long-term investments
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  subsidiaries
	 	 	 	71,380	 	 	 	71,380	 	2,891	 	64,207	 	 	 	67,098
	 .  affiliated companies
	 	6,536	 	2,252	 	34,217	 	43,005	 	95	 	17,363	 	37,031	 	54,489
	 .  others
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  customers
	 	 	 	 	 	 	 	0	 	269	 	67	 	 	 	336
	 ..  employees
	 	5,757	 	30,271	 	12,227	 	48,255	 	14,981	 	23,255	 	9,249	 	47,485
	 ..  security deposits
	 	3,543	 	3	 	371	 	3,917	 	262	 	3,110	 	12,566	 	15,938
	 ..  time deposit on behalf of Getronics
	 	0	 	0	 	0	 	0	 	32,067	 	 	 	 	 	32,067
	 ..  miscellaneous
	 	8,893	 	42,641	 	 	 	51,534	 	21,035	 	40,568	 	 	 	61,603
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	24,729	 	146,547	 	46,815	 	218,091	 	71,600	 	148,570	 	58,846	 	279,016
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Accounts receivable in current assets
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
									
	 Other financial receivables from
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  subsidiaries
	 	1,126,670	 	 	 	 	 	1,126,670	 	823,919	 	 	 	 	 	823,919
	 .  affiliated companies
	 	2,357	 	 	 	 	 	2,357	 	13,718	 	 	 	 	 	13,718
	 .  others
	 	246,352	 	 	 	 	 	246,352	 	366,594	 	 	 	 	 	366,594
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	1,375,379	 	 	 	 	 	1,375,379	 	1,204,231	 	 	 	 	 	1,204,231
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Trade accounts receivable from
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  customers
	 	3,422,565	 	 	 	 	 	3,422,565	 	3,703,450	 	 	 	 	 	3,703,450
	 .  subsidiaries
	 	551,595	 	 	 	 	 	551,595	 	679,507	 	 	 	 	 	679,507
	 .  affiliated companies
	 	84,883	 	 	 	 	 	84,883	 	70,955	 	 	 	 	 	70,955
	 .  others
	 	129,524	 	 	 	 	 	129,524	 	87,984	 	 	 	 	 	87,984
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	4,188,567	 	 	 	 	 	4,188,567	 	4,541,896	 	 	 	 	 	4,541,896
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Other receivables from
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  subsidiaries
	 	243,620	 	 	 	 	 	243,620	 	1,571,863	 	 	 	 	 	1,571,863
	 .  affiliated companies
	 	16,166	 	 	 	 	 	16,166	 	12,101	 	 	 	 	 	12,101
	 .  taxes receivable
	 	44,826	 	 	 	 	 	44,826	 	1,362,329	 	 	 	 	 	1,362,329
	 .  deferred tax assets
	 	789,956	 	2,055,138	 	 	 	2,845,094	 	1,174,778	 	2,055,138	 	 	 	3,229,916
	 .  miscellaneous:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  Government and other public entities for grants and subsidies
	 	25,889	 	 	 	 	 	25,889	 	30,748	 	 	 	 	 	30,748
	 ..  miscellaneous
	 	221,399	 	 	 	 	 	221,399	 	353,076	 	 	 	 	 	353,076
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	1,341,856	 	2,055,138	 	 	 	3,396,994	 	4,504,895	 	2,055,138	 	 	 	6,560,033
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Total accounts receivable in current assets
	 	6,905,802	 	2,055,138	 	 	 	8,960,940	 	10,251,022	 	2,055,138	 	 	 	12,306,160
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Accrued income
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  financial
	 	43,008	 	 	 	 	 	43,008	 	20,423	 	 	 	 	 	20,423
	 .  trading
	 	 	 	 	 	 	 	 	 	275	 	 	 	 	 	275
	 .  miscellaneous
	 	1,030	 	 	 	 	 	1,030	 	 	 	 	 	 	 	 
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	44,038	 	0	 	0	 	44,038	 	20,698	 	0	 	0	 	20,698
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

  

 54 

Table of Contents

 ANNEX 4 
 LIABILITIES AND ACCRUED EXPENSES BY MATURITY AND TYPE 
 (in thousands of euro) 
  

																	
	 	 	9/30/2004

	 	12/31/2003

	 	 	Amounts due

	 	Amounts due

	 	 	Within one
year

	 	From two
to five years

	 	Beyond five
years

	 	Total

	 	Within one
year

	 	From two
to five years

	 	Beyond five
years

	 	Total

	 Medium and long-term financial debt
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  Debentures
	 	 	 	2,360,000	 	10,300,489	 	12,660,489	 	1,500,000	 	1,250,000	 	7,014,983	 	9,764,983
	 .  Convertible debentures
	 	 	 	 	 	2,827,904	 	2,827,904	 	1,330,564	 	 	 	2,829,006	 	4,159,570
	 .  Due to banks
	 	219,429	 	297,681	 	936	 	518,046	 	393,819	 	286,508	 	279	 	680,606
	 .  Due to other lenders
	 	81,980	 	162,418	 	211,032	 	455,430	 	77,552	 	213,131	 	249,407	 	540,090
	 .  Accounts payable to subsidiaries
	 	 	 	8,536,747	 	4,443,110	 	12,979,857	 	2,434,000	 	8,431,867	 	639,267	 	11,505,134
	 .  Taxes payable
	 	70	 	 	 	 	 	70	 	23,430	 	 	 	 	 	23,430
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	301,479	 	11,356,846	 	17,783,471	 	29,441,796	 	5,759,365	 	10,181,506	 	10,732,942	 	26,673,813
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Short-term borrowings
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  Due to banks
	 	369,334	 	 	 	 	 	369,334	 	510,488	 	 	 	 	 	510,488
	 .  Due to other lenders
	 	209,878	 	 	 	 	 	209,878	 	241,795	 	 	 	 	 	241,795
	 .  Accounts payable to subsidiaries
	 	3,894,800	 	 	 	 	 	3,894,800	 	7,798,130	 	 	 	 	 	7,798,130
	 .  Accounts payable to affiliated companies
	 	419	 	 	 	 	 	419	 	1,027	 	 	 	 	 	1,027
	 .  Other payables
	 	6,035	 	 	 	 	 	6,035	 	62,245	 	 	 	 	 	62,245
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	4,480,466	 	 	 	 	 	4,480,466	 	8,613,685	 	 	 	 	 	8,613,685
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Trade accounts payable
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  Accounts payable to suppliers
	 	1,390,028	 	 	 	 	 	1,390,028	 	1,929,794	 	 	 	 	 	1,929,794
	 .  Accounts payable to subsidiaries
	 	1,085,364	 	 	 	 	 	1,085,364	 	1,148,987	 	 	 	 	 	1,148,987
	 .  Accounts payable to affiliated companies
	 	95,269	 	 	 	 	 	95,269	 	59,405	 	 	 	 	 	59,405
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	2,570,661	 	 	 	 	 	2,570,661	 	3,138,186	 	 	 	 	 	3,138,186
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Other payables(1)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  Accounts payable to subsidiaries
	 	42,763	 	 	 	 	 	42,763	 	91,269	 	 	 	 	 	91,269
	 .  Accounts payable to affiliated companies
	 	 	 	 	 	 	 	0	 	24,339	 	 	 	 	 	24,339
	 .  Taxes payable
	 	624,026	 	 	 	 	 	624,026	 	355,650	 	 	 	 	 	355,650
	 .  Contributions to pension and social security institutions
	 	108,046	 	295,942	 	170,602	 	574,590	 	160,225	 	295,942	 	170,602	 	626,769
	 .  Other liabilities
	 	1,356,502	 	441	 	 	 	1,356,943	 	1,848,597	 	441	 	 	 	1,849,038
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	2,131,337	 	296,383	 	170,602	 	2,598,322	 	2,480,080	 	296,383	 	170,602	 	2,947,065
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Total liabilities(1)
	 	9,483,943	 	11,653,229	 	17,954,073	 	39,091,245	 	19,991,316	 	10,477,889	 	10,903,544	 	41,372,749
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Accrued expenses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  financial
	 	763,336	 	81,020	 	 	 	844,356	 	1,763,589	 	64,644	 	 	 	1,828,233
	 .  trading
	 	8,082	 	 	 	 	 	8,082	 	89	 	 	 	 	 	89
	 .  miscellaneous
	 	19	 	 	 	 	 	19	 	 	 	 	 	 	 	 
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	771,437	 	81,020	 	0	 	852,457	 	1,763,678	 	64,644	 	0	 	1,828,322
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	(1)	Not including the caption “Advances”. 

  

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 ANNEX 5 
  
 ACCOUNTS RECEIVABLES AND LIABILITIES AT SEPTEMBER 30, 2004 - GEOGRAPHICAL AREA (CUSTOMER/SUPPLIER LOCATION) (in thousands of euro) 
  

															
	 	 	Italy

	 	Other EU
countries

	 	Rest of
Europe

	 	North
America

	 	Central and
South America

	 	Other
areas

	 	TOTAL

	 Accounts receivable in long-term investments
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  subsidiaries
	 	—	 	71,380	 	—	 	—	 	—	 	—	 	71,380
	 .  affiliated companies
	 	40,753	 	2,252	 	—	 	—	 	—	 	—	 	43,005
	 .  others
	 	103,706	 	—	 	—	 	—	 	—	 	—	 	103,706
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Total
	 	144,459	 	73,632	 	—	 	—	 	—	 	—	 	218,091
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Accounts receivable in current assets (*)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .   customers
	 	3,333,996	 	79,524	 	399	 	2,558	 	5,174	 	914	 	3,422,565
	 .   subsidiaries
	 	1,909,838	 	10,578	 	15	 	—	 	202	 	1,252	 	1,921,885
	 .   affiliated companies
	 	103,083	 	—	 	243	 	—	 	80	 	—	 	103,406
	 .   taxes receivable
	 	44,419	 	—	 	—	 	—	 	407	 	—	 	44,826
	 .   others
	 	620,407	 	35	 	—	 	—	 	2,722	 	—	 	623,164
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	6,011,743	 	90,137	 	657	 	2,558	 	8,585	 	2,166	 	6,115,846
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 LIABILITIES
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  Debentures
	 	8,760,489	 	3,900,000	 	—	 	—	 	—	 	—	 	12,660,489
	 .  Convertible debentures
	 	2,827,904	 	—	 	—	 	—	 	—	 	—	 	2,827,904
	 .  Due to banks
	 	721,967	 	165,413	 	—	 	—	 	—	 	—	 	887,380
	 .  Due to other lenders
	 	665,308	 	—	 	—	 	—	 	—	 	—	 	665,308
	 .  Advances
	 	28,603	 	—	 	—	 	—	 	—	 	—	 	28,603
	 .  Accounts payable to suppliers
	 	1,343,997	 	42,065	 	—	 	2,012	 	1,475	 	479	 	1,390,028
	 .  Accounts payable to subsidiaries
	 	1,799,460	 	16,203,324	 	—	 	—	 	—	 	—	 	18,002,784
	 .  Accounts payable to affiliated companies
	 	95,688	 	—	 	—	 	—	 	—	 	—	 	95,688
	 .  Taxes payable
	 	624,074	 	—	 	—	 	—	 	22	 	—	 	624,096
	 .  Contributions to pension and social security security institutions
	 	574,584	 	—	 	—	 	—	 	6	 	—	 	574,590
	 .  Other liabilities
	 	1,362,978	 	—	 	—	 	—	 	—	 	—	 	1,362,978
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Total
	 	18,805,052	 	20,310,802	 	0	 	2,012	 	1,503	 	479	 	39,119,848
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	  
 REVENUES 9 MONTHS TO SEPTEMBER 30, 2004 - GEOGRAPHICAL
AREA (CUSTOMER LOCATION)
  

	 SALES AND SERVICE REVENUES
	 	11,729,124	 	59,084	 	435	 	2,268	 	2,088	 	170	 	11,793,169
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	(*)	Not including the caption “Deferred tax assets”. 

  

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 ANNEX 6 
  
 STATEMENTS OF CASH FLOWS 
  

											
	 	  	 (in thousands of euro)

	  	 	  	9 months to
9/30/2004

	 	 	9 months to
9/30/2003

	 
	 A.
	  	NET FINANCIAL INDEBTEDNESS, AT BEGINNING OF PERIOD	  	 	  	(35,326,677	)	 	(30,622,646	)
	 	  	Net financial indebtedness, at beginning of period of merged company TILAB	  	 	  	—	 	 	(169,196	)
	 	  	 	  	 	  	
	
	 	
	

	 B.
	  	ADJUSTED NET FINANCIAL INDEBTEDNESS, AT BEGINNING OF PERIOD	  	 	  	(35,326,677	)	 	(30,791,842	)
	 	  	 	  	 	  	
	
	 	
	

	 	  	Operating income	  	 	  	3,256,088	 	 	3,169,275	 
	 	  	Depreciation of fixed assets and amortization of intangible assets	  	 	  	2,003,278	 	 	2,108,942	 
	 	  	Investments in fixed assets and intangible assets(1)	  	 	  	(1,493,713	)	 	(1,891,206	)
	 	  	Proceeds from disposal of intangible assets and fixed assets	  	 	  	5,371	 	 	314,784	 
	 	  	Change in operating working capital and other changes	  	 	  	11,418	 	 	(4,759	)
	 	  	 	  	 	  	
	
	 	
	

	 C.
	  	FREE CASH FLOWs FROM OPERATIONS	  	 	  	3,782,442	 	 	3,668,816	 
	 	  	 	  	 	  	
	
	 	
	

	 	  	Investments in long-term investments(1)	  	 	  	(1,616,407	)	 	(6,491,593	)
	 	  	Proceeds from sale/redemption value of other intangible assets, fixed assets and long- term investments	  	 	  	2,042,811	 	 	3,016,155	 
	 	  	Change in non-operating working capital and other changes(2)	  	 	  	602,819	 	 	(3,842,192	)
	 	  	 	  	 	  	
	
	 	
	

	 D.
	  	 	  	 	  	1,029,223	 	 	(7,317,630)	 
	 	  	 	  	 	  	
	
	 	
	

	 E.
	  	NET CASH FLOWS BEFORE DISTRIBUTION OF INCOME/RESERVES AND CONTRIBUTIONS BY SHAREHOLDERS	  	(C+D)	  	4,811,665	 	 	(3,648,814	)
	 	  	 	  	 	  	
	
	 	
	

	 F.
	  	DISTRIBUTION OF INCOME/RESERVES	  	 	  	(1,740,058	)	 	(793,524	)
	 	  	 	  	 	  	
	
	 	
	

	 G.
	  	CONTRIBUTIONS BY SHAREHOLDERS/WITHDRAWALS	  	 	  	14,410	 	 	1,579	 
	 	  	 	  	 	  	
	
	 	
	

	 H.
	  	CHANGE IN NET FINANCIAL INDEBTEDNESS	  	(E+F+G)	  	3,086,017	 	 	(4,440,759	)
	 	  	 	  	
	  	
	
	 	
	

	 I.
	  	NET FINANCIAL INDEBTEDNESS, AT END OF PERIOD	  	(A+H)	  	(32,240,660	)	 	(35,232,601	)
	 	  	 	  	
	  	
	
	 	
	

  

 57 

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 The change in net financial indebtedness is the result of the following: 
  

							
	 (in thousands of euro)

	  	 	 	 	 	 
	 Increase (decrease) in medium/long-term debt
	  	8,263,303	 	 	(1,672,544	)
	 Increase (decrease) in short-term borrowings
	  	(11,349,320	)	 	6,282,499	 
	 	  	
	
	 	
	

	 Total
	  	(3,086,017	)	 	4,609,955	 
	 	  	
	
	 	
	

	
 (1)    Total cash used
for investments can be analyzed as follows
	  	 	 	 	 	 
			
	 (in thousands of euro)

	  	 	 	 	 	 
	 Industrial investments:
	  	1,493,713	 	 	1,891,206	 
	 - intangible assets
	  	688,179	 	 	435,704	 
	 - fixed assets
	  	805,534	 	 	1,455,502	 
	 Investment in long-term investments
	  	1,616,407	 	 	6,491,593	 
	 	  	
	
	 	
	

	 CASH USED FOR INVESTMENTS
	  	3,110,120	 	 	8,382,799	 
	 	  	
	
	 	
	

	
 (2)    The caption can
be analyzed as follows:
	  	 	 	 	 	 
			
	 (in thousands of euro)

	  	 	 	 	 	 
	 Net financial income (expense)
	  	(1,293,356	)	 	(1,959,579	)
	 Receipt of dividends
	  	1,322,519	 	 	438,000	 
	 Utilization of risk reserve for early exercise of JP Morgan put option
	  	 	 	 	(1,941,843	)
	 Payment of income taxes(3)
	  	940,000	 	 	(90,000	)
	 Extraordinary items and other
	  	(366,344	)	 	(288,770	)
	 	  	
	
	 	
	

	 CHANGE IN NON-OPERATING WORKING CAPITAL AND OTHER CHANGES
	  	602,819	 	 	(3,842,192	)
	 	  	
	
	 	
	

	
 (3)    This
is a positive figure at September 30, 2004 as a result of the collection of a tax credit sold to TIM (euro 1,103,000 thousand).
	       

  

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 ANNEX V 
  
 

 
  
  
 TIM S.p.A. Interim Financial Statements at September 30, 2004 
  

Table of Contents

  
  
  
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	 BALANCE SHEETS

	 	September 30, 2004

	 	December 31, 2003

	 	September 30, 2003

	(in thousands of euro)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ASSETS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
										
	 RECEIVABLES FROM SHAREHOLDERS FOR CAPITAL CONTRIBUTIONS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
										
	 INTANGIBLE ASSETS, FIXED ASSETS AND LONG-TERM INVESTMENTS
	 	 	 	 	 	—	 	 	 	 	 	—	 	 	 	 	 	—
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	 .  INTANGIBLE ASSETS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  Start-up and expansion costs
	 	 	 	948	 	 	 	 	 	3,791	 	 	 	 	 	4,739	 	 
	 ..  Research, development and advertising costs
	 	 	 	—	 	 	 	 	 	—	 	 	 	 	 	—	 	 
	 ..  Industrial patents and intellectual property rights
	 	 	 	547,898	 	 	 	 	 	527,835	 	 	 	 	 	356,914	 	 
	 ..  Concessions, licenses, trademarks and similar rights
	 	 	 	2,330,012	 	 	 	 	 	2,189,858	 	 	 	 	 	2,220,351	 	 
	 ..  Goodwill
	 	 	 	19,166	 	 	 	 	 	—	 	 	 	 	 	—	 	 
	 ..  Work in progress and advances
	 	 	 	154,375	 	 	 	 	 	179,429	 	 	 	 	 	132,883	 	 
	 ..  Other intangibles
	 	 	 	56,942	 	 	 	 	 	43,264	 	 	 	 	 	31,832	 	 
	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	3,109,341	 	 	 	 	 	2,944,177	 	 	 	 	 	2,746,719
	 .  FIXED ASSETS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  Land and buildings
	 	 	 	11,190	 	 	 	 	 	12,128	 	 	 	 	 	12,494	 	 
	 ..  Plant and machinery
	 	 	 	1,596,584	 	 	 	 	 	1,428,098	 	 	 	 	 	1,396,296	 	 
	 ..  Manufacturing and distribution equipment
	 	 	 	26,415	 	 	 	 	 	23,391	 	 	 	 	 	18,446	 	 
	 ..  Other fixed assets
	 	 	 	204,286	 	 	 	 	 	205,663	 	 	 	 	 	213,547	 	 
	 ..  Construction in progress and advances
	 	 	 	186,939	 	 	 	 	 	438,615	 	 	 	 	 	245,109	 	 
	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	2,025,414	 	 	 	 	 	2,107,895	 	 	 	 	 	1,885,892
	 .  LONG-TERM INVESTMENTS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  Equity investments in:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ...  subsidiaries
	 	 	 	4,262,737	 	 	 	 	 	3,964,877	 	 	 	 	 	3,689,275	 	 
	 ...  affiliated companies
	 	 	 	41	 	 	 	 	 	1,469	 	 	 	 	 	1,495	 	 
	 ...  other companies
	 	 	 	601	 	 	 	 	 	536	 	 	 	 	 	535	 	 
	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	
	 	 
	 total
	 	 	 	4,263,379	 	 	 	 	 	3,966,882	 	 	 	 	 	3,691,305	 	 
	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	
	 	 
	 ..  Advances on future capital contributions
	 	 	 	319,543	 	 	 	 	 	120,940	 	 	 	 	 	232,082	 	 
	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	
	 	 
	 ..  Accounts receivable
	 	(*)	 	 	 	 	 	(*)	 	 	 	 	 	(* )	 	 	 	 
	 ...  other receivables
	 	2,726	 	22,112	 	 	 	1,679	 	17,681	 	 	 	1,459	 	17,116	 	 
	 ..  Other securities
	 	 	 	1,273	 	 	 	 	 	2,972	 	 	 	 	 	3,093	 	 
	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	4,606,307	 	 	 	 	 	4,108,475	 	 	 	 	 	3,943,596
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	 TOTAL INTANGIBLE ASSETS, FIXED ASSETS AND LONG-TERM INVESTMENTS
	 	 	 	 	 	9,741,062	 	 	 	 	 	9,160,547	 	 	 	 	 	8,576,207
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	   CURRENT ASSETS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
										
	 .  INVENTORIES
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  Finished goods and merchandise: merchandise
	 	 	 	 	 	38,075	 	 	 	 	 	20,288	 	 	 	 	 	36,906
										
	 .  ACCOUNTS RECEIVABLE
	 	(* *)	 	 	 	 	 	(* *)	 	 	 	 	 	(* *)	 	 	 	 
	 ..  trade accounts receivable
	 	—	 	1,058,487	 	 	 	—	 	1,082,551	 	 	 	—	 	947,254	 	 
	 ..  from subsidiaries
	 	—	 	41,258	 	 	 	—	 	32,037	 	 	 	—	 	35,155	 	 
	 ..  from affiliated companies
	 	—	 	1,652	 	 	 	—	 	234	 	 	 	—	 	10,654	 	 
	 ..  from parent companies
	 	—	 	673,734	 	 	 	—	 	1,651,479	 	 	 	—	 	1,456,469	 	 
	 ..  taxes receivable
	 	—	 	8,981	 	 	 	—	 	7,389	 	 	 	—	 	13,333	 	 
	 ..  deferred tax assets
	 	482,488	 	992,537	 	 	 	609,009	 	1,038,520	 	 	 	714,818	 	1,141,598	 	 
	 ..  other receivables
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .....  Government and other public entities for grants and subsidies
	 	—	 	12,526	 	 	 	—	 	12,570	 	 	 	—	 	15,572	 	 
	 .....  other receivables
	 	—	 	340,298	 	 	 	—	 	484,475	 	 	 	—	 	384,588	 	 
	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	3,129,473	 	 	 	 	 	4,309,255	 	 	 	 	 	4,004,623
	 .  SHORT-TERM FINANCIAL ASSETS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  Treasury stock (for a total par value of euro 53,870.10)
	 	 	 	3,939	 	 	 	 	 	3,913	 	 	 	 	 	3,666	 	 
	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	3,939	 	 	 	 	 	3,913	 	 	 	 	 	3,666
	 .  LIQUID ASSETS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  Bank and postal accounts
	 	 	 	1,909	 	 	 	 	 	3,046	 	 	 	 	 	8,299	 	 
	 ..  Cash and valuables on hand
	 	 	 	495	 	 	 	 	 	312	 	 	 	 	 	282	 	 
	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	2,404	 	 	 	 	 	3,358	 	 	 	 	 	8,581
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	 TOTAL CURRENT ASSETS
	 	 	 	 	 	3,173,891	 	 	 	 	 	4,336,814	 	 	 	 	 	4,053,776
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	 ACCRUED INCOME AND PREPAID EXPENSES
	 	(* *)	 	 	 	 	 	(* *)	 	 	 	 	 	(* *)	 	 	 	 
	 ...  Accrued income and other prepaid expenses
	 	2,645	 	64,285	 	 	 	—	 	43,760	 	 	 	—	 	40,827	 	 
	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	64,285	 	 	 	 	 	43,760	 	 	 	 	 	40,827
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	 TOTAL ASSETS
	 	 	 	 	 	12,979,238	 	 	 	 	 	13,541,121	 	 	 	 	 	12,670,810
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	(*)	Amounts due within 12 months 

  

	(**)	Amounts due beyond 12 months 

  

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	 BALANCE SHEETS

	 	September 30, 2004

	 	December 31, 2003

	 	September 30, 2003

	(in thousands of euro)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
										
	LIABILITIES AND SHAREHOLDERS’
EQUITY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
										
	 SHAREHOLDERS’ EQUITY
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
										
	 .  SHARE CAPITAL
	 	 	 	 	 	513,964	 	 	 	 	 	513,964	 	 	 	 	 	513,964
	 .  ADDITIONAL PAID-IN CAPITAL
	 	 	 	 	 	5,525,626	 	 	 	 	 	5,525,626	 	 	 	 	 	5,525,626
	 .  LEGAL RESERVE
	 	 	 	 	 	103,942	 	 	 	 	 	103,942	 	 	 	 	 	103,942
	 .  RESERVE FOR TREASURY STOCK IN PORTFOLIO
	 	 	 	 	 	3,939	 	 	 	 	 	3,913	 	 	 	 	 	3,666
	 .  MISCELLANEOUS RESERVES:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  Reserve for capital grants (under D.P.R. No. 917/1986, art. 55)
	 	 	 	14,681	 	 	 	 	 	14,681	 	 	 	 	 	14,681	 	 
	 ..  Special reserve
	 	 	 	86,242	 	 	 	 	 	113,579	 	 	 	 	 	113,826	 	 
	 ..  Reserve Law 342/2000, art. 14
	 	 	 	303,827	 	 	 	 	 	303,827	 	 	 	 	 	303,827	 	 
	 ..  Reserve for accelerated depreciation
	 	 	 	150,000	 	 	 	 	 	—	 	 	 	 	 	—	 	 
	 ..  Merger surplus reserve
	 	 	 	53,783	 	 	 	 	 	53,783	 	 	 	 	 	53,783	 	 
	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	608,533	 	 	 	 	 	485,870	 	 	 	 	 	486,117
	 .  RETAINED EARNINGS
	 	 	 	 	 	—	 	 	 	 	 	1,331	 	 	 	 	 	1,331
										
	 .  NET INCOME
	 	 	 	 	 	2,142,811	 	 	 	 	 	2,321,624	 	 	 	 	 	1,846,360
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	 	 	 	 	 	 	8,898,815	 	 	 	 	 	8,956,270	 	 	 	 	 	8,481,006
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	 RESERVES FOR RISKS AND CHARGES
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  Reserve for pensions and similar
  obligations
	 	 	 	1,676	 	 	 	 	 	1,676	 	 	 	 	 	1,676	 	 
	 ..  Reserve for taxes, reserve for deferred
  taxes
	 	 	 	777,561	 	 	 	 	 	—	 	 	 	 	 	679,088	 	 
	 ..  Other reserves
	 	 	 	526,412	 	 	 	 	 	658,127	 	 	 	 	 	699,804	 	 
	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	1,305,649	 	 	 	 	 	659,803	 	 	 	 	 	1,380,568
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	 RESERVE FOR EMPLOYEE TERMINATION INDEMNITIES
	 	 	 	 	 	104,196	 	 	 	 	 	87,926	 	 	 	 	 	88,188
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	 LIABILITIES
	 	(* *)	 	 	 	 	 	(* *)	 	 	 	 	 	(* *)	 	 	 	 
										
	 ..  Due to banks
	 	—	 	198	 	 	 	—	 	19	 	 	 	—	 	0	 	 
	 ..  Due to other lenders
	 	—	 	—	 	 	 	—	 	1,637	 	 	 	—	 	22,746	 	 
	 ..  Trade accounts payable
	 	—	 	1,626,258	 	 	 	—	 	1,888,242	 	 	 	—	 	1,334,023	 	 
	 ..  Accounts payable to subsidiaries
	 	—	 	2,689	 	 	 	—	 	655	 	 	 	—	 	4,302	 	 
	 ..  Accounts payable to affiliated companies
	 	—	 	3,369	 	 	 	—	 	3,536	 	 	 	—	 	2,728	 	 
	 ..  Accounts payable to parent companies
	 	—	 	403,471	 	 	 	—	 	398,448	 	 	 	—	 	459,948	 	 
	 ..  Taxes payable
	 	—	 	68,090	 	 	 	—	 	845,732	 	 	 	—	 	107,206	 	 
	 ..  Contributions to pension and social security institutions
	 	1,283	 	11,709	 	 	 	1,275	 	19,917	 	 	 	2,338	 	11,171	 	 
	 ..  Other liabilities
	 	—	 	535,940	 	 	 	—	 	666,692	 	 	 	—	 	752,365	 	 
	 	 	
	 	
	 	 	 	
	 	
	 	 	 	
	 	
	 	 
	 	 	1,283	 	 	 	2,651,724	 	1,275	 	 	 	3,824,878	 	2,338	 	 	 	2,694,489
	 	 	
	 	 	 	
	 	
	 	 	 	
	 	
	 	 	 	

	 ACCRUED EXPENSES AND DEFERRED INCOME
	 	(* *)	 	 	 	 	 	(* *)	 	 	 	 	 	(* *)	 	 	 	 
	 ...  Accrued expenses and other deferred income
	 	6,139	 	18,854	 	 	 	—	 	12,244	 	 	 	—	 	26,559	 	 
	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	18,854	 	 	 	 	 	12,244	 	 	 	 	 	26,559
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
	 	 	 	 	 	12,979,238	 	 	 	 	 	13,541,121	 	 	 	 	 	12,670,810
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	(* *)	Amounts due beyond 12 months 

  

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	 MEMORANDUM ACCOUNTS

	 	September 30, 2004

	 	December 31, 2003

	 	September 30, 2003

	(in thousands of euro)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
										
	 GUARANTEES PROVIDED
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
										
	 .  Sureties
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  on behalf of affiliated companies
	 	169,253	 	 	 	 	 	209,166	 	 	 	 	 	183,938	 	 	 	 
	 ..  on behalf of parent companies
	 	—	 	 	 	 	 	—	 	 	 	 	 	—	 	 	 	 
	 ..  on behalf of others
	 	28,645	 	 	 	 	 	27,020	 	 	 	 	 	24,391	 	 	 	 
	 	 	 	 	197,898	 	 	 	 	 	236,186	 	 	 	 	 	208,329	 	 
	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	
	 	 
	 .  Other
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  on behalf of subsidiaries
	 	355,249	 	 	 	 	 	425,828	 	 	 	 	 	5,388	 	 	 	 
	 ..  on behalf of affiliated companies
	 	456,780	 	 	 	 	 	453,167	 	 	 	 	 	—	 	 	 	 
	 ..  on behalf of others
	 	51,000	 	 	 	 	 	51,000	 	 	 	 	 	51,000	 	 	 	 
	 	 	 	 	863,029	 	 	 	 	 	929,995	 	 	 	 	 	56,388	 	 
	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	1,060,927	 	 	 	 	 	1,166,181	 	 	 	 	 	264,717
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	 COLLATERAL PROVIDED
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
										
	 .  For own obligations, excluding liabilities
	 	 	 	—	 	 	 	 	 	—	 	 	 	 	 	1,549	 	 
	 .  For liabilities recorded in the balance sheet
	 	 	 	—	 	 	 	 	 	—	 	 	 	 	 	—	 	 
	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	—	 	 	 	 	 	—	 	 	 	 	 	1,549
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	 PURCHASES AND SALES COMMITMENTS
	 	 	 	 	 	987	 	 	 	 	 	6,189	 	 	 	 	 	9,417
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	 OTHER MEMORANDUM ACCOUNTS
	 	 	 	 	 	—	 	 	 	 	 	—	 	 	 	 	 	2,251
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

	 TOTAL
	 	 	 	 	 	1,061,914	 	 	 	 	 	1,172,370	 	 	 	 	 	277,934
	 	 	 	 	 	 	
	 	 	 	 	 	
	 	 	 	 	 	

  

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	 STATEMENTS OF INCOME

	 	 9 months to
 September 30, 2004

	 	 	 9 months to
 September 30, 2003

	 	 	Year 2003

	 
	(in thousands of euro)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
										
	 PRODUCTION VALUE
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  Sales and service revenues
	 	 	 	 	 	 	7,381,031	 	 	 	 	 	 	6,979,951	 	 	 	 	 	 	9,468,629	 
	 .  Increases in capitalized internal construction costs
	 	 	 	 	 	 	26,095	 	 	 	 	 	 	—	 	 	 	 	 	 	—	 
	 .  Other revenues and income
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  operating grants
	 	 	 	203	 	 	 	 	 	 	 	28	 	 	 	 	 	 	28	 	 	 
	 ..  other
	 	 	 	22,899	 	 	 	 	 	 	 	21,940	 	 	 	 	 	 	31,126	 	 	 
	 	 	 	 	
	
	 	 	 	 	 	 	
	 	 	 	 	 	 	
	 	 	 
	 	 	 	 	 	 	 	23,102	 	 	 	 	 	 	21,968	 	 	 	 	 	 	31,154	 
	 	 	 	 	 	 	 	
	
	 	 	 	 	 	
	
	 	 	 	 	 	
	

	 	 	 	 	 	 	 	7,430,228	 	 	 	 	 	 	7,001,919	 	 	 	 	 	 	9,499,783	 
	 	 	 	 	 	 	 	
	
	 	 	 	 	 	
	
	 	 	 	 	 	
	

	 PRODUCTION COSTS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  Raw materials, supplies and merchandise
	 	 	 	 	 	 	466,464	 	 	 	 	 	 	382,856	 	 	 	 	 	 	592,803	 
	 .  Services
	 	 	 	 	 	 	2,171,115	 	 	 	 	 	 	2,061,244	 	 	 	 	 	 	2,819,682	 
	 .  Use of property not owned
	 	 	 	 	 	 	371,087	 	 	 	 	 	 	403,774	 	 	 	 	 	 	569,185	 
	 .  Personnel costs:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  wages and salaries
	 	 	 	244,563	 	 	 	 	 	 	 	236,662	 	 	 	 	 	 	315,038	 	 	 
	 ..  social security contributions
	 	 	 	76,659	 	 	 	 	 	 	 	73,668	 	 	 	 	 	 	98,855	 	 	 
	 ..  termination indemnities
	 	 	 	16,195	 	 	 	 	 	 	 	15,236	 	 	 	 	 	 	20,003	 	 	 
	 ..  other costs
	 	 	 	6,810	 	 	 	 	 	 	 	5,280	 	 	 	 	 	 	7,410	 	 	 
	 	 	 	 	
	
	 	 	 	 	 	 	
	 	 	 	 	 	 	
	 	 	 
	 	 	 	 	 	 	 	344,227	 	 	 	 	 	 	330,846	 	 	 	 	 	 	441,306	 
	 .  Amortization, depreciation and writedowns
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  amortization of intangible assets
	 	 	 	371,950	 	 	 	 	 	 	 	301,936	 	 	 	 	 	 	424,123	 	 	 
	 ..  depreciation of fixed assets
	 	 	 	461,648	 	 	 	 	 	 	 	486,045	 	 	 	 	 	 	658,859	 	 	 
	 ..  writedowns of receivables included in current assets and liquid assets
	 	 	 	29,876	 	 	 	 	 	 	 	32,120	 	 	 	 	 	 	66,299	 	 	 
	 	 	 	 	
	
	 	 	 	 	 	 	
	 	 	 	 	 	 	
	 	 	 
	 	 	 	 	 	 	 	863,474	 	 	 	 	 	 	820,101	 	 	 	 	 	 	1,149,281	 
	 .  Changes in inventories of raw materials, supplies and merchandise
	 	 	 	 	 	 	(17,787	)	 	 	 	 	 	(1,261	)	 	 	 	 	 	15,357	 
	 .  Provisions for risks
	 	 	 	 	 	 	—	 	 	 	 	 	 	—	 	 	 	 	 	 	—	 
	 .  Other provisions
	 	 	 	 	 	 	2,738	 	 	 	 	 	 	11,054	 	 	 	 	 	 	14,851	 
	 .  Miscellaneous operating costs
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  losses
	 	 	 	387	 	 	 	 	 	 	 	1,130	 	 	 	 	 	 	1,463	 	 	 
	 ..  TLC operating fees
	 	 	 	2,558	 	 	 	 	 	 	 	3,814	 	 	 	 	 	 	5,035	 	 	 
	 ..  other miscellaneous costs
	 	 	 	25,036	 	 	 	 	 	 	 	19,032	 	 	 	 	 	 	27,846	 	 	 
	 	 	 	 	
	
	 	 	 	 	 	 	
	 	 	 	 	 	 	
	 	 	 
	 	 	 	 	 	 	 	27,981	 	 	 	 	 	 	23,976	 	 	 	 	 	 	34,344	 
	 	 	 	 	 	 	 	
	
	 	 	 	 	 	
	
	 	 	 	 	 	
	

	 	 	 	 	 	 	 	(4,229,299	)	 	 	 	 	 	(4,032,590	)	 	 	 	 	 	(5,636,809	)
	 OPERATING INCOME
	 	 	 	 	 	 	3,200,929	 	 	 	 	 	 	2,969,329	 	 	 	 	 	 	3,862,974	 
	 	 	 	 	 	 	 	
	
	 	 	 	 	 	
	
	 	 	 	 	 	
	

	 FINANCIAL INCOME AND EXPENSE
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  Other financial income from
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  accounts receivable included in long-term investments
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ...  other
	 	194	 	 	 	 	 	 	 	246	 	 	 	 	 	 	343	 	 	 	 	 
	 	 	
	 	 	 	 	 	 	 	
	 	 	 	 	 	 	
	 	 	 	 	 
	 	 	 	 	194	 	 	 	 	 	 	 	246	 	 	 	 	 	 	343	 	 	 
	 ..  securities, other than equity investments, included in long-term investments
	 	 	 	4	 	 	 	 	 	 	 	77	 	 	 	 	 	 	102	 	 	 
	 ..  other income
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ...  interest and fees from subsidiaries
	 	351	 	 	 	 	 	 	 	—	 	 	 	 	 	 	—	 	 	 	 	 
	 ...  interest and fees from affiliated companies
	 	—	 	 	 	 	 	 	 	—	 	 	 	 	 	 	2	 	 	 	 	 
	 ...  interest and fees from parent companies
	 	29,714	 	 	 	 	 	 	 	8,069	 	 	 	 	 	 	17,812	 	 	 	 	 
	 ...  interest and fees from others and miscellaneous income
	 	555	 	 	 	 	 	 	 	2,352	 	 	 	 	 	 	2,246	 	 	 	 	 
	 	 	
	 	 	 	 	 	 	 	
	 	 	 	 	 	 	
	 	 	 	 	 
	 	 	 	 	30,620	 	 	 	 	 	 	 	10,421	 	 	 	 	 	 	20,060	 	 	 
	 	 	 	 	
	
	 	 	 	 	 	 	
	 	 	 	 	 	 	
	 	 	 
	 	 	 	 	 	 	 	30,818	 	 	 	 	 	 	10,744	 	 	 	 	 	 	20,505	 
	 	 	 	 	 	 	 	
	
	 	 	 	 	 	
	
	 	 	 	 	 	
	

	 .  Interests and other financial expenses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  interest and fees paid to subsidiaries
	 	 	 	—	 	 	 	 	 	 	 	1,623	 	 	 	 	 	 	1,623	 	 	 
	 ..  interest and fees paid to parent companies
	 	 	 	1,346	 	 	 	 	 	 	 	5,326	 	 	 	 	 	 	5,810	 	 	 
	 ..  interest and fees paid to others and miscellaneous expenses
	 	 	 	4,477	 	 	 	 	 	 	 	7,172	 	 	 	 	 	 	10,558	 	 	 
	 	 	 	 	
	
	 	 	 	 	 	 	
	 	 	 	 	 	 	
	 	 	 
	 	 	 	 	 	 	 	(5,823	)	 	 	 	 	 	(14,121	)	 	 	 	 	 	(17,991	)
	 .  Foreign exchange gains and losses
	 	 	 	(161	)	 	 	 	 	 	 	3,159	 	 	 	 	 	 	1,043	 	 	 
	 	 	 	 	 	 	 	(161	)	 	 	 	 	 	3,159	 	 	 	 	 	 	1,043	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	
	 	 	 	 	 	
	

	 TOTAL FINANCIAL INCOME AND EXPENSE
	 	 	 	 	 	 	24,834	 	 	 	 	 	 	(218	)	 	 	 	 	 	3,557	 
	 	 	 	 	 	 	 	
	
	 	 	 	 	 	
	
	 	 	 	 	 	
	

  

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	 STATEMENTS OF INCOME

	 	 9 months to
 September 30, 2004

	 	 	 9 months to
 September 30, 2003

	 	 	Year 2003

	 
	(in thousands of euro)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
							
	 VALUE ADJUSTMENTS TO FINANCIAL ASSETS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  Upward adjustments
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  of equity investments
	 	31	 	 	 	 	 	—	 	 	 	 	 	—	 	 	 	 
	 ..  of securities, other than equity investments, included in current assets
	 	26	 	 	 	 	 	—	 	 	 	 	 	—	 	 	 	 
	 	 	
	
	 	 	 	 	
	
	 	 	 	 	
	
	 	 	 
	 	 	 	 	 	57	 	 	 	 	 	—	 	 	 	 	 	—	 
	 	 	 	 	 	
	
	 	 	 	 	
	
	 	 	 	 	
	

	 .  Writedowns
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  of equity investments
	 	—	 	 	 	 	 	4,494	 	 	 	 	 	4,520	 	 	 	 
	 ..  securities, other than equity investments, included in long-term investments
	 	—	 	 	 	 	 	1,563	 	 	 	 	 	1,836	 	 	 	 
	 ..  of securities, other than equity investments, included in current assets
	 	—	 	 	 	 	 	619	 	 	 	 	 	372	 	 	 	 
	 	 	
	
	 	 	 	 	
	
	 	 	 	 	
	
	 	 	 
	 	 	 	 	 	—	 	 	 	 	 	6,676	 	 	 	 	 	6,728	 
	 	 	 	 	 	
	
	 	 	 	 	
	
	 	 	 	 	
	

	 TOTAL VALUE ADJUSTMENTS TO FINANCIAL ASSETS
	 	 	 	 	57	 	 	 	 	 	(6,676	)	 	 	 	 	(6,728	)
	 	 	 	 	 	
	
	 	 	 	 	
	
	 	 	 	 	
	

	 EXTRAORDINARY INCOME AND EXPENSE
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 .  Income
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  elimination of tax interference
	 	241,702	 	 	 	 	 	—	 	 	 	 	 	—	 	 	 	 
	 ..  miscellaneous
	 	9,439	 	 	 	 	 	622,885	 	 	 	 	 	646,610	 	 	 	 
	 	 	
	
	 	 	 	 	
	
	 	 	 	 	
	
	 	 	 
	 	 	 	 	 	251,141	 	 	 	 	 	622,885	 	 	 	 	 	646,610	 
	 .  Expense
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ..  prior years’ taxes
	 	(92,413	)	 	 	 	 	(7,665	)	 	 	 	 	(7,670	)	 	 	 
	 ..  provisions and writedowns to equity investments
	 	—	 	 	 	 	 	(478,000	)	 	 	 	 	(618,000	)	 	 	 
	 ..  miscellaneous
	 	(8,737	)	 	 	 	 	(18,295	)	 	 	 	 	(29,119	)	 	 	 
	 	 	
	
	 	 	 	 	
	
	 	
	
	 	
	
	 	 	 
	 	 	 	 	 	(101,150	)	 	 	 	 	(503,960	)	 	 	 	 	(654,789	)
	 	 	 	 	 	
	
	 	 	 	 	
	
	 	 	 	 	
	

	 TOTAL EXTRAORDINARY INCOME AND EXPENSE
	 	 	 	 	149,991	 	 	 	 	 	118,925	 	 	 	 	 	(8,179	)
	 	 	 	 	 	
	
	 	 	 	 	
	
	 	 	 	 	
	

	 INCOME BEFORE TAXES
	 	 	 	 	3,375,811	 	 	 	 	 	3,081,360	 	 	 	 	 	3,851,624	 
	 .  Income taxes, current and deferred
	 	 	 	 	1,233,000	 	 	 	 	 	1,235,000	 	 	 	 	 	1,530,000	 
	 	 	 	 	 	
	
	 	 	 	 	
	
	 	 	 	 	
	

	 NET INCOME
	 	 	 	 	2,142,811	 	 	 	 	 	1,846,360	 	 	 	 	 	2,321,624	 
	 	 	 	 	 	
	
	 	 	 	 	
	
	 	 	 	 	
	

  

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 NOTES TO THE FINANCIAL STATEMENTS

  
 INTRODUCTION 
  
 The interim financial statements for the nine months ended September 30, 2004 of TIM S.p.A.
have been prepared in accordance with the provisions of the Italian Civil Code pertaining to statutory financial statements and with the changes and additions introduced by the reform of corporate law pursuant to Legislative Decree No. 6 dated
January 17, 2003, as amended, art. 81 of Consob Resolution No. 11971 dated May 14, 1999 and the relevant Annex 3C-bis and subsequent changes and additions. 
  
 Appropriate reclassifications have been made to the data relating to prior periods, where necessary, for purposes of comparison with the interim financial statements for
the nine months ended September 30, 2004. 
  
 The statement of cash flows is
attached to these interim financial statements (Annex 5). 
  
 All amounts are
expressed in thousands of euros, unless otherwise indicated. 
  
 Summary of
significant accounting policies 
  
 The accounting policies adopted in the
preparation of the interim financial statements for the nine months ended September 30, 2004, taking into account the adjustments required by the nature of interim financial reporting, have been applied on a basis consistent with those of the annual
financial statements, with the exception of income taxes for the period. 
  
 Intangible assets 
  
 Intangible assets are stated at
purchase or production cost and are systematically amortized each year on the basis of their estimated residual period of benefit. 
  
 Appropriate writedowns are made when the investments are considered unlikely to be fully recovered and their cost is written down to market value or, in the event of
sale, to realizable value. In subsequent financial statements, the lower value will not be maintained in cases in which the reasons for the writedown cease to exist. 
  
 The amortization policy is described in the following paragraphs. 
  
 Start-up and expansion costs: these are amortized over a period not exceeding five years beginning from the year in which the costs
are incurred. With reference to the provisions of art. 2426, paragraph 5, of the Italian Civil Code, a statement is made to the effect that the amount of available reserves exceeds the value of unamortized intangible assets. 
  
 Industrial patents and intellectual property rights: these are amortized according to
their estimated useful life on a five-year basis or on a three-year basis in the case of software, beginning from the time the cost is incurred. 
  
 Concessions, licenses, trademarks and similar rights: these are amortized according to their residual period of utilization. 
  
 Goodwill: this refers to the purchase of the Information Technology business segment
from IT Telecom S.p.A. and is amortized over three years. 
  
 Other
intangibles: these refer to leasehold improvements and are amortized over five years. 
  
 Work in progress: this is stated at the direct amount of costs incurred for the purchase of assets, services rendered by third parties and miscellaneous expenses. 
  
 Fixed assets 
  
 Fixed assets are stated at purchase or production cost and depreciated systematically on the basis of their residual useful life according
to the following criteria. The cost of assets transferred by Telecom Italia at the time of the 

  

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 demerger included inflation adjustments made
pursuant to special laws on assets existing at December 31, 1981 (Law No. 576 dated December 2, 1975 and Law No. 72 dated March 19, 1983) as well as mandatory revaluations of properties (purchased by December 31, 1990 and shown in the balance sheet
at December 31, 1991) pursuant to Law No. 413 dated December 30, 1991. 
  
 Fixed
assets are depreciated each year using the straight-line method at rates determined on the basis of their estimated remaining useful life. 
  
 Ordinary maintenance expenses are entirely charged to the statement of income in the year incurred. 
  
 Mobile radio equipment owned by the company or leased to customers is fully depreciated in the year of purchase, given the low per unit cost
and short useful life. 
  
 Construction in progress: this is stated at the
amount of direct costs incurred for the purchase of assets, third-party services and miscellaneous expenses. 
  
 Long-term investments 
  

	•	 	Equity investments: long-term equity investments are stated at purchase or subscription cost, applying the criterion of weighted average cost per movement, if any. For
companies that present performance such as to assume a permanent impairment in value, the amount is adjusted – through specific writedowns – up to the value attributable to the equity investments. Losses in value exceeding the
corresponding carrying value are shown in the Reserves for risks and charges. 

  
 Writedowns to equity investments are not maintained in successive years if the conditions generating them cease to exist. 
  
 The cost of equity investments in foreign companies has been converted to euros at the exchange rate prevailing at the time of acquisition or
subscription. 
  

	•	 	Other securities other than equity investments: if acquired with the intention of keeping them in portfolio until maturity, such securities are recorded in long-term
investments at purchase cost adjusted by the pertinent portion referring to the difference between purchase cost and reimbursement value. 

  
 Inventories 
  
 Inventories are stated at the lower of realizable value and purchase cost, determined using the weighted average cost method. Merchandise exceeding foreseeable commercial requirements and slow-moving or obsolete
inventories are written down to estimated realizable value. 
  
 Accounts
receivable and liabilities 
  
 Accounts receivables included in long-term
investments and current assets are stated at estimated realizable value. 
  
 Liabilities are shown at nominal value. 
  
 Accounts receivable due from
the Company’s dealers are subject to sale without recourse to factoring companies (within pre-set limits). When each receivable sold becomes due, the factoring company pays the Company the nominal value of such accounts receivable, net of
amounts due to dealers for services rendered. The Company has not issued any guarantees for these transactions. 
  
 Transactions in foreign currency 
  
 Monetary assets and liabilities are accounted for at the exchange rate as of the transaction date and updated to the exchange rates prevailing at period-end, taking into
account hedging contracts. Unrealized positive and negative and differences arising from recording foreign currency assets and liabilities at the exchange rates at the transaction date and at the period end date are recorded in the statement of
income and any unrealized net exchange gain is set aside in a specific reserve until realization. 
  

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 Treasury stock 
  
 Treasury stock is recorded in current assets as it is available for sale, and has been
purchased on the market in execution of the resolutions passed by the Shareholders’ Meetings of June 15, 1999 and April 12, 2000. These shares are shown at the lower of cost (calculated as the weighted average for each movement) and market
value. A specific equity reserve has been recorded in Shareholders’ equity under liabilities for the same amount as the treasury stock booked under assets. 
  

Accruals and deferrals 
  
 These items are recorded on the accrual basis. 
  
 Reserves for risks and charges 
  
 Reserve for taxes and reserve for deferred taxes: this includes income taxes for the period calculated on the basis of the best possible estimate using available
information and on a reasonable projection of performance for the year up to the end of the tax period. It also includes deferred taxes, net of deferred tax assets, whenever the conditions exist, deriving from temporary differences between the
values attributed to assets and liabilities for accounting purposes and the value attributed to the same assets and liabilities for tax purposes. 
  
 Deferred tax assets which cannot be set off against deferred tax liabilities are booked in Current assets under Deferred tax assets. 
  
 In keeping with the principle of prudence, deferred tax assets are not booked unless there is
reasonable certainty of the existence of sufficient taxable income in future years when the temporary differences reverse. 
  
 No deferred taxes are set aside on tax suspension reserves unless transactions for their distribution or utilization are expected to be entered into and the distribution
or utilization will give rise to taxation. 
  
 Other reserves: these
reserves relate primarily to provisions to cover expenses of certain or likely existence whose amount or date of occurrence could, however, not be determined at the end of the period. 
  
 Reserve for employee termination indemnities 
  
 The reserve for employee termination indemnities, recorded net of advances paid, is determined based on the provisions of art. 2120 of the
Italian Civil Code, Law No. 297 of May 29, 1982 calling for mandatory cost-of-living adjustments, and also on collective bargaining agreements. The reserve is adjusted to the liability maturing at the end of the period for personnel in force at that
date. Other receivables in Long-term investments include receivables for taxes paid in advance on employees termination indemnities as set forth by Law No. 662 dated December 23, 1996, and subsequent changes and additions. 
  
 Revenues and expenses 
  
 Revenues and expenses are recorded on an accrual basis. 
  
 In particular, activation fees are recognized when the contract is signed, in that they are
associated with the activation expenses. As for telecommunications services, “traffic revenues” include amounts invoiced by the Company to its customers and payable to other domestic and foreign wireline and mobile operators. 

 
 Grants 
  
 Operating grants and grants for plant installations are recorded in “Other revenues and income” in the accounting period in which
the paperwork documenting the grants is received, or in the period in which the respective costs are incurred, provided that the certainty of payment is confirmed by established procedures. 
  
 Specifically, grants for plant installations are recorded under Deferred income and credited
to the statement of income in relation to the depreciation taken on the assets to which the grants refer. 
  

 10 

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 Leased assets 
  
 Capital goods acquired under leasing agreements are recognized in the financial statements
by a method consistent with current legislation, which requires that leasing payments be recorded as operating costs by the lessee. 
  
 Income taxes 
  
 Current income taxes are computed on the basis of a realistic estimate of the income tax charge according to the tax laws in force; in interim financial statements, the related income tax liability is recorded in the
reserve for taxes and deferred taxes. 
  
 Deferred income taxes are calculated
according to the policy described in the paragraph on Reserves for risks and charges. 
  
 Memorandum accounts 
  
 “Guarantees provided”
are shown at an amount equal to the obligations guaranteed net of any counter-guarantees received in order to reduce the risk and potential exposure in relation to the guaranteed party. 
  
 “Purchases and sales commitments” which do not fall under the normal operating cycle refer to contracts whose performance is
deferred and for which the Company has obligations to third parties and vice versa from the time the contracts are signed. 
  
 Commitments are valued on the basis of contracts outstanding at period-end. With regard to specific commitments, lease obligations include future lease payments plus the
purchase option. 
  
 ********* 
  
 Disclosure regarding related party transactions and, in particular, transactions with
subsidiaries, affiliated companies and parent companies and companies controlled by the latter is provided in the applicable principal balance sheet and statement of income captions. Such disclosure is considered exhaustive with regard to the
requirements of art. 2428 of the Italian Civil Code, Consob communication No. 97001574 dated February 20, 1997, No. 98015375 dated February 27, 1998 and No. 2064231 dated September 30, 2002 and art. 150, first paragraph, of Legislative Decree No.
58/1998. 
  
 All transactions entered into with such companies have been concluded
on the basis of normal market conditions or specific provisions of the law. 
  

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 BALANCE SHEETS - ASSETS 
  

			
	ASSETS	  	euro 9,741,062 thousand
	 (euro 9,160,547 thousand at December 31, 2003)
	  	 

  
 Intangible assets, fixed assets and
long-term investments increased by euro 580,515 thousand compared to December 31, 2003. 
  

			
	INTANGIBLE ASSETS	  	euro 3,109,341 thousand
	 (euro 2,944,177 thousand at December 31, 2003)
	  	 

  
 Intangible assets increased by euro
165,164 thousand compared to December 31, 2003. The increase is due to additions during the period (euro 295,412 thousand) and the writeback of the value of the UMTS license (euro 241,702 thousand) which became necessary as a result of the changes
introduced by the reform of corporate law (Legislative Decree No. 6/2003) which, overall, are higher than the amortization charge for the period (euro 371,950 thousand). 
  
 An analysis of the composition and the changes in intangible assets during the first nine months of the year is presented in the following
tables, with a separate indication of writedowns. 
  

															
	 	 	12/31/2003

	 
	 	 	Cost

	 	 	Accumulated amortization

	 	 	Total

	 
	 (in thousands of euro)

	 	Gross value

	 	Writedowns

	 	 	Gross value

	 	 	Writedowns

	 	 
	 Start-up and expansion costs
	 	34,348	 	(15,397	)	 	(23,687	)	 	8,527	 	 	3,791	 
	 Research, development and advertising costs
	 	27,940	 	(27,940	)	 	(15,472	)	 	15,472	 	 	—	 
	 Industrial patents and intellectual property rights
	 	1,950,092	 	(7,537	)	 	(1,420,663	)	 	5,943	 	 	527,835	 
	 Concessions, licenses, trademarks and similar rights
	 	2,441,070	 	(7,272	)	 	(245,616	)	 	1,676	 	 	2,189,858	 
	 Goodwill
	 	2,061	 	(2,061	)	 	(1,188	)	 	1,188	 	 	—	 
	 Work in progress and advances
	 	179,691	 	(262	)	 	—	 	 	—	 	 	179,429	 
	 Other intangibles
	 	243,196	 	(75,254	)	 	(146,315	)	 	21,637	 	 	43,264	 
	 	 	
	 	
	
	 	
	
	 	
	
	 	
	

	 Total
	 	4,878,398	 	(135,723	)	 	(1,852,941	)	 	54,443	 	 	2,944,177	 
	 	 	
	 	
	
	 	
	
	 	
	
	 	
	

		
	 	 	Changes during the period

	 
	 (in thousands of euro)

	 	Additions

	 	Reclassifications

	 	 	Sales/
Retirements/
Other movements

	 	 	Amortization

	 	 	Total

	 
	 Start-up and expansion costs
	 	—	 	—	 	 	—	 	 	(2,843	)	 	(2,843	)
	 Research, development and advertising costs
	 	—	 	—	 	 	—	 	 	—	 	 	—	 
	 Industrial patents and intellectual property rights
	 	150,776	 	120,453	 	 	—	 	 	(251,166	)	 	20,063	 
	 Concessions, licenses, trademarks and similar rights
	 	—	 	241,702	 	 	—	 	 	(101,548	)	 	140,154	 
	 Goodwill
	 	23,000	 	—	 	 	—	 	 	(3,834	)	 	19,166	 
	 Work in progress and advances
	 	106,212	 	(131,266	)	 	—	 	 	—	 	 	(25,054	)
	 Other intangibles
	 	15,424	 	10,813	 	 	—	 	 	(12,559	)	 	13,678	 
	 	 	
	 	
	
	 	
	
	 	
	
	 	
	

	 Total
	 	295,412	 	241,702	 	 	—	 	 	(371,950	)	 	165,164	 
	 	 	
	 	
	
	 	
	
	 	
	
	 	
	

  

 12 

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	 	 	9/30/2004

	 	 	Cost

	 	 	Accumulated amortization

	 	Total

	 (in thousands of euro)

	 	Gross value

	 	Writedowns

	 	 	Gross value

	 	 	Writedowns

	 
	 Start-up and expansion costs
	 	34,348	 	(15,397	)	 	(26,530	)	 	8,527	 	948
	 Research, development and advertising costs
	 	27,940	 	(27,940	)	 	(15,472	)	 	15,472	 	—
	 Industrial patents and intellectual property rights
	 	2,221,321	 	(7,537	)	 	(1,671,829	)	 	5,943	 	547,898
	 Concessions, licenses, trademarks and similar rights
	 	2,441,070	 	(7,272	)	 	(105,462	)	 	1,676	 	2,330,012
	 Goodwill
	 	25,061	 	(2,061	)	 	(5,022	)	 	1,188	 	19,166
	 Work in progress and advances
	 	154,637	 	(262	)	 	—	 	 	—	 	154,375
	 Other intangibles
	 	269,433	 	(75,254	)	 	(158,874	)	 	21,637	 	56,942
	 	 	
	 	
	
	 	
	
	 	
	 	

	 Total
	 	5,173,810	 	(135,723	)	 	(1,983,189	)	 	54,443	 	3,109,341
	 	 	
	 	
	
	 	
	
	 	
	 	

  
 The most important item in
Intangible assets is the caption Concessions, licenses, trademarks and similar rights which comprises the value of the UMTS license, purchased at the end of 2000 and booked for a cost of euro 2,417,018 thousand, equal to the bid price
at auction. 
  
 Amortization of the license commenced in January 2002 –
although its commercial use began during 2004 – so as not to compromise the tax benefit connected with deductibility. 
  
 Beginning from the first half of 2004, in compliance with the changes in the law introduced by Legislative Decree No. 6/2003 which imposes the neutralization of any tax
interference existing in the financial statements, and taking into account the recent indications provided by agencies and regulators, the amortization taken on the UMTS license up to December 31, 2003 (euro 241,702 thousand) was written back with a
contra-entry to extraordinary income. 
  
 The relative charge for deferred taxes
was recorded in the Reserve for deferred taxes (euro 91,242 thousand) with a contra-entry to extraordinary expenses. 
  
 The amortization of the UMTS license is calculated on the basis of the remaining period of utilization of the license, which is deemed to represent, at this time, the
economic life of the asset; amortization began in January 2004 in view of the fact that the service was already operational and used by a pool of experimental users. 
  
 The following tables provides a summary of the effects of the elimination of tax interference on the result for the first nine months of
2004 and shareholders’ equity at September 30, 2003. 
  

										
	 	  	9 months to
9/30/2004

	 	 	9 months to
9/30/2003

	 	 	Shareholders’ equity

	 
	 (in thousands of euro)

	  	 Income for the
 period

	 	 	Income for the
period

	 	 
	 Amounts before elimination of tax interference
	  	1,992,351	 	 	1,846,360	 	 	6,634,646	 
	 	  	
	
	 	
	
	 	
	

	 Tax interference, gross of deferred taxes
	  	241,702	 	 	93,055	 	 	120,851	 
	 Related deferred taxes
	  	(91,242	)	 	(35,122	)	 	(49,247	)
	 Total tax interference, net of deferred taxes
	  	150,460	 	 	57,933	 	 	71,604	 
	 	  	
	
	 	
	
	 	
	

	 Amounts after elimination of tax interference
	  	2,142,811	 	 	1,904,293	 	 	6,706,250	 
	 	  	
	
	 	
	
	 	
	

  

 13 

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 Additions during the period total euro 295,412
thousand and largely refer to software. Part of this amount, for euro 79 thousand, comes from the acquisition of the business segment for innovative service using IP networks from IT Telecom S.p.A.; the acquisition was finalized on April 1, 2004.
The sales price agreed by the parties was euro 23 million, which was also based on an outside appraisal conducted by Milestone Advisory House S.p.A. of Milan. This amount was posted by TIM in Goodwill and is being amortized over the estimated
residual life of three years, starting on April 1, 2004. This value is deemed to reflect the fair value of the intangible asset at September 30, 2004. 
  
 Some of the additions during the period, totaling euro 66,473 thousand, refer to transactions with related parties, mainly IT Telecom S.p.A. 
  

 14 

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	FIXED ASSETS	  	euro 2,025,414 thousand
	(euro 2,107,895 thousand at December 31, 2003)	  	 

  
 Fixed assets decreased by euro 82,481
thousand owing to additions during the period (euro 409,986 thousand) that were lower than the depreciation charge (euro 491,060 thousand) and the net value of fixed asset disposals (euro 1,407 thousand). 
  
 An analysis of the composition and the changes in fixed assets during the first nine months
of the year is presented in the following tables, with a separate indication of writedowns and upward adjustments. 
  

																		
	 	 	12/31/2003

	 
	 	 	Cost

	 	 	Accumulated depreciation

	 	 	 	 
	 (in thousands of euro)

	 	Gross
value

	 	Writedowns

	 	 	Upward
adjustments

	 	 	Gross value

	 	 	Writedowns

	 	 	Total

	 
	 Land and buildings
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 - non-industrial
	 	601	 	—	 	 	13	 	 	—	 	 	—	 	 	614	 
	 - industrial
	 	37,664	 	(9,682	)	 	1,984	 	 	(20,064	)	 	1,612	 	 	11,514	 
	 	 	
	 	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 Total land and buildings
	 	38,265	 	(9,682	)	 	1,997	 	 	(20,064	)	 	1,612	 	 	12,128	 
	 Plant and machinery
	 	5,570,951	 	(84,218	)	 	344	 	 	(4,077,484	)	 	18,505	 	 	1,428,098	 
	 Manufacturing and distribution equipment
	 	98,566	 	(5,131	)	 	2	 	 	(71,699	)	 	1,653	 	 	23,391	 
	 Other fixed assets
	 	620,148	 	(6,710	)	 	7	 	 	(410,017	)	 	2,235	 	 	205,663	 
	 Construction in progress and advances
	 	440,531	 	(1,916	)	 	—	 	 	—	 	 	—	 	 	438,615	 
	 	 	
	 	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 Total
	 	6,768,461	 	(107,657	)	 	2,350	 	 	(4,579,264	)	 	24,005	 	 	2,107,895	 
	 	 	
	 	
	
	 	
	
	 	
	
	 	
	
	 	
	

		
	 	 	Changes during the period

	 
	 (in thousands of euro)

	 	Additions

	 	 	Reclassifications

	 	 	 Sales/
 Retirements/
 Other
 movements

	 	 	Depreciation

	 	 	Total

	 
	 Land and buildings
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 - non-industrial
	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 
	 - industrial
	 	—	 	 	—	 	 	0	 	 	(938	)	 	(938	)
	 Total land and buildings
	 	—	 	 	—	 	 	0	 	 	(938	)	 	(938	)
	 	 	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 Plant and machinery
	 	258,825	 	 	335,031	 	 	(1,331	)	 	(424,039	)	 	168,486	 
	 Manufacturing and distribution equipment
	 	12,563	 	 	—	 	 	—	 	 	(9,539	)	 	3,024	 
	 Other fixed assets
	 	20,319	 	 	34,924	 	 	(76	)	 	(56,544	)	 	(1,377	)
	 Construction in progress and advances
	 	118,279	 	 	(369,955	)	 	—	 	 	—	 	 	(251,676	)
	 	 	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 Total
	 	409,986	 	 	—	 	 	(1,407	)	 	491,060	 	 	82,481	 
	 	 	
	
	 	
	
	 	
	
	 	
	
	 	
	

		
	 	 	9/30/2004

	 
	 	 	Cost

	 	 	Accumulated depreciation

	 	 	 	 
	 (in thousands of euro)

	 	Gross
value

	 	Writedowns

	 	 	Upward
adjustments

	 	 	Gross value

	 	 	Writedowns

	 	 	Total

	 
	 Land and buildings
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 - non-industrial
	 	601	 	—	 	 	13	 	 	—	 	 	—	 	 	614	 
	 - industrial
	 	33,067	 	(7,068	)	 	1,984	 	 	(17,407	)	 	—	 	 	10,576	 
	 	 	
	 	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 Total land and buildings
	 	33,668	 	(7,068	)	 	1,997	 	 	(17,407	)	 	—	 	 	11,190	 
	 Plant and machinery
	 	5,914,422	 	(81,371	)	 	344	 	 	(4,252,469	)	 	15,658	 	 	1,596,584	 
	 Manufacturing and distribution equipment
	 	111,129	 	(5,131	)	 	2	 	 	(81,238	)	 	1,653	 	 	26,415	 
	 Other fixed assets
	 	674,688	 	(6,710	)	 	7	 	 	(465,934	)	 	2,235	 	 	204,286	 
	 Construction in progress and advances
	 	188,855	 	(1,916	)	 	—	 	 	—	 	 	—	 	 	186,939	 
	 	 	
	 	
	
	 	
	
	 	
	
	 	
	
	 	
	

	 Total
	 	6,922,762	 	(102,196	)	 	2,350	 	 	(4,817,048	)	 	19,546	 	 	2,025,414	 
	 	 	
	 	
	
	 	
	
	 	
	
	 	
	
	 	
	

  

 15 

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 Additions during the first nine months of the year,
totaling euro 409,986 thousand, largely refer to transmission installations and machinery. Part of the additions referring to the caption Other fixed assets, amounting to euro 450 thousand, come from the sale of the business segment by IT
Telecom, the seller, to TIM, the buyer, as commented in Intangible assets. 
  
 Some of the additions during the nine-month period, totaling euro 793 thousand, refer to transactions with related parties, mainly IT Telecom S.p.A. 
  
 Details of fixed assets sold/retired/transferred during the period January 1 – September 30, 2004 are provided in the following table. 
  

															
	 	 	Cost

	 	Accumulated depreciation

	 (in thousands of euro)

	 	Gross
value

	 	Writedowns

	 	 	Upward
adjustments

	 	Gross
value

	 	 	Writedowns

	 	Total

	 Land and buildings
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 - non-industrial
	 	—	 	—	 	 	—	 	—	 	 	—	 	—
	 - industrial
	 	4,597	 	(2,614	)	 	—	 	(3,595	)	 	1,612	 	0
	 	 	
	 	
	
	 	
	 	
	
	 	
	 	

	 Total land and buildings
	 	4,597	 	(2,614	)	 	—	 	(3,595	)	 	1,612	 	0
	 Plant and machinery
	 	250,385	 	(2,847	)	 	—	 	(249,054	)	 	2,847	 	1,331
	 Manufacturing and distribution equipment
	 	—	 	—	 	 	—	 	—	 	 	—	 	—
	 Other fixed assets
	 	703	 	—	 	 	—	 	(627	)	 	—	 	76
	 Construction in progress and advances
	 	—	 	—	 	 	—	 	—	 	 	—	 	—
	 	 	
	 	
	
	 	
	 	
	
	 	
	 	

	 Total
	 	255,685	 	(5,461	)	 	—	 	(253,276	)	 	4,459	 	1,407
	 	 	
	 	
	
	 	
	 	
	
	 	
	 	

  
 In March 2004, TIM contributed the
business segment for applications development and maintenance in SAP environment to Societa Consortile Shared Service Center a r.l., acquiring 4.55% of the company, an affiliate of the Telecom Italia Group. The fixed assets sold, the net book value
of which totaled euro 15 thousand, referred to the Other fixed assets category. 
  

 16 

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	LONG-TERM INVESTMENTS	  	euro 4,606,307 thousand
	(euro 4,108,475 thousand at December 31, 2003)	  	 

  
 Long-term investments increased by
euro 497,832 thousand, compared to December 31, 2003, and is detailed as follows: 
  

					
	 (in thousands of euro)

	  	9/30/2004

	  	12/31/2003

	 Equity investments in:
	  	 	  	 
	 - subsidiaries
	  	4,262,737	  	3,964,877
	 - affiliated companies
	  	41	  	1,469
	 - other companies
	  	601	  	536
	 	  	
	  	

	 	  	4,263,379	  	3,966,882
	 	  	
	  	

	 Advances on future capital contributions
	  	319,543	  	120,940
			
	 Accounts receivable:
	  	 	  	 
	 - other receivables
	  	22,112	  	17,681
	 	  	
	  	

	 	  	341,655	  	138,621
	 	  	
	  	

	 Other securities
	  	1,273	  	2,972
	 	  	
	  	

	 Total
	  	4,606,307	  	4,108,475
	 	  	
	  	

  

			
	Equity investments	  	euro 4,263,379 thousand
	 (euro 3,966,882 thousand at December 31, 2003)
	  	 
		
	 Subsidiaries
	  	euro 4,262,737 thousand
	 (euro 3,964,877 thousand at December 31, 2003)
	  	 

  
 Equity investments in subsidiaries
refer to the holding in TIM International N.V. The euro 297,860 thousand increase is due to the conversion to share capital of a part of advances on future capital contributions made during the first months of 2004 and of all those booked at
December 31, 2003. The carrying value of the subsidiary was thus increased up to euro 8,364,737 thousand, gross of the writedowns made in prior years for euro 4,102,000 thousand. 
  

			
	Affiliated companies	  	euro 41 thousand
	 (euro 1,469 thousand at December 31, 2003)
	  	 

  
 Equity investments in affiliated
companies decreased by euro 1,428 thousand, compared to December 31, 2003, owing to the sale of the investment in Edotel S.p.A. to Telecom Italia S.p.A. The sale price was equal to the carrying value in the financial statements (euro 1,939
thousand). 
  

			
	Other companies	  	euro 601 thousand
	 (euro 536 thousand at December 31, 2003)
	  	 

  
 Equity investments in other companies
increased by euro 65 thousand, compared to December 31, 2003, following the acquisition of the investment in Societa Consortile Shared Service Center a r.l. The acquisition was part of the deal for the contribution of the business segment
commented under fixed assets. The amount corresponds to the value of the business segment conferred and established by the appraiser assigned by the Milan Court. 
  

			
	Advances on future capital contributions	  	euro 319,543 thousand
	 (euro 120,940 at December 31, 2003)
	  	 

  
 Advances on future capital
contributions increased by euro 198,603 thousand compared to the end of the prior year. 
  
 These refer to non-interest earning advances for future capital increases paid during the period to TIM International N.V. and not yet converted to share capital. 
  

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 Such advances are directed toward providing support
for the development of the TIM Group abroad, principally in South America. Advances on future capital contributions at December 31, 2003 and a part of the advances made during 2004 (for a total of euro 177,400 thousand) have been converted, for euro
297,860 thousand, to share capital following the resolution passed by the Shareholders’ Meeting of the subsidiary on April 29, 2004. 
  

												
	 (in thousands of euro)

	 	12/31/2003

	 	Advances

	 	Reimbursements

	 	 Other
 changes

	 	 	9/30/2004

	 Equity investments in subsidiaries
	 	 	 	 	 	 	 	 	 	 	 
	 TIM International N.V.
	 	120,460	 	496,943	 	—	 	(297,860	)	 	319,543
						
	 Equity investments in affiliated companies
	 	 	 	 	 	 	 	 	 	 	 
	 Edotel S.p.A.
	 	480	 	—	 	—	 	(480	)	 	—
	 	 	
	 	
	 	
	 	
	
	 	

	 Total
	 	120,940	 	496,943	 	—	 	(298,340	)	 	319,543
	 	 	
	 	
	 	
	 	
	
	 	

  
 Details of changes during the period
in equity investments and advances on future capital contributions, as well as the list of equity investments held by TIM S.p.A., are listed at the end of these Notes in Annex 1. 
  

			
	 Accounts receivable
	  	euro 22,112 thousand
	 (euro 17,681 thousand at December 31, 2003)
	  	 

  
 Accounts receivable increased by euro
4,431 thousand compared to December 31, 2003. They refer to: 
  

	 	•	 	loans granted to employees for euro 21,230 thousand; 

  

	 	•	 	tax credits on advances made from employee termination indemnities (revalued by euro 12 thousand pursuant to Law No. 662/1996, and subsequent changes and integrations) for euro 882
thousand. The upward adjustment has been booked in financial income. 

  

											
	 (in thousands of euro)

	  	12/31/2003

	  	Changes during the period

	  	9/30/2004

	  	  	Disbursements

	  	Reimbursements

	  	Other changes

	  
	 Other receivables
	  	17,681	  	4,036	  	—	  	395	  	22,112
	 	  	
	  	
	  	
	  	
	  	

	 Total
	  	17,681	  	4,036	  	—	  	395	  	22,112
	 	  	
	  	
	  	
	  	
	  	

  
 A breakdown of accounts receivable
falling due within and beyond five years is presented in these Notes in Annex 2. 
  

			
	Securities	  	euro 1,273 thousand
	 (euro 2,972 thousand at December 31, 2003)
	  	 

  
 Securities decreased by euro 1,699
thousand compared to December 31, 2003. They refer to an investment in the Saturn Venture Partners LLC closed-end investment fund. 
  
 Government securities recorded in the financial statements at December 31, 2003 for euro 1,550 thousand became due in the early months of 2004. 
  

 18 

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	CURRENT ASSETS	  	euro 3,173,891 thousand
	 (euro 4,336,814 thousand at December 31, 2003)
	  	 
		
	 INVENTORIES
	  	euro 38,075 thousand
	 (euro 20,288 thousand at December 31, 2003)
	  	 
		
	 Merchandise
	  	euro 38,075 thousand
	 (euro 20,288 thousand at December 31, 2003)
	  	 

  
 Period-end inventories consisted of
the following: 
  

	 	•	 	euro 36,933 thousand of mobile radio equipment and relevant accessories (net of an inventory writedown of euro 448 thousand); 

  

	 	•	 	euro 1,590 thousand of equipment acquired following finalization of the sale of the business segment by Wind S.p.A. to TIM which gave rise, in the previous year, to the acquisition
of assets related to the “Core Network” of ex-Blu S.p.A., part of which could not be used by the TIM network and were thus resold. 

  

			
	ACCOUNTS RECEIVABLE	  	euro 3,129,473 thousand
	 (euro 4,309,255 thousand at December 31, 2003)
	  	 

  
 Accounts receivable decreased by euro
1,179,782 thousand compared to December 31, 2003. 
  
 The table below provides
details, for each accounts receivable category, of beginning and ending balances as well as changes during the period. 
  

															
	 (in thousands of euro)

	  	12/31/2003

	 	 	Changes during the period

	 	 	9/30/2004

	 
	  	 	Utilizations

	  	Provisions

	 	 	Other changes

	 	 
	 Trade accounts receivable
	  	1,193,551	 	 	—	  	—	 	 	(4,064	)	 	1,189,487	 
	 - allowance for doubtful accounts
	  	(111,000	)	 	9,876	  	(29,876	)	 	—	 	 	(131,000	)
	 	  	
	
	 	
	  	
	
	 	
	
	 	
	

	 Total trade accounts receivable
	  	1,082,551	 	 	9,876	  	(29,876	)	 	(4,064	)	 	1,058,487	 
	 	  	
	
	 	
	  	
	
	 	
	
	 	
	

	 Accounts receivable from subsidiaries
	  	32,037	 	 	—	  	—	 	 	9,221	 	 	41,258	 
	 Accounts receivable from affiliated companies
	  	11,387	 	 	—	  	—	 	 	(9,691	)	 	1,696	 
	 - allowance for doubtful accounts
	  	(11,153	)	 	11,109	  	—	 	 	—	 	 	(44	)
	 	  	
	
	 	
	  	
	
	 	
	
	 	
	

	 Total accounts receivable from affiliated companies
	  	234	 	 	11,109	  	—	 	 	(9,691	)	 	1,652	 
	 	  	
	
	 	
	  	
	
	 	
	
	 	
	

	 Accounts receivables from parent companies
	  	1,651,479	 	 	—	  	—	 	 	(977,745	)	 	673,734	 
	 	  	
	
	 	
	  	
	
	 	
	
	 	
	

	 Taxes receivable
	  	7,389	 	 	—	  	—	 	 	1,592	 	 	8,981	 
	 	  	
	
	 	
	  	
	
	 	
	
	 	
	

	 Deferred tax assets
	  	1,038,520	 	 	—	  	—	 	 	(45,983	)	 	992,537	 
	 	  	
	
	 	
	  	
	
	 	
	
	 	
	

	 Other receivables
	  	 	 	 	 	  	 	 	 	 	 	 	 	 
	 Government and other public entities for grants and subsidies
	  	12,570	 	 	—	  	—	 	 	(44	)	 	12,526	 
	 Other receivables
	  	484,475	 	 	—	  	—	 	 	(144,177	)	 	340,298	 
	 	  	
	
	 	
	  	
	
	 	
	
	 	
	

	 Total other receivables
	  	497,045	 	 	—	  	—	 	 	(144,221	)	 	352,824	 
	 	  	
	
	 	
	  	
	
	 	
	
	 	
	

	 Total
	  	4,309,255	 	 	20,985	  	(29,876	)	 	(1,170,891	)	 	3,129,473	 
	 	  	
	
	 	
	  	
	
	 	
	
	 	
	

  
 Trade accounts receivable,
gross of the relative allowance account, totals euro 1,189,487 thousand, for a decrease of euro 4,064 thousand compared to December 31, 2003. 
  

 19 

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 Starting in the first half of 2004, trade accounts
receivable sold to factoring companies and not yet due are recorded in other receivables, consistent with the Group’s classification policy; up to December 31, 2003, such receivables had been classified in trade accounts
receivable. Receivables with factoring companies total euro 146,808 thousand at September 30, 2004. Appropriate reclassifications were also made to the balances at September 30, 2003 and December 31, 2003 (euro 178,875 thousand and euro 266,267
thousand, respectively), for purposes of comparison. 
  
 The allowance for
doubtful receivables at September 30, 2004 amounts to euro 131,000 thousand, after utilization of euro 9,876 thousand and provisions of euro 29,876 thousand. 
  
 Accounts receivable arising from trade transactions with related parties total euro 242,321 thousand and mainly refer to Telecom Italia Sparkle S.p.A. 
  
 Accounts receivable from subsidiaries increased by euro 9,221 thousand, compared to
December 31, 2003, and mainly refer to trade transactions (euro 31,377 thousand) principally in connection with traffic revenues. 
  
 Accounts receivable from affiliated companies, gross of the relative allowance account, amount to euro 1,696 thousand, for a decrease of euro 9,691 thousand
compared to December 31, 2003. During the first few months of the year, part of the trade accounts receivable due from Is TIM (subsequently merged with the Turkish mobile operator Aycell in TT&TIM, now AVEA I.H.A.S.), equal to euro 11,109
thousand - covered by the allowance for doubtful receivables at December 31, 2003 – was sold to the subsidiary TIM International N.V. at net book value. 
  
 The balance of accounts receivable from affiliated companies at the end of the period consists of euro 66 thousand of financial receivables, euro 141 thousand of trade
receivables (also principally for traffic revenues) and euro 1,445 thousand of other receivables. 
  
 Accounts receivable from parent companies decreased by euro 977,745 thousand, compared to December 31, 2003, and include the balance on the correspondence current account (euro 497,870 thousand, a decrease of
euro 942,591 thousand), trade accounts receivable (euro 174,207 thousand) and other receivables (euro 1,657 thousand). The correspondence current account represents almost all of the financial resources of TIM S.p.A. at September 30, 2004.

  
 Deferred tax assets amount to euro 992,537 thousand and are presented
net of the reserve for deferred taxes totaling euro 51,993 thousand. 
  
 The gross
amount of deferred tax assets mainly refers to the portion of the writedowns made to the carrying value of the subsidiary TIM International N.V. in 2002 and 2003 which will become deductible in future years. 
  
 Other receivables are detailed in the following table. 
  

								
	 (in thousands of euro)

	  	9/30/2004

	  	12/31/2003

	  	Changes

	 
	 Government and other public entities for grants and subsidies
	  	12,526	  	12,570	  	(44	)
	 Accounts receivable from factoring companies
	  	146,808	  	266,267	  	(119,459	)
	 Receipts from factoring companies in transit
	  	59,803	  	107,332	  	(47,529	)
	 Other receipts in transit
	  	803	  	2,415	  	(1,612	)
	 Employee-related receivables
	  	5,549	  	3,961	  	1,588	 
	 Other receivables
	  	127,335	  	104,500	  	22,835	 
	 	  	
	  	
	  	
	

	 Total
	  	352,824	  	497,045	  	(144,221	)
	 	  	
	  	
	  	
	

  
 During the first nine months of the
year, TIM sold trade accounts receivable without recourse to factoring companies within pre-fixed limits for euro 2,359 million. 
  
 Accounts receivable from related parties amount to euro 137,220 thousand and principally refer to the company Intesa Mediofactoring S.p.A. 
  
 A breakdown of accounts receivable, accrued income and prepaid expenses by maturity and type
is given at the end of these notes in Annex 2. 
  

 20 

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	SHORT-TERM FINANCIAL ASSETS	  	euro 3,939 thousand
	 (euro 3,913 thousand at December 31, 2003)
	  	 

  
 Treasury stock 
  
 Treasury stock refers to 897,835 TIM ordinary shares purchased in 2000, in execution of the
resolutions passed by the Shareholders’ Meetings of June 15, 1999 and April 12, 2000, for subsequent sale to dealers. This treasury stock, representing the shares remaining after the expiration of the offer to the dealers, was upwardly adjusted
to market value by euro 26 thousand. There were no new purchases or sales of treasury stock during the nine-month period. 
  

			
	LIQUID ASSETS	  	euro 2,404 thousand
	 (euro 3,358 thousand at December 31, 2003)
	  	 

  
 Liquid assets decreased by euro 954
thousand compared to December 31, 2003. Liquid assets include bank and postal accounts for euro 1,909 thousand (a reduction of euro 1,137 thousand) and cash and valuables on hand for euro 495 thousand. 
  
 Related party transactions, consisting of liquid assets on the current account, total euro
1,775 thousand and chiefly refer to Banca Intesa group companies. 
  

			
	ACCRUED INCOME AND PREPAID EXPENSES	  	euro 64,285 thousand
	 (euro 43,760 thousand at December 31, 2003)
	  	 

  
 Accrued income and prepaid expenses
increased by euro 20,525 thousand compared to December 31, 2003. 
  
 Accrued
income totals euro 5,100 thousand (euro 1,858 thousand at December 31, 2003) and are mainly financial in nature. 
  
 Related party transactions total euro 5,064 thousand and principally refer to Telecom Italia S.p.A. 
  
 Prepaid expenses amount to euro 59,185 thousand (euro 41,902 thousand at December 31, 2003) and include euro 22,651 thousand
referring to October line leases charged by Telecom Italia S.p.A., euro 21,464 thousand for the reversal of property lease advance payments and related shared expenses and euro 5,184 thousand for sponsorship expenses referring to the last quarter of
the year. 
  
 Related party transactions amount to euro 25,799 thousand and
principally refer to Telecom Italia S.p.A. 
  

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 BALANCE SHEETS - LIABILITIES AND
SHAREHOLDERS’ EQUITY 
  

			
	SHAREHOLDERS’ EQUITY	  	euro 8,898,815 thousand
	 (euro 8,956,270 thousand at December 31, 2003)
	  	 

  
 Shareholders’ equity decreased by
euro 57,455 thousand compared to December 31, 2003. 
  
 The following table shows
the individual components of Shareholders’ equity and the relative changes during the period. 
  
 SHAREHOLDERS’ EQUITY 
  

											
	 	  	Changes during the period

	 (in thousands of euro)

	  	Balance
12/31/2003

	  	 Appropriation of
 2003 net income

	 	 	 Other
 changes

	 	 	Balance
9/30/2004

	 Share capital
	  	513,964	  	—	 	 	—	 	 	513,964
	 Additional paid-in capital
	  	5,525,626	  	—	 	 	—	 	 	5,525,626
	 Legal reserve
	  	103,942	  	—	 	 	—	 	 	103,942
	 Reserve for treasury stock in portfolio
	  	3,913	  	—	 	 	26	 	 	3,939
	 Other reserves:
	  	 	  	 	 	 	 	 	 	 
	 Reserve Law No. 342/2000, art. 14
	  	303,827	  	—	 	 	—	 	 	303,827
	 Reserve for accelerated depreciation
	  	—	  	103,414	 	 	46,586	 	 	150,000
	 Special reserve
	  	113,579	  	17,944	 	 	(45,281	)	 	86,242
	 Reserve for capital grants
	  	14,681	  	—	 	 	—	 	 	14,681
	 Merger surplus reserve
	  	53,783	  	—	 	 	—	 	 	53,783
	 Retained earnings
	  	1,331	  	—	 	 	(1,331	)	 	—
	 Net income
	  	2,321,624	  	(2,321,624	)	 	2,142,811	 	 	2,142,811
	 	  	
	  	
	
	 	
	
	 	

	 Total shareholders’ equity
	  	8,956,270	  	(2,200,266	)	 	2,142,811	 	 	8,898,815
	 	  	
	  	
	
	 	
	
	 	

  
 There were no changes in share
capital during the period. Share capital amounts to euro 513,964,432.74 and consists of 8,434,004,716 ordinary shares and 132,069,163 savings shares, each with a par value of euro 0.06. 
  
 The Reserve for treasury stock in portfolio increased by euro 26 thousand, compared to
December 31, 2003, following adjustment of the carrying value of treasury shares booked in Current assets; the special reserve also decreased by the same amount. 
  
 The Reserve for accelerated depreciation was set up, ex art. 67 paragraph 3 of D.P.R. No. 917/1986 (text prior to the changes set
forth in Legislative Decree No. 344/2003), by an appropriation of 2003 profits for euro 103,414 thousand and by a transfer from the special reserve for euro 46,586 thousand, as voted by the Shareholders’ Meeting which approved the 2003
financial statements. At the end of the year, the Reserve for accelerated depreciation will be reclassified to special reserve, not being necessary the separate indication in the balance sheet, in accordance to art. 109, paragraph 4,
T.U.I.R., furthermore remaining the total tax suspension (as more highlighted in table of the restrictions of a tax nature regarding share capital and reserves). 
  
 The Special reserve, besides the changes described previously, increased by euro 17,944 thousand, being the difference between the
maximum dividends voted on 2003 net income and the dividends actually paid to the shareholders. Such difference was caused by the failure to fully subscribe to the portion of the share capital increases available for subscription and the existence
of treasury stock in portfolio. The special reserve also increased by euro 1,331 thousand as a result of the transfer of retained earnings appropriated in 2002, as voted by the Shareholders’ Meeting which approved the 2003 financial statements.

  
 Retained earnings decreased by euro 1,331 thousand as a result of
previously described transfer to the Special reserve. 
  

 22 

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 In order to complete disclosure on the amounts and
the composition of Shareholders’ equity, details of the nature of the individual equity reserves and the portions that are subject to restrictions for statutory purposes are described in the following table. 
  

							
	 (in thousands of euro)

	  	 Balance
 9/30/2004

	  	Amount
subject to
restrictions

	  	Amount not
subject
to restrictions

	 Capital reserves
	  	 	  	 	  	 
	 Additional paid-in capital
	  	5,525,626	  	—	  	5,525,626
	 Legal reserve
	  	103,942	  	102,793	  	1,149
	 Merger surplus reserve
	  	53,783	  	—	  	53,783
	 	  	
	  	
	  	

	 Total capital reserves
	  	5,683,351	  	102,793	  	5,580,558
	 	  	
	  	
	  	

	 Income reserves
	  	 	  	 	  	 
	 Reserve for treasury stock in portfolio
	  	3,939	  	3,939	  	—
	 Reserve Law No. 342/2000, art. 14
	  	303,827	  	444	  	303,383
	 Special reserve
	  	86,242	  	79,515	  	6,727
	 Reserve for accelerated depreciation
	  	150,000	  	—	  	150,000
	 Reserve for capital grants
	  	14,681	  	—	  	14,681
	 	  	
	  	
	  	

	 Total income reserves
	  	558,689	  	83,898	  	474,791
	 	  	
	  	
	  	

	 Total reserves in shareholders’ equity
	  	6,242,040	  	186,691	  	6,055,349
	 	  	
	  	
	  	

  
 The entire amount of additional
paid-in capital is available for distribution owing to the fact that the legal reserve is higher than one-fifth of share capital. 
  
 The legal reserve is available for an amount of euro 1,149 thousand, that is, for the amount which exceeds the amount restricted as per art. 2430 of the Italian
Civil Code. 
  
 The merger surplus reserve, generated in 2002 following the
merger of Blu S.p.A. in TIM, corresponds to the difference between the carrying value of the cancelled shares and the underlying share of net equity of the merged company. The entire amount is available for distribution. 
  
 The reserve for treasury stock in portfolio is not a distributable reserve, as
provided by art. 2357-ter of the Italian Civil Code. 
  
 The reserve Law No.
342/2000, art. 14 of and the special reserve are not available for distribution in part (respectively, for euro 444 thousand and euro 78,567 thousand), given that these amounts have been set aside to guarantee the capital
stated as the source of financing to fund specific investment programs under Law No. 488/92. 
  
 The special reserve is also unavailable for distribution – as per art. 2426 of the Italian Civil Code – for a further amount equal to the residual value of the start-up and expansion costs recorded in assets
(euro 948 thousand). 
  
 Lastly, investment programs under Law No. 488/1992 are
underway for a total of euro 139,500 thousand for which a request has been filed to obtain benefits; should the benefits in question be awarded, the Company is obliged to set up a guarantee with its own equity for a total amount of euro 103,015
thousand, as a result of which the reserve for accelerated depreciation will be restricted for the same amount, as voted by the Shareholders’ Meeting for the approval of the financial statements. 
  

 23 

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 Restrictions of a tax nature regarding share
capital and reserves at September 30, 2004 are as follows: 
  

					
	 (in thousands of euro)

	  	Balance
9/30/2004

	  	Amount liened for
tax purposes

	 Share capital
	  	513,964	  	100,347
	 Reserve Law No. 342/2000, art. 14
	  	303,827	  	303,827
	 Reserve for accelerated depreciation
	  	150,000	  	150,000
	 Reserve for capital grants
	  	14,681	  	14,681
	 	  	
	  	

	 Total reserves
	  	468,508	  	468,508
	 	  	
	  	

	 Total
	  	982,472	  	568,855
	 	  	
	  	

  
 The reserve Law No. 342/2000,
art. 14, set up in 2001 to adjust the fiscal values of certain depreciable assets to the higher values shown in the financial statements is still covered by tax relief arrangements. As provided by law, the distribution of this reserve would be
taxable to TIM. 
  
 The entire reserve for capital grants is covered by tax
relief arrangements. This reserve was attributed prorated to TIM in 1995 at the time of the partial demerger of Telecom Italia to TIM. 
  
 Tax-deferred share capital amounts to euro 100,347 thousand and refers to the attribution of several inflation reserves to TIM dating back to the foregoing
demerger. 
  
 As set forth in the new art. 109, paragraph 4, T.U.I.R., whenever,
after a distribution of profits or reserves, the residual reserves in shareholders’ equity (other than the legal reserve) are lower than the amount of the previously-mentioned adjustment of the UMTS license (equal to euro 150,460 thousand, net
of the related reserve for deferred taxes), the difference distributed would be subject to taxation. In the same way, as already mentioned, the registered amount in the reserve for accelerated depreciation is now submitted to the same
suspension regime. At the end of the year the reserve for accelerated depreciation will be reclassified to special reserve. 
  

 24 

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	RESERVES FOR RISKS AND CHARGES	 	euro 1,305,649 thousand
	 (euro 659,803 thousand at December 31, 2003)
	 	 

  
 Reserves for risks and charges
increased by euro 645,846 thousand compared to December 31, 2003. The composition and changes in these reserves are summarized in the following table. 
  

																		
	 (in thousands of euro)

	 	12/31/2003

	 	 Changes during the period

	 	 	9/30/2004

	 	 	Provisions

	 	Utilizations

	 	 	Released to income

	 	 Reclassifications/
 Other changes

	 	 	Total changes

	 	 
	 For pensions and similar obligations
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 For agents retirement indemnity
	 	1,676	 	—	 	—	 	 	—	 	—	 	 	—	 	 	1,676
	 	 	
	 	
	 	
	
	 	
	 	
	
	 	
	
	 	

	 	 	1,676	 	—	 	—	 	 	—	 	—	 	 	—	 	 	1,676
	 	 	
	 	
	 	
	
	 	
	 	
	
	 	
	
	 	

	 Reserve for taxes, reserve for deferred taxes
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Reserve for taxes
	 	—	 	1,233,000	 	—	 	 	—	 	(550,826	)	 	682,174	 	 	682,174
	 Reserve for deferred taxes
	 	0	 	—	 	—	 	 	—	 	95,387	 	 	95,387	 	 	95,387
	 	 	
	 	
	 	
	
	 	
	 	
	
	 	
	
	 	

	 	 	0	 	1,233,000	 	—	 	 	—	 	(455,439	)	 	777,561	 	 	777,561
	 	 	
	 	
	 	
	
	 	
	 	
	
	 	
	
	 	

	 Other reserves:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Reserve for technological upgrading
	 	290,222	 	—	 	(131,205	)	 	—	 	—	 	 	(131,205	)	 	159,017
	 Reserve for regulatory framework expenses
	 	114,191	 	3,675	 	—	 	 	—	 	—	 	 	3,675	 	 	117,866
	 Other reserves
	 	253,714	 	2,345	 	(7,030	)	 	—	 	500	 	 	(4,185	)	 	249,529
	 	 	
	 	
	 	
	
	 	
	 	
	
	 	
	
	 	

	 	 	658,127	 	6,020	 	(138,235	)	 	—	 	500	 	 	(131,715	)	 	526,412
	 	 	
	 	
	 	
	
	 	
	 	
	
	 	
	
	 	

	 Total
	 	659,803	 	1,239,020	 	(138,235	)	 	—	 	(454,939	)	 	645,846	 	 	1,305,649
	 	 	
	 	
	 	
	
	 	
	 	
	
	 	
	
	 	

  

			
	 •      Reserve for pensions and similar obligations
	 	euro 1,676 thousand
	 (euro 1,676 thousand at December 31, 2003)
	 	 
		
	 There were no changes during the period.
	 	 
		
	 •      Reserve for taxes, reserve for deferred taxes
	 	euro 777,561 thousand
	 (euro 0 thousand at December 31, 2003)
	 	 

  
 The reserves for taxes and for
deferred taxes increased by euro 777,561 thousand compared to December 31, 2003. 
  
 The reserve for taxes includes the provision for income taxes referring to the first nine months of the year, net of taxes receivable from the Financial Administration for advances paid during the period and shown in the column
Other changes. 
  
 The reserve for deferred taxes is recorded net of
deferred tax assets of euro 51,993 thousand, described in the note on Accounts receivable. The gross amount of deferred tax liabilities principally refers to accelerated depreciation relating to the year 2003, recorded solely for tax purposes
(euro 55,875 thousand), and the writeback of depreciation taken on the UMTS license up to December 31, 2003 (euro 91,242 thousand). 
  

			
	 •      Other reserves 
	 	euro 526,412 thousand
	 (euro 658,127 thousand at December 31, 2003)
	 	 

  
 The reserve for technological
upgrading totaling euro 159,017 thousand was utilized for euro 131,205 thousand during the period to cover depreciation on analog equipment and installations and other operating costs regarding TACS service, nonrecurring expenses relating to
specific actions taken to shift the clientele to third-generation technology, as well as expenses to upgrade pre-existing network equipment and the implementation of the Edge platform. 
  
 The reserve for regulatory framework expenses (euro 117,866 thousand) includes the estimate of probable future charges
relating to TIM’s general obligations towards agencies and regulators in accordance with specific laws affecting the industry. A provision of euro 3,675 thousand was set aside during the period to free up frequencies (1800 MHz band) for the
years 2003 and, prorata, 2004. 
  

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 Sundry reserves also include the reserve for
guarantees, the reserve for expenses connected with the sale of BLU (a reserve set up in the 2002 financial statements), the reserve for premium operations and prize contests and the reserve for employee reductions. Utilizations during the first
nine months of the year mainly regard the reserve for premium operations and prize contests (euro 4,267 thousand). Movements due to other changes refer to the reserve for corporate restructuring as a result of the acquisition of the business
segment from the company IT Telecom S.p.A. during the period and previously described in the note on Fixed assets. The remaining euro 39 thousand refers to the utilization of the reserve for litigation with employees. 
  

			
	 RESERVE FOR EMPLOYEE
 TERMINATION
INDEMNITIES
	 	euro 104,196 thousand
	 (euro 87,926 thousand at December 31, 2003)
	 	 

  
 The reserve for employee termination
indemnities increased by euro 16,270 thousand, compared to December 31, 2003, and presented the following changes during the period: 
  

				
	 (in thousands of euro)

	  	 	 
	Balance at 12/31/2003	  	87,926

	 
	 Changes during the period:
	  	 	 
	 Provisions charged to income for amounts to fund employee termination indemnities accrued in favor of employees during the year plus the fixed
and variable cost-of-living adjustments required under Law No. 297/1982
	  	16,195	 
	 Utilizations for:
	  	 	 
	 - Indemnities paid to employees who took retirement or resigned during the period
	  	(1,843	)
	 - advances pursuant to Law No. 297/1982
	  	(1,228	)
	 - pension funds
	  	(4,522	)
	 - substitute tax on the revaluation of the reserve C25
	  	(16	)
	 Total utilizations
	  	(7,609	)
	 	  	
	

	 Transfers to/from other Group companies and other changes
	  	7,684	 
	 	  	
	

	 Balance as of 9/30/2004
	  	104,196	 
	 	  	
	

  

 26 

Table of Contents

 

 
  

			
	LIABILITIES	 	euro 2,651,724 thousand
	 (euro 3,824,878 thousand at December 31, 2003)
	 	 

  
 Liabilities decreased by euro
1,173,154 thousand compared to December 31, 2003. Details are as follows. 
  

													
	 	  	9/30/2004

	  	12/31/2003

	 (in thousands of euro)

	  	Financial

	  	 Trade and other
accounts
 payable

	  	Total

	  	Financial

	  	 Trade and other
accounts
 payable

	  	Total

	 Due to banks
	  	198	  	—	  	198	  	19	  	—	  	19
	 Due to other lenders
	  	—	  	—	  	—	  	1,637	  	—	  	1,637
	 Trade accounts payable
	  	—	  	1,626,258	  	1,626,258	  	—	  	1,888,242	  	1,888,242
	 Accounts payable to subsidiaries
	  	—	  	2,689	  	2,689	  	—	  	655	  	655
	 Accounts payable to affiliated companies
	  	—	  	3,369	  	3,369	  	—	  	3,536	  	3,536
	 Accounts payable to parent companies
	  	—	  	403,471	  	403,471	  	—	  	398,448	  	398,448
	 Taxes payable
	  	—	  	68,090	  	68,090	  	25,271	  	820,461	  	845,732
	 Contributions to pension
	  	 	  	 	  	—	  	 	  	 	  	—
	 and social security institutions
	  	—	  	11,709	  	11,709	  	—	  	19,917	  	19,917
	 Other liabilities
	  	—	  	535,940	  	535,940	  	—	  	666,692	  	666,692
	 	  	
	  	
	  	
	  	
	  	
	  	

	 Total
	  	198	  	2,651,526	  	2,651,724	  	26,927	  	3,797,951	  	3,824,878
	 	  	
	  	
	  	
	  	
	  	
	  	

  
 Due to banks are represented by
bank overdrafts. 
  
 Due to other lenders at December 31, 2003 include a
short-term loan due to IBM ITALIA Servizi Finanziari S.p.A. for the assignment of accounts payable for euro 1,637 thousand, the last installment of which was paid during the first half of the current year. 
  
 Trade accounts payable decreased by euro 261,984 thousand compared to December 31,
2003. A portion of this amount, equal to euro 273,576 thousand, refers to related party transactions, including those with IT Telecom S.p.A., Telecom Italia Sparkle S.p.A. and Telemedia Applicazioni S.p.A. 
  
 Accounts payable to subsidiaries and accounts payable to affiliated companies
increased by euro 2,034 thousand and decreased by euro 167 thousand, respectively, compared to December 31, 2003. Such accounts payable refer mainly to liabilities arising from traffic effected by TIM users on the network of Group companies.

  
 Accounts payable to parent companies increased by euro 5,023 thousand
compared to December 31, 2003. Other accounts payable increased by euro 9,393 thousand and amount to euro 217,972 thousand. They primarily represent VAT payable (booked in this caption following use of the Group’s VAT settlement system for euro
211,780 thousand). Trade accounts payable total euro 185,499 thousand and decreased by euro 4,370 thousand compared to December 31, 2003. 
  
 Taxes payable primarily represent the liability for the government concession tax on mobile radio utilities (euro 53,821 thousand). 
  
 Details of other liabilities are as follows:

  

								
	 (in thousands of euro)

	  	9/30/2004

	  	12/31/2003

	  	Change

	 
	 Customer-related items:
	  	 	  	 	  	 	 
	 advance payments on conversations
	  	52,697	  	58,287	  	(5,590	)
	 prepaid traffic
	  	282,795	  	358,638	  	(75,843	)
	 subscription charges invoiced and referring to subsequent periods
	  	4,406	  	23,554	  	(19,148	)
	 other
	  	45,569	  	45,121	  	448	 
	 Total customer-related items
	  	385,467	  	485,600	  	(100,133	)
	 	  	
	  	
	  	
	

	 Employee-related items
	  	121,270	  	107,600	  	13,670	 
	 Dividends payable to shareholders
	  	6,698	  	5,481	  	1,217	 
	 Other
	  	22,505	  	68,011	  	(45,506	)
	 	  	
	  	
	  	
	

	 Total
	  	535,940	  	666,692	  	(130,752	)
	 	  	
	  	
	  	
	

  

 27 

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 Related party transactions regarding other
liabilities amount to euro 1,072 thousand and entirely refer to those with IT Telecom S.p.A. 
  
 A breakdown of liabilities, accrued expenses and deferred income by maturity and type is presented at the end of these Notes in Annex 3. 
  

			
	ACCRUED EXPENSES AND DEFERRED INCOME	 	euro 18,854 thousand
	(euro 12,244 thousand at December 31, 2003)	 	 

  
 Accrued expenses and deferred income
increased by euro 6,610 thousand compared to December 31, 2003. 
  
 Accrued
expenses amount to euro 327 thousand (euro 648 thousand at December 31, 2003) and almost entirely refer to production costs (euro 306 thousand). 
  
 Related party transactions regarding accrued expenses total euro 195 thousand and relate entirely to Telecom Italia S.p.A. 
  
 Deferred income totals euro 18,527 thousand (euro 11,596 thousand at December 31,
2003) and mainly includes grants for plant installations referring to future years (euro 6,467 thousand) and subscriber fees collected but referring to the month of October 2004 (euro 11,519 thousand). 
  

 28 

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 MEMORANDUM ACCOUNTS 
  
 Memorandum accounts total euro 1,061,914 thousand and can be analyzed as follows:

  

					
	 (in thousands of euro)

	  	9/30/2004

	  	12/31/2003

	 Guarantees provided
	  	1,060,927	  	1,166,181
	 Purchases and sales commitments
	  	987	  	6,189
	 	  	
	  	

	 Total
	  	1,061,914	  	1,172,370
	 	  	
	  	

  
 Guarantees provided amount to
euro 1,060,927 thousand and decreased by euro 105,254 thousand compared to December 31, 2003. 
  
 At the end of last year and following the actions taken to rationalize the guarantee structure within the Telecom Italia Group, TIM signed an Indemnity Agreement on behalf of Telecom Italia S.p.A. and Telecom Italia
Finance S.A. for the guarantees issued by TIM International N.V. in the interests of its foreign subsidiaries. For the renewal and the re-negotiation of certain loan contracts during the first nine months of 2004 and which previously fell under the
scope of the above Indemnity Agreement, TIM assumed the role of the ultimate guarantor for the Parent Company, replacing the Dutch subsidiary, for this purpose. 
  

Guarantees provided are detailed as follows: 
  

	 	•	 	euro 355,249 thousand on behalf of subsidiaries; 

  

	 	•	 	euro 626,033 thousand on behalf of affiliated companies; 

  

	 	•	 	euro 28,645 thousand on behalf of others for premium operations and prize contests sponsored by TIM S.p.A. and rental contracts; 

  

	 	•	 	euro 51,000 thousand with respect to a surety policy issued by RAS S.p.A. on December 9, 2002 and counter-guaranteed by TIM S.p.A. on behalf of the Financial Administration –
Revenue Service – VAT Office of Naples following the VAT refund request filed by Blu S.p.A. with these offices. 

  
 Purchases and sales commitments total euro 987 thousand and decreased by euro 5,202 thousand compared to the end of the prior year. They refer to scheduled future
payments for the management of the equity investments that are currently part of the Saturn Venture Partners LLC closed-end investment fund. 
  
 The following should also be mentioned: 
  

	 	•	 	third-party shares on deposit with the Company amount to euro 5,529 thousand and refer to TIM shares; 

  

	 	•	 	accounts receivable sold as part of regular factoring transactions – which exceeded the limits prefixed by the counterpart – amount to approximately euro 38 million;

  

	 	•	 	in 2001, TIM issued letters of patronage on behalf of its subsidiaries to financial companies and suppliers, mainly for investments to be made in future years. TIM, under these
letters of patronage, guarantees financial support to its indirect subsidiaries should they fail to meet commitments with their own resources. 

  
 As the sponsor of the credit facility disbursed to Digitel, TIM S.p.A. signed the following: 
  

	 	•	 	a “Sponsor Contingent Capital Contribution Agreement”. At September 30, 2004, this agreement calls for TIM S.p.A.’s commitment, through TIM International N.V., to
increase share capital or make subordinated loans equal to any EBITDA loss resulting from six-month reports prepared for this purpose compared to a parameter-based business plan in the event that a pre-established “debt/contributed equity”
ratio arises at the same time; 

  

	 	•	 	a “Performance Support Conditional Guarantee Agreement”. This agreement calls for TIM S.p.A.’s commitment to guarantee to service Digitel’s debt in the event of
a significant EBITDA loss (in excess of 20%); 

  

 29 

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	 	•	 	a guarantee to lenders in the event of bankruptcy filed by third parties, for a period of four years from the closing date, which will cease after this time only if Digitel’s
debt/EBITDA ratio is less than or equal to 2.5 to 1.TIM’s maximum overall commitment can be estimated at USD 222 million, plus any interest and accessory charges (reduced by the guarantees already provided in the Performance Support Conditional
Guarantee). 

  

	 	 	TIM S.p.A.’s direct estimated commitment is significantly lower than the maximum theoretical amount, considering that Digitel has infragroup lines of credit for about USD 115
million million that help reduce the risk of bankruptcy and there are mechanisms in place that limit TIM’s intervention, as provided by the Sponsor Contingent Capital Contribution Agreement. Given the current difficulty in determining this
commitment, no memorandum account has been recorded; 

  

	 	•	 	Company assets held by third parties total euro 5,817 thousand; 

  

	 	•	 	the Company received third-party guarantees amounting to euro 176,263 thousand and collateral totaling euro 4,135 thousand. 

  
 * * * 
  
 With reference to the operations off-balance sheet, at September 30, 2004 turn on in being three Currency Forward contracts for the amount
of USD 12,000 thousand (euro 9,795 thousand) with expiry date as of December 31,2004. 
  
 * * * 
  
 Tax audit on BLU incorporated
company is running. At the moment, significant reliefs have not emerged. 
  

 30 

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 STATEMENTS OF INCOME 
  

			
	PRODUCTION VALUE	  	euro 7,430,228 thousand
	(euro 7,001,919 thousand for the first nine months of 2003)	  	 
		
	Production value includes the following:	  	 
		
	SALES AND SERVICE REVENUES	  	euro 7,381,031 thousand
	(euro 6,979,951 thousand for the first nine months of 2003)	  	 
		
	A breakdown of sales and service revenues is set out in the table below.	  	 

  

								
	 (in thousands of euro)

	  	9 months to 9/30/2004

	  	9 months to
9/30/2003

	  	Change

	 
	 Sales
	  	 	  	 	  	 	 
	 Telephone products and accessories
	  	351,204	  	267,967	  	83,237	 
				
	 Services
	  	 	  	 	  	 	 
	 Traffic revenues
	  	 	  	 	  	 	 
	 - outgoing traffic
	  	3,201,256	  	3,182,064	  	19,192	 
	 - incoming traffic
	  	1,688,253	  	1,670,428	  	17,825	 
	 - roaming traffic
	  	532,918	  	485,973	  	46,945	 
	 Value-added service revenues
	  	927,331	  	742,681	  	184,650	 
	 Subscription charges, maintenance and rentals
	  	99,995	  	121,169	  	(21,174	)
	 Fees to activate service and takeovers
	  	7,880	  	10,429	  	(2,549	)
	 Prepaid service recharges
	  	470,534	  	417,065	  	53,469	 
	 Other revenues
	  	 	  	 	  	 	 
	 - revenues from other operators
	  	10,272	  	12,239	  	(1,967	)
	 - other miscellaneous income
	  	91,388	  	69,936	  	21,452	 
	 	  	
	  	
	  	
	

	 Total service revenues
	  	7,029,827	  	6,711,984	  	317,843	 
	 	  	
	  	
	  	
	

	 Sales and service revenues
	  	7,381,031	  	6,979,951	  	401,080	 
	 	  	
	  	
	  	
	

  
 A breakdown of revenues by
geographical area is set out in the table below. 
  

							
	 (in thousands of euro)

	  	9 months to 9/30/2004

	  	9 months to
9/30/2003

	  	Change

	 Italy
	  	6,647,385	  	6,288,626	  	358,759
	 Rest of Europe
	  	503,718	  	484,772	  	18,946
	 North America
	  	24,608	  	22,820	  	1,788
	 Rest of the world:
	  	 	  	 	  	 
	 South America
	  	43,845	  	33,529	  	10,316
	 Africa
	  	64,623	  	57,474	  	7,149
	 Asia
	  	56,025	  	54,000	  	2,025
	 Oceania
	  	40,827	  	38,730	  	2,097
	 	  	
	  	
	  	

	 Total Rest of the world
	  	205,320	  	183,733	  	21,587
	 	  	
	  	
	  	

	 	  	7,381,031	  	6,979,951	  	401,080
	 	  	
	  	
	  	

  
 The amounts for “Europe”,
“North America”, and “Other countries” are almost entirely attributable to revenues generated by traffic outgoing from or incoming to those geographical regions. 
  
 Service revenues (representing 95.2% of total revenues) grew by 4.7%. The main sources of revenues are those connected with traffic and
Added-Value Services, totaling 86% of revenues overall. 
  

 31 

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 Traffic income increased by 1.6% compared to the
corresponding period of 2003 whereas Value-added Services revenues rose by 24.9%; Short Message Services (outgoing from and incoming to the TIM network) account for the most important components of revenues. 
  
 Revenues generated by related party transactions total euro 856,898 thousand, chiefly with
Telecom Italia S.p.A. and Telecom Italia Sparkle S.p.A. 
  

			
	 INCREASES IN CAPITALIZED INTERNAL
 CONSTRUCTION
COSTS
	  	euro 26,095 thousand
	(euro - for the first nine months of 2003)	  	 

  
 Following the reorganization of
activities in the Information Technology sector – mainly as a result of the previously-mentioned acquisition of a business segment from IT Telecom S.p.A. – part of the IT activities carried out internally by the Company have been
capitalized starting from the current year. 
  

			
	OTHER REVENUES AND INCOME	  	euro 23,102 thousand
	(euro 21,968 thousand for the first nine months of 2003)	  	 

  

								
	 (in thousands of euro)

	  	9 months to
9/30/2004

	  	9 months to
9/30/2003

	  	Change

	 
	 Operating grants
	  	203	  	28	  	175	 
	 Grants for plant installations
	  	1,030	  	945	  	85	 
	 Other:
	  	 	  	 	  	 	 
	 Expense reimbursements
	  	6,918	  	7,088	  	(170	)
	 Late payment fees
	  	1,050	  	4,903	  	(3,853	)
	 Gains on the sale/transfer of fixed assets
	  	1,483	  	703	  	780	 
	 Sundry
	  	12,418	  	8,301	  	4,117	 
	 	  	
	  	
	  	
	

	 Total other
	  	21,869	  	20,995	  	874	 
	 	  	
	  	
	  	
	

	 Total
	  	23,102	  	21,968	  	1,134	 
	 	  	
	  	
	  	
	

  
 Operating grants refer to
projects funded by the European Commission under the Fifth Framework Program. 
  
 Grants for plant installations include the grants referring to the period on projects funded by Law No. 488/1992 (euro 1,000 thousand), Law No. 341/1995 (euro 5 thousand) and the Ascoli Piceno Territorial Agreement (euro 25
thousand). 
  
 Expense reimbursements mainly refer to reimbursements for
costs pertaining to personnel (euro 2,670 thousand) and recoveries for guarantees on radio mobile equipment (euro 1,922 thousand). 
  
 Revenues generated by related party transactions total euro 2,617 thousand, mainly with AVEA I.H.A.S. 
  

 32 

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	PRODUCTION COSTS	  	euro 4,229,299 thousand
	(euro 4,032,590 thousand for the first nine months of 2003)	  	 
		
	RAW MATERIALS, SUPPLIES AND MERCHANDISE	  	euro 466,464 thousand
	 (euro 382,856 thousand for the first nine months of 2003)
	  	 

  
 Raw materials, supplies and
merchandise increased by euro 83,608 thousand compared to the corresponding period of 2003. They mainly include purchases of mobile communications equipment and related accessories and, to a lesser extent, other goods necessary for company
operations. 
  

			
	SERVICES	  	euro 2,171,115 thousand
	 (euro 2,061,244 thousand for the first nine months of 2003)
	  	 

  
 Services increased by euro 109,871
thousand compared to the first nine months of 2003. Details are as follows: 
  

								
	 (in thousands of euro)

	  	9 months to
9/30/2004

	  	9 months to
9/30/2003

	  	Change

	 
	 Amounts due to other operators
	  	1,176,761	  	1,119,522	  	57,239	 
	 Marketing and advertising services
	  	451,088	  	433,895	  	17,193	 
	 Professional and other fees
	  	139,917	  	133,496	  	6,421	 
	 Administrative and general services
	  	105,248	  	89,891	  	15,357	 
	 Management of buildings and plant
	  	95,455	  	90,755	  	4,700	 
	 Data processing
	  	55,916	  	50,819	  	5,097	 
	 Maintenance costs
	  	47,329	  	41,342	  	5,987	 
	 Studies and research
	  	37,292	  	35,239	  	2,053	 
	 Employee-related expenses
	  	34,535	  	28,423	  	6,112	 
	 Telecommunications
	  	27,574	  	37,862	  	(10,288	)
	 	  	
	  	
	  	
	

	 Total
	  	2,171,115	  	2,061,244	  	109,871	 
	 	  	
	  	
	  	
	

  
 Services include euro 428,618 thousand
of costs for the purchase of services from related parties, specifically Telecom Italia S.p.A. and Telecom Italia Sparkle S.p.A. 
  

			
	USE OF PROPERTY NOT OWNED	  	euro 371,087 thousand
	 (euro 403,774 thousand for the first nine months of 2003)
	  	 

  
 Costs for use of property not owned
decreased by euro 32,687 thousand compared to the first nine months of 2003. 
  
 These costs refer to rental, hire and leasing expenses for the period. They comprise, besides property rentals (euro 140,904 thousand), the hire of equipment (euro 23,046 thousand), leasing payments (euro 2,737 thousand) and line lease
costs connected with the use of direct connections and accesses to the wireline network of Telecom Italia S.p.A. (euro 204,400 thousand). 
  
 Costs generated by related party transactions amount to euro 230,078 thousand and mainly refer to transactions with Telecom Italia S.p.A. 
  
 Details are as follows: 
  

								
	 (in thousands of euro)

	  	9 months to
9/30/2004

	  	9 months to
9/30/2003

	  	Change

	 
	 Rentals
	  	345,304	  	375,338	  	(30,034	)
	 Hires
	  	23,046	  	22,386	  	660	 
	 Lease installments
	  	2,737	  	6,050	  	(3,313	)
	 Other
	  	—	  	—	  	—	 
	 	  	
	  	
	  	
	

	 Total
	  	371,087	  	403,774	  	(32,687	)
	 	  	
	  	
	  	
	

  

 33 

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	PERSONNEL COSTS	  	euro 344,227 thousand
	 (euro 330,846 thousand for the first nine months of 2003)
	  	 

  
 The average equivalent number of
employees at September 30, 2004 is 9,310. 
  
 The breakdown of employees by
professional category is shown in the following table: 
  

								
	 (average equivalent number)

	  	9 months to
9/30/2004

	  	9 months to
9/30/2003

	  	Change

	 
	 Executives
	  	230	  	223	  	7	 
	 Middle management
	  	563	  	446	  	117	 
	 Office staff
	  	8,501	  	8,508	  	(7	)
	 Workers
	  	16	  	20	  	(4	)
	 	  	
	  	
	  	
	

	 Total
	  	9,310	  	9,197	  	113	 
	 	  	
	  	
	  	
	

  

			
	AMORTIZATION, DEPRECIATION AND WRITEDOWNS	  	euro 863,474 thousand
	 (euro 820,101 thousand for the first nine months of 2003)
	  	 
		
	Amortization of intangible assets	  	euro 371,950 thousand
	 (euro 301,936 thousand for the first nine months of 2003)
	  	 

  
 Additional details on the components
of this caption are presented in the note on Intangible Assets. 
  

			
	Depreciation of fixed assets	  	euro 461,648 thousand
	 (euro 486,045 thousand for the first nine months of 2003)
	  	 

  
 A portion of the depreciation expense
on the plants used for the TACS services for the first nine months of 2004, totaling euro 7,414 thousand, was taken from the Reserve for technological upgrading. Euro 21,998 thousand of the reserve was also used to cover the residual depreciation in
respect of a part of the network equipment not compatible with the Edge platform that was removed from the production plan. 
  
 Additional details on the components of this caption are presented in the note on Fixed Assets.  
  
 CATEGORIES OF ASSETS GROUPED ACCORDING TO CORRESPONDING ASSET ITEMS 
  

			
	 	  	(Rate %)

	 Buildings
	  	6 - 10
	 Plant and machinery
	  	8 - 20
	 Industrial and distribution equipment
	  	25
	 Other fixed assets
	  	12 - 25

  

			
	 Writedowns of receivables, included in current assets
 and liquid assets
 (euro 32,120 thousand for the first nine months of 2003)
	  	euro 29,876 thousand

  
 This amount refers to provisions to
the Allowance for doubtful accounts for trade accounts receivable from customers and is calculated so as to adjust these receivables to estimated realizable value. 
  

			
	CHANGES IN INVENTORIES OF RAW MATERIALS, SUPPLIES AND MERCHANDISE	  	- euro 17,787 thousand
	 (- euro 1,261 thousand for the first nine months of 2003)

	  
 The changes refer mainly to mobile radio transmission
equipment and accessories.
  

	 OTHER PROVISIONS
	  	euro 2,738 thousand
	 (euro 11,054 thousand for the first nine months of 2003)

  

 34 

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 Other provisions refer to amounts set aside in the
Reserve for premium operations and prize contests (euro 1,163 thousand) and the Reserve for regulatory framework expenses (euro 1,575 thousand). 
  
 With regard to the Reserve for regulatory framework expenses, the total provision set aside in the reserve during the period for the expenses to free up the frequencies
amount to euro 3,675 thousand, of which euro 1,575 thousand relates to the portion for the first nine months of 2004 and euro 2,100 thousand to the portion for the year 2003 which was not booked in the relevant financial statements since the amount
could not be estimated at the date of their preparation. The portion relating to 2003 was recorded in Extraordinary expense. 
  

			
	 MISCELLANEOUS OPERATING COSTS
 (euro 23,976 thousand for the first nine months of 2003)
	  	euro 27,981 thousand

  

								
	 (in thousands of euro)

	  	9 months to
9/30/2004

	  	9 months to
9/30/2003

	  	Change

	 
	 Losses on sales/writeoffs/transfers of fixed assets
	  	387	  	1,130	  	(743	)
	 TLC operating fee
	  	2,558	  	3,814	  	(1,256	)
	 Other sundry costs:
	  	 	  	 	  	 	 
	 Universal Service
	  	8,766	  	9,273	  	(507	)
	 Other taxes and duties
	  	7,965	  	5,420	  	2,545	 
	 Association dues
	  	2,169	  	1,636	  	533	 
	 Other costs
	  	6,136	  	2,703	  	3,433	 
	 	  	
	  	
	  	
	

	 Total other sundry costs
	  	25,036	  	19,032	  	6,004	 
	 	  	
	  	
	  	
	

	 Total
	  	27,981	  	23,976	  	4,005	 
	 	  	
	  	
	  	
	

  
 TLC operating fees, totaling
euro 2,558 thousand, include the estimate of the fee for the operation of the regulatory body (M.D. dated July 16, 1999) and the portion referring to the annual fees established by Legislative Decree No. 259 dated August 1, 2003 for the first nine
months of 2004. 
  
 Costs generated by related party transactions total euro 298
thousand and mainly refer to Telecom Italia S.p.A. 
  

 35 

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	FINANCIAL INCOME AND EXPENSE	  	euro 24,834 thousand
	 ( - euro 218 thousand for the first nine months of 2003)
	  	 

  
 Financial income and expense increased
overall by euro 25,052 thousand compared to the first nine months of 2003. Details are as follows: 
  

												
	 (in thousands of euro)

	  	 	  	9 months to
9/30/2004

	 	 	9 months to
9/30/2003

	 	 	Change

	 
	 Other financial income
	  	 ( A )
	  	30,818	 	 	10,744	 	 	20,074	 
	 Interest and other financial expense
	  	 ( B )
	  	(5,823	)	 	(14,121	)	 	8,298	 
	 Foreign exchange gains and losses
	  	 ( C )
	  	(161	)	 	3,159	 	 	(3,320	)
	 	  	 	  	
	
	 	
	
	 	
	

	 Total
	  	(A+B+C)	  	24,834	 	 	(218	)	 	25,052	 
	 	  	 	  	
	
	 	
	
	 	
	

  
 Other financial income includes the following: 
  

												
	 	 	9 months to 9/30/2004

	 	9 months to
9/30/2003

	 	Change

	 
	 (in thousands of euro)

	 	Included in long-
term investments

	 	Included in
current assets

	 	Total

	 	 
	 Other financial income from accounts receivable from others
	 	194	 	—	 	194	 	246	 	(52	)
	 Other financial income from securities, other than equity investments
	 	4	 	—	 	4	 	77	 	(73	)
						
	 Other income:
	 	 	 	 	 	 	 	 	 	 	 
	 - interest and fees from parent companies
	 	—	 	29,714	 	29,714	 	8,069	 	21,645	 
	 - interest and fees from subsidiaries
	 	—	 	351	 	351	 	—	 	351	 
	 - interest and fees from others and miscellaneous income
	 	—	 	555	 	555	 	2,352	 	(1,797	)
	 	 	
	 	
	 	
	 	
	 	
	

	 Total other income
	 	—	 	30,620	 	30,620	 	10,421	 	20,199	 
	 	 	
	 	
	 	
	 	
	 	
	

	 Total
	 	198	 	30,620	 	30,818	 	10,744	 	20,074	 
	 	 	
	 	
	 	
	 	
	 	
	

  
 Other financial income from
accounts receivable included in long-term investments from others of euro 194 thousand refers in interest earned on loans granted to personnel. 
  
 Other financial income from securities, other than equity investments, included in long-term investments refers to interest earned during the period on government
securities which fell due during the period. 
  
 Interest and fees from parent
companies consist mainly of interest earned on the current account with Telecom Italia S.p.A. 
  
 Interest and other financial expense include the following: 
  

												
	 	  	1.1 - 30.9.2004

	  	1.1 - 30.9.2003

	  	Change

	 
	 (in thousands of euro)

	  	 Medium/
 long-term
debt

	  	Short-term
borrowings

	  	Total

	  	  
	 Interest and fees paid to subsidiaries
	  	—	  	—	  	—	  	1,623	  	(1,623	)
	 Interest and fees paid to parent companies
	  	—	  	1,346	  	1,346	  	5,326	  	(3,980	)
	 Interest and fees paid to others and miscellaneous expenses
	  	—	  	4,477	  	4,477	  	7,172	  	(2,695	)
	 	  	
	  	
	  	
	  	
	  	
	

	 Total
	  	—	  	5,823	  	5,823	  	14,121	  	(8,298	)
	 	  	
	  	
	  	
	  	
	  	
	

  
 Interest and fees paid to others
and miscellaneous expenses include, among other things, expenses connected with the payment of taxes on an installment basis and discounts for spot-cash payments. 
  

 36 

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 Foreign exchange gains amount to euro 1,137
thousand; foreign exchange losses total euro 1,298 thousand. 
  
 The
possible net profit on evaluation changes will be object, in the financial statements of the year, of a provision in a specific not available equity reserve until its realization. 
  

			
	VALUE ADJUSTMENTS TO FINANCIAL ASSETS	  	euro 57 thousand
	 (- euro 6,676 thousand for the first nine months of 2003)
	  	 

  
 Value adjustments to financial assets
include: 
  

	 	•	 	euro 26 thousand for the upward adjustment of treasury stock booked in current assets; 

  

	 	•	 	euro 31 thousand for the writeback of the carrying value of the investment in the affiliated company Edotel S.p.A. 

  

			
	EXTRAORDINARY INCOME AND EXPENSE	  	euro 149,991 thousand
	 (euro 118,925 thousand for the first nine months of 2003)
	  	 

  
 Extraordinary income amounts to
euro 251,141 thousand (euro 622,885 thousand for the first nine months of 2003). It mainly refers to income from the elimination of tax interference (prior period fiscal amortization of the UMTS license) for euro 241,702 thousand. 
  
 Extraordinary expense amounts to euro 101,150 thousand (euro 503,960 thousand for the
first nine months of 2003). 
  
 The most important item refers to prior
years’ taxes for a total of euro 92,413 thousand; this caption includes the effect of the elimination of tax interference (euro 91,242 thousand) for the cancellation of the prior period amortization of the UMTS license. 
  
 Extraordinary expense also includes euro 2,100 thousand relating to the provision for the
year 2003 to the Reserve for regulatory framework expenses and euro 750 thousand for the provision to the Reserve for employee reductions. Expenses regarding the portion of principal and interest connected with Law No. 58/1992 amount to euro 914
thousand. 
  
 Costs arising from transactions with related parties total euro
1,522 thousand and refer entirely to Telecom Italia S.p.A. 
  

			
	INCOME TAXES, CURRENT AND DEFERRED	  	euro 1,233,000 thousand
	 (euro 1,235,000 thousand for the first nine months of 2003)
	  	 

  
 Current taxes and deferred taxes refer
to the first nine months of 2004 and have been calculated by applying the tax rate for the period to the pretax profit. 
  

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Table of Contents

 

 
  
 OTHER INFORMATION 
  
 ANNEX 1 
  
 EQUITY INVESTMENTS IN LONG-TERM INVESTMENTS AT 12/31/2003 
  

										
	 (in thousands of euros)

	  	Cost

	  	Upward adjustments

	  	Writedowns

	 	 	Carrying value

	 TIM International N.V.
	  	8,066,877	  	—	  	(4,102,000	)	 	3,964,877
	 	  	
	  	
	  	
	
	 	

	 Total subsidiaries
	  	8,066,877	  	—	  	(4,102,000	)	 	3,964,877
	 	  	
	  	
	  	
	
	 	

	 Equity investments in affiliated companies
	  	 	  	 	  	 	 	 	 
	 Iridium Italia S.p.A.
	  	904	  	—	  	(904	)	 	—
	 Edotel S.p.A
	  	6,038	  	—	  	(4,610	)	 	1,428
	 Cons. Scuola Superiore Alta Formaz. Univ. Federico II
	  	26	  	—	  	—	 	 	26
	 Consorzio Energia Gruppo Telecom Italia
	  	5	  	—	  	—	 	 	5
	 Telenergia S.r.l.
	  	10	  	—	  	—	 	 	10
	 	  	
	  	
	  	
	
	 	

	 Total affiliated companies
	  	6,983	  	—	  	(5,514	)	 	1,469
	 	  	
	  	
	  	
	
	 	

	 Equity investments in other companies
	  	 	  	 	  	 	 	 	 
	 Telecom Italia Audit S.c.r.l.
	  	500	  	—	  	—	 	 	500
	 Conai - Consorzio Nazionale Imballaggi
	  	1	  	—	  	—	 	 	1
	 Consorzio Cefriel
	  	33	  	—	  	—	 	 	33
	 Idroenergia s.c.r.l.
	  	1	  	—	  	—	 	 	1
	 ABI Lab
	  	1	  	—	  	—	 	 	1
	 Shared Service Center S.c.r.l.
	  	—	  	—	  	—	 	 	—
	 	  	
	  	
	  	
	
	 	

	 Total other companies
	  	536	  	—	  	—	 	 	536
	 	  	
	  	
	  	
	
	 	

	 Advances on future capital contributions
	  	 	  	 	  	 	 	 	 
	 TIM International N.V.
	  	120,460	  	—	  	—	 	 	120,460
	 Edotel S.p.A.
	  	480	  	—	  	—	 	 	480
	 	  	
	  	
	  	
	
	 	

	 Total advances on future capital contributions
	  	120,940	  	—	  	—	 	 	120,940
	 	  	
	  	
	  	
	
	 	

  

 38 

Table of Contents

 

 
  

													
	 	 	CHANGES DURING THE PERIOD

	 	 	 	 	 
	 	 	Purchases/
Subscriptions

	 	 Reclassification/
 Sales

	 	 	 Writedowns/
 Writebacks

	 	Capital
replenishments

	 	Total
changes

	 
	 Equity investments in subsidiaries
	 	 	 	 	 	 	 	 	 	 	 	 
	 TIM International N.V.
	 	—	 	297,860	 	 	—	 	—	 	297,860	 
	 	 	
	 	
	
	 	
	 	
	 	
	

	 Total subsidiaries
	 	—	 	297,860	 	 	—	 	—	 	297,860	 
	 	 	
	 	
	
	 	
	 	
	 	
	

	 Equity investments in affiliated companies
	 	 	 	 	 	 	 	 	 	 	 	 
	 Iridium Italia S.p.A.
	 	—	 	—	 	 	—	 	—	 	—	 
	 Edotel S.p.A
	 	—	 	(1,459	)	 	31	 	—	 	(1,428	)
	 Cons. Scuola Superiore Alta Formaz. Univ. Federico II
	 	—	 	—	 	 	—	 	—	 	—	 
	 Consorzio Energia Gruppo Telecom Italia
	 	—	 	—	 	 	—	 	—	 	—	 
	 Telenergia S.r.l.
	 	—	 	—	 	 	—	 	—	 	—	 
	 	 	
	 	
	
	 	
	 	
	 	
	

	 Total affiliated companies
	 	—	 	(1,459	)	 	31	 	—	 	(1,428	)
	 	 	
	 	
	
	 	
	 	
	 	
	

	 Equity investments in other companies
	 	 	 	 	 	 	 	 	 	 	 	 
	 Telecom Italia Audit S.c.r.l.
	 	—	 	—	 	 	—	 	—	 	—	 
	 Conai - Consorzio Nazionale Imballaggi
	 	—	 	—	 	 	—	 	—	 	—	 
	 Consorzio Cefriel
	 	—	 	—	 	 	—	 	—	 	—	 
	 Idroenergia s.c.r.l.
	 	—	 	—	 	 	—	 	—	 	—	 
	 ABI Lab
	 	—	 	—	 	 	—	 	—	 	—	 
	 Shared Service Center S.c.r.l.
	 	65	 	—	 	 	—	 	—	 	65	 
	 	 	
	 	
	
	 	
	 	
	 	
	

	 Total other companies
	 	65	 	—	 	 	—	 	—	 	65	 
	 	 	
	 	
	
	 	
	 	
	 	
	

	 Advances on future capital contributions
	 	 	 	 	 	 	 	 	 	 	 	 
	 TIM International N.V.
	 	496,943	 	(297,860	)	 	—	 	—	 	199,083	 
	 Edotel S.p.A.
	 	—	 	(480	)	 	—	 	—	 	(480	)
	 	 	
	 	
	
	 	
	 	
	 	
	

	 Total advances on future capital contributions
	 	496,943	 	(298,340	)	 	—	 	—	 	198,603	 
	 	 	
	 	
	
	 	
	 	
	 	
	

  

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 EQUITY INVESTMENTS IN LONG-TERM INVESTMENTS AT
9/30/2004 
  

										
	 	  	Cost

	  	Upward adjustments

	  	Writedowns

	 	 	Carrying value

	 Equity investments in subsidiaries
	  	 	  	 	  	 	 	 	 
	 TIM International N.V.
	  	8,364,737	  	—	  	(4,102,000	)	 	4,262,737
	 	  	
	  	
	  	
	
	 	

	 Total subsidiaries
	  	8,364,737	  	—	  	(4,102,000	)	 	4,262,737
	 	  	
	  	
	  	
	
	 	

	 Equity investments in affiliated companies
	  	 	  	 	  	 	 	 	 
	 Iridium Italia S.p.A.
	  	904	  	—	  	(904	)	 	—
	 Edotel S.p.A
	  	4,579	  	—	  	(4,579	)	 	—
	 Cons. Scuola Superiore Alta Formaz. Univ. Federico II
	  	26	  	—	  	—	 	 	26
	 Consorzio Energia Gruppo Telecom Italia
	  	5	  	—	  	—	 	 	5
	 Telenergia S.r.l.
	  	10	  	—	  	—	 	 	10
	 	  	
	  	
	  	
	
	 	

	 Total affiliated companies
	  	5,524	  	—	  	(5,483	)	 	41
	 	  	
	  	
	  	
	
	 	

	 Equity investments in other companies
	  	 	  	 	  	 	 	 	 
	 Telecom Italia Audit S.c.r.l.
	  	500	  	—	  	—	 	 	500
	 Conai - Consorzio Nazionale Imballaggi
	  	1	  	—	  	—	 	 	1
	 Consorzio Cefriel
	  	33	  	—	  	—	 	 	33
	 Idroenergia s.c.r.l.
	  	1	  	—	  	—	 	 	1
	 ABI Lab
	  	1	  	—	  	—	 	 	1
	 Shared Service Center S.c.r.l.
	  	65	  	—	  	—	 	 	65
	 	  	
	  	
	  	
	
	 	

	 Total other companies
	  	601	  	—	  	—	 	 	601
	 	  	
	  	
	  	
	
	 	

	 Advances on future capital contributions
	  	 	  	 	  	 	 	 	 
	 TIM International N.V.
	  	319,543	  	—	  	—	 	 	319,543
	 Edotel S.p.A.
	  	—	  	—	  	—	 	 	—
	 	  	
	  	
	  	
	
	 	

	 Total advances on future capital contributions
	  	319,543	  	—	  	—	 	 	319,543
	 	  	
	  	
	  	
	
	 	

  

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 ANNEX 2 
  
 ACCOUNTS RECEIVABLE, ACCRUED INCOME AND PREPAID EXPENSES BY MATURITY AND TYPE

  

																	
	 	 	 9/30/2004
 Amounts due (*)

	 	 12/31/2003
 Amounts due (**)

	 (in thousands of euros)

	 	Within
one year

	 	From two to
five years

	 	Beyond five
years

	 	Total

	 	Within
one year

	 	From two to
five years

	 	Beyond five
years

	 	Total

	 Accounts receivables in long-term investments
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 From others
employees
	 	1,945	 	5,593	 	13,692	 	21,230	 	825	 	4,749	 	11,253	 	16,827
	     miscellaneous
	 	781	 	101	 	—	 	882	 	854	 	—	 	—	 	854
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Total accounts receivables in long-term investments
	 	2,726	 	5,694	 	13,692	 	22,112	 	1,679	 	4,749	 	11,253	 	17,681
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Accounts receivable in current assets
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Other financial receivables from
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 parent companies
	 	497,870	 	—	 	—	 	497,870	 	1,440,461	 	—	 	—	 	1,440,461
	 subsidiaries
	 	166	 	 	 	 	 	166	 	—	 	—	 	—	 	—
	 affiliated companies
	 	66	 	—	 	—	 	66	 	66	 	—	 	—	 	66
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	498,102	 	—	 	—	 	498,102	 	1,440,527	 	—	 	—	 	1,440,527
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Trade accounts receivable from
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 customers
	 	1,058,487	 	—	 	—	 	1,058,487	 	1,082,551	 	—	 	—	 	1,082,551
	 parent companies
	 	174,207	 	—	 	—	 	174,207	 	208,557	 	—	 	—	 	208,557
	 subsidiaries
	 	31,377	 	—	 	—	 	31,377	 	22,457	 	—	 	—	 	22,457
	 affiliated companies
	 	141	 	—	 	—	 	141	 	141	 	—	 	—	 	141
	 others
	 	803	 	—	 	—	 	803	 	2,415	 	—	 	—	 	2,415
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	1,265,015	 	—	 	—	 	1,265,015	 	1,316,121	 	—	 	—	 	1,316,121
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Other accounts receivable from
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 parent companies
	 	1,657	 	—	 	—	 	1,657	 	2,461	 	—	 	—	 	2,461
	 subsidiaries
	 	9,715	 	—	 	—	 	9,715	 	9,580	 	—	 	—	 	9,580
	 affiliated companies
	 	1,445	 	—	 	—	 	1,445	 	27	 	—	 	—	 	27
	 others
	 	871,051	 	246,920	 	235,568	 	1,353,539	 	931,530	 	609,009	 	—	 	1,540,539
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	883,868	 	246,920	 	235,568	 	1,366,356	 	943,598	 	609,009	 	—	 	1,552,607
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Total accounts receivable in current assets
	 	2,646,985	 	246,920	 	235,568	 	3,129,473	 	3,700,246	 	609,009	 	—	 	4,309,255
									
	 Accrued income and prepaid expenses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Accrued income
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 financial
	 	5,064	 	—	 	—	 	5,064	 	1,822	 	—	 	—	 	1,822
	 Trade
	 	36	 	—	 	—	 	36	 	36	 	—	 	—	 	36
	 Prepaid expenses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 financial
	 	—	 	—	 	—	 	—	 	295	 	—	 	—	 	295
	 trade
	 	56,540	 	2,645	 	—	 	59,185	 	41,607	 	—	 	—	 	41,607
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Total accrued income and prepaid expenses
	 	61,640	 	2,645	 	—	 	64,285	 	43,760	 	—	 	—	 	43,760
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	(*)	All periods subsequent to 9/30/2004. 

  

	(**)	All periods subsequent to 12/31/2003. 

  

 41 

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 ANNEX 3 
  
 LIABILITIES, ACCRUED EXPENSES AND DEFERRED INCOME BY MATURITY AND TYPE 
  

																	
	 (in thousands of
euros)

	 	 9/30/2004
 Amounts due (*)

	 	 12/31/2003
 Amounts due (**)

	 	Within
one year

	 	From two to
five years

	 	Beyond five
years

	 	Total

	 	Within
one year

	 	From two to
five years

	 	Beyond five
years

	 	Total

	 Short-term borrowings
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Due to banks
	 	198	 	—	 	—	 	198	 	19	 	—	 	—	 	19
	 Due to other lenders
	 	—	 	—	 	—	 	—	 	1,637	 	—	 	—	 	1,637
	 Taxes payable
	 	—	 	—	 	—	 	—	 	25,271	 	—	 	—	 	25,271
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	198	 	—	 	—	 	198	 	26,927	 	—	 	—	 	26,927
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Trade accounts payable
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Accounts payable to suppliers
	 	1,626,258	 	—	 	—	 	1,626,258	 	1,888,242	 	—	 	—	 	1,888,242
	 Accounts payable to subsidiaries
	 	2,601	 	—	 	—	 	2,601	 	567	 	—	 	—	 	567
	 Accounts payable to affiliated companies
	 	2,736	 	—	 	—	 	2,736	 	2,903	 	—	 	—	 	2,903
	 Accounts payable to parent companies
	 	185,499	 	—	 	—	 	185,499	 	189,869	 	—	 	—	 	189,869
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	1,817,094	 	—	 	—	 	1,817,094	 	2,081,581	 	—	 	—	 	2,081,581
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Other payables
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Accounts payable to subsidiaries
	 	88	 	—	 	—	 	88	 	88	 	—	 	—	 	88
	 Accounts payable to affiliated companies
	 	633	 	—	 	—	 	633	 	633	 	—	 	—	 	633
	 Accounts payable to parent companies
	 	217,972	 	—	 	—	 	217,972	 	208,579	 	—	 	—	 	208,579
	 Taxes payable
	 	68,090	 	—	 	—	 	68,090	 	820,461	 	—	 	—	 	820,461
	 Contributions to pension and social security institutions
	 	10,426	 	1,200	 	83	 	11,709	 	18,642	 	1,196	 	79	 	19,917
	 Other liabilities
	 	535,940	 	—	 	—	 	535,940	 	666,692	 	—	 	—	 	666,692
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 	 	833,149	 	1,200	 	83	 	834,432	 	1,715,095	 	1,196	 	79	 	1,716,370
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Total liabilities
	 	2,650,441	 	1,200	 	83	 	2,651,724	 	3,823,603	 	1,196	 	79	 	3,824,878
									
	 Accrued expenses and deferred income
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Accrued expenses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Financial
	 	21	 	—	 	—	 	21	 	212	 	—	 	—	 	212
	 Trade
	 	306	 	—	 	—	 	306	 	436	 	—	 	—	 	436
	 Other
	 	—	 	—	 	—	 	—	 	—	 	—	 	—	 	—
	 Deferred income
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Financial
	 	541	 	—	 	—	 	541	 	513	 	—	 	—	 	513
	 Trade
	 	11,847	 	4,289	 	1,850	 	17,986	 	4,944	 	4,289	 	1,850	 	11,083
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 Total accrued expenses and deferred income
	 	12,715	 	4,289	 	1,850	 	18,854	 	6,105	 	4,289	 	1,850	 	12,244
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	(*)	All periods subsequent to 9/30/2004. 

  

	(**)	All periods subsequent to 12/31/2003. 

  

 42 

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 ANNEX 4 
  
 ACCOUNTS RECEIVABLE, LIABILITIES AND REVENUES BY GEOGRAPHICAL AREA 
  

															
	 (in thousands
of euros)

	  	Italy

	  	Other EU
countries

	  	 Rest
 of Europe

	  	North
America

	  	Central and
South America

	  	Other
areas

	  	TOTAL

	 Accounts receivable in long-term investments
	  	 	  	 	  	 	  	 	  	 	  	 	  	 
	 .  subsidiaries
	  	—	  	—	  	—	  	—	  	—	  	—	  	—
	 .  affiliated companies
	  	—	  	—	  	—	  	—	  	—	  	—	  	—
	 .  others
	  	22,112	  	—	  	—	  	—	  	—	  	—	  	22,112
	 	  	
	  	
	  	
	  	
	  	
	  	
	  	

	 Total
	  	22,112	  	—	  	—	  	—	  	—	  	—	  	22,112
	 	  	
	  	
	  	
	  	
	  	
	  	
	  	

	 Accounts receivable in current assets
	  	 	  	 	  	 	  	 	  	 	  	 	  	 
	 .  customers
	  	1,090,728	  	41,306	  	16,120	  	16,261	  	14,362	  	10,710	  	1,189,487
	 .  subsidiaries
	  	—	  	26,098	  	—	  	—	  	15,160	  	—	  	41,258
	 .  affiliated companies
	  	233	  	—	  	1,463	  	—	  	—	  	—	  	1,696
	 .  taxes receivable
	  	8,981	  	—	  	—	  	—	  	—	  	—	  	8,981
	 .  deferred tax assets
	  	992,537	  	—	  	—	  	—	  	—	  	—	  	992,537
	 .  others
	  	352,824	  	—	  	—	  	—	  	—	  	—	  	352,824
	 	  	
	  	
	  	
	  	
	  	
	  	
	  	

	 Total
	  	2,445,303	  	67,404	  	17,583	  	16,261	  	29,522	  	10,710	  	2,586,783
	 	  	
	  	
	  	
	  	
	  	
	  	
	  	

	 LIABILITIES
	  	 	  	 	  	 	  	 	  	 	  	 	  	 
	 .  Debentures
	  	—	  	—	  	—	  	—	  	—	  	—	  	—
	 .  Convertible debentures
	  	—	  	—	  	—	  	—	  	—	  	—	  	—
	 .  Due to banks
	  	198	  	—	  	—	  	—	  	—	  	—	  	198
	 .  Due to other lenders
	  	—	  	—	  	—	  	—	  	—	  	—	  	—
	 .  Advances
	  	—	  	—	  	—	  	—	  	—	  	—	  	—
	 .  Accounts payable to suppliers
	  	1,324,323	  	96,378	  	2,686	  	7,989	  	1,347	  	9,965	  	1,442,688
	 .  Accounts payable to subsidiaries
	  	—	  	2,251	  	—	  	—	  	438	  	—	  	2,689
	 .  Accounts payable to affiliated companies
	  	—	  	3,100	  	269	  	—	  	—	  	—	  	3,369
	 .  Taxes payable
	  	68,090	  	—	  	—	  	—	  	—	  	—	  	68,090
	 .  Contributions to pension and social security institutions
	  	11,709	  	—	  	—	  	—	  	—	  	—	  	11,709
	 .  Other liabilities
	  	535,940	  	—	  	—	  	—	  	—	  	—	  	535,940
	 	  	
	  	
	  	
	  	
	  	
	  	
	  	

	 Total
	  	1,940,260	  	101,729	  	2,955	  	7,989	  	1,785	  	9,965	  	2,064,683
	 	  	
	  	
	  	
	  	
	  	
	  	
	  	

	 SALES AND SERVICE REVENUES
	  	6,647,385	  	355,217	  	148,501	  	24,608	  	43,845	  	161,475	  	7,381,031
	 	  	
	  	
	  	
	  	
	  	
	  	
	  	

  

 43 

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 ANNEX 5 
  
 STATEMENTS OF CASH FLOWS 
  

										
	 (in thousands of euro)

	  	 	 	 	9 months to
9/30/2004

	 	 	9 months to
9/30/2003

	 
	 A.     NET FINANCIAL LIQUIDITY (INDEBTEDNESS), AT BEGINNING OF PERIOD
	  	 	 	 	1,418,350	 	 	(1,491,660	)
	          Operating income
	  	 	 	 	3,200,929	 	 	2,969,329	 
	          Depreciation of fixed assets and amortization of intangible assets
	  	 	 	 	833,598	 	 	787,981	 
	          Investments in fixed assets and intangible assets
	  	 	 	 	(704,869	)	 	(473,734	)
	          Proceeds from disposal of intangible assets and fixed assets
	  	 	 	 	1,572	 	 	30,521	 
	          Change in operating working capital and other changes
	  	 	 	 	(293,147	)	 	94,528	 
	 B.     FREE CASH FLOWS FROM OPERATIONS
	  	 	 	 	3,038,083	 	 	3,408,625	 
	          Investments in long-term investments(1)
	  	 	 	 	(504,860	)	 	(235,049	)
	          Proceeds from sale/redemption value of other intangible assets, fixed assets and
long-term investments
	  	 	 	 	7,761	 	 	2,436	 
	          Change in non-operating working capital and other changes(2)
	  	 	 	 	(1,254,259	)	 	(198,831	)
	 C.
	  	 	 	 	(1,751,358	)	 	(431,444	)
	 D.     NET CASH FLOWS BEFORE DISTRIBUTION OF INCOME/RESERVES AND CONTRIBUTIONS BY SHAREHOLDERS
	  	(B+C	)	 	1,286,725	 	 	2,977,181	 
	 E.     DISTRIBUTION OF INCOME/RESERVES
	  	 	 	 	(2,200,265	)	 	(410,144	)
	 F.     CONTRIBUTIONS BY SHAREHOLDERS
	  	 	 	 	 	 	 	 	 
	 G.     CHANGE IN NET FINANCIAL LIQUIDITY (INDEBTEDNESS)
	  	(D+E+F	)	 	(913,540	)	 	2,567,037	 
	 H.     NET FINANCIAL LIQUIDITY (INDEBTEDNESS), AT END OF PERIOD
	  	(A+G	)	 	504,810	 	 	1,075,377	 

  
 Note: 
 The value of the investments of the first nine months of 2004 is exposed net of company branches acquisitions/assignments effects. 
  

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 ANNEX VI 
  
 M A Z A R S & G U É R A R D 
  
 TELECOM ITALIA S.p.A. 
  
 Plan for the merger by incorporation of 
 Telecom Italia Mobile S.p.A. 
 into 
 Telecom Italia S.p.A. 
  
 Auditors’ report 
 relating to the exchange ratio of shares pursuant to 
 Article 2501-sexies of the Italian Civil Code (*) 
  
 This is an English translation of the original Italian document 
  

	(*)	With respect to the CONSOB Communication N. 73063 of October 5, 2000 the above mentioned report, whose translation is
attached, does not express an opinion on the fairness of the transaction, the value of the security, or the adequacy of consideration to shareholders, and therefore the issuance of this report would not impair the independence of Mazars &
Guérard SpA under the U.S. independence requirements 

 

 

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 M A Z A R S & G U É R A R D 
  
  
 Plan for the merger by incorporation of 
 Telecom Italia Mobile S.p.A. 
 into 
 Telecom Italia S.p.A. 
  
 Auditors’
report relating to the exchange ratio of shares 
 pursuant to Article 2501-sexies of the Italian Civil Code (1) 
  
 To the Shareholders of 
 Telecom Italia S.p.A. 
  

	1.	Objective, subject and scope of the engagement 

  
 We have been requested by Telecom Italia S.p.A., as appointed by the Milan Court on January 18, 2005, to issue a report on the exchange ratio of shares of Telecom Italia
S.p.A. (hereinafter “Telecom Italia” or the “absorbing company”) and Telecom Italia Mobile S.p.A. (hereinafter “TIM” or the “company to be absorbed” and, together with Telecom Italia, the
“Companies”), in accordance with Article 2501-sexies of the Italian Civil Code. For this purpose, we have been provided by Telecom Italia with the plan for the merger, accompanied by the Directors’ Report, which identifies,
explains and justifies, pursuant to Article 2501-quinquies of the Italian Civil Code, the exchange ratio, as well as the Balance Sheet as of September 30, 2004 provided by Article 2501-quater of the Italian Civil Code. 
  
 The proposed merger plan will be subject to approval at the Extraordinary General Meeting of
the ordinary shareholders of Telecom Italia to be held on April 5, 2005, first call, or on April 6, 2005, second call, or on April 7, 2005, third call. 
  
 Similarly, the ordinary shareholders of TIM will be required to approve the merger plan at the Extraordinary General Meeting to be held on April 5, 2003, first call, or
on April 6, second call if required, as will the savings shareholders of TIM on April 6, 7 or 8, 2005 at first, second or third call, pursuant to Article 146, paragraph1, letter b) of the Finance Consolidation Act (TUF). 
  
 Reconta Ernst & Young S.p.A. was appointed by the President of the Turin Court on
December 28, 2004 to issue a similar report on the exchange ratio. 
  
 In order to
provide the shareholders with adequate information regarding the exchange ratio, this report illustrates the methods adopted by the Directors in determining the exchange ratio and the difficulties encountered by them; in addition, this report also
includes our assessment whether, under the circumstances, such methods are reasonable and not arbitrary, whether the Directors have considered the respective importance of such methods and whether the methods have been correctly applied. 

 
 In our examination of the valuation methods adopted by the Directors, also based on
indications from their Advisors, we have not carried out any valuation of the Companies taking part into the merger. The valuation was carried out solely by the Directors and the Advisors appointed by them. 
  

	(1)	With respect to CONSOB Communication No. 73063 of October 5, 2000 the above mentioned report, whose translation is attached, does not express an opinion on the fairness of the
transaction, the value of the security, or the adequacy of consideration to shareholders, and therefore the issuance of this report would not impair the independence of Mazars & Guerard SpA under U.S. independence requirements.

  

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	2.	Summary of the transaction 

  
 The Boards of Directors of Telecom Italia and TIM, in their meetings on December 7, 2004, developed a plan to reorganize the Telecom Italia Group (hereafter “the
Plan”), which satisfies “a series of industrial needs arising from the progressive integration of the platforms that govern the fixed and mobile communications activities” and which “aims to benefit the Group by simplifying the
ownership structure and optimizing the capital and financial structure of the company that will result from the merger”. 
  
 As indicated in the report of the Board of Directors of Telecom Italia, the proposed transaction provides for the merger of TIM into Telecom Italia, pursuant to Articles
2501 and seq. of the Italian Civil Code. 
  
 On January 23, 2005, the Boards of
Directors of Telecom Italia and TIM approved the plan for the merger of TIM into Telecom Italia, confirming the exchange ratio preliminarily indicated by the Board of Directors on December 7, 2004. 
  
 The merger will be effected on the basis of the balance sheets of Telecom
Italia and TIM as of September 30, 2004, adopted by the Companies’ Boards of Directors as the balance sheets required by Article 2501-quater of the Italian Civil Code. 
  
 As a result of the merger, Article 5 of the absorbing company’s by-laws, relating to share capital, will be amended to
take account of the shares issued to service the exchange ratios and the stock option plans approved by the company to be absorbed. 
  
 Within the context of the Plan, the Boards of Directors of the “Companies” that met on December 7, 2004 approved and communicated to the public
the guidelines of the plan to reorganize the group headed up by Telecom Italia, which also includes: 
  

	 	-	a voluntary partial tender offer for the ordinary shares and a voluntary tender offer for all the savings shares issued by TIM (jointly, the “Tender Offer”), as well as

  

	 	-	the spin-off (“Spin-off”), prior to the merger and before it is completed, of the mobile communications business in Italy, currently operated by TIM, into a company
wholly-owned by TIM, called TIM Italia S.p.A. (“TIM Italia” or the “Transferee Company”). 

  
 As part of the Plan, Telecom Italia has launched: (i) a voluntary partial tender offer for 2,456,534,241 ordinary shares of TIM, equal, as of December 20, 2004, to 29.12%
of TIM’s ordinary share capital and 28.67% of TIM’s total share capital; (ii) a voluntary total tender offer for 132,069,163 savings shares of TIM, equal to 100% of TIM’s savings share capital and 1.54% of TIM’s total share
capital (jointly, the “Offer”). The Offer, launched at a price of 5.60 euro for each ordinary and savings share of TIM, depended on reaching 2/3 of the quantity of both categories of shares subject to the Offer. 
  
 The Offer commenced on January 3 and ended on January 21, 2005. 
  
 At the end of the Tender Offer acceptance period, on January 21, 2005, shareholders had
tendered 2,639,154,665 ordinary shares (equal to 31.2% of TIM’s ordinary share capital and approximately 107.4% of the shares subject to the Offer) and 8,463,127 savings shares (equal to approximately 6.4% of TIM’s savings share capital
and of the shares subject to the Offer). 
  
 Telecom Italia’s Board of
Directors has favorably assessed the results of the Offer, especially in view of the fact that acceptances by TIM ordinary shareholders exceeded the number of shares subject to the Offer, confirming the effectiveness of the Offer. 
  
 Based on the results of the Tender Offer, the total outlay on the part of Telecom Italia for
the TIM shares tendered in acceptance of the Tender Offer comes to around 13.8 billion euro. 
  
 The merger will involve cancelling the TIM shares held by Telecom Italia, without receiving any shares in exchange, thereby reducing the amount of equity to be issued in exchange. The holders of TIM ordinary or
savings shares, other than Telecom Italia, on the other hand, will be allocated newly issued ordinary or savings shares of Telecom Italia on the basis of the related exchange ratios. 
  

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 At the time of the exchange, Telecom Italia will
allocate to the TIM savings shareholders new savings shares with the same characteristics as those currently issued by TIM. 
  
 In light of the different level of preference given to the Telecom Italia savings shares compared with the TIM savings shares, to the shareholders of TIM who do not vote
in favor of the Merger in the special meeting of their category will be granted a right of withdrawal pursuant to Article 2437, paragraph 1, letter g) of the Italian Civil Code, as the share exchange will result in a change in their participation
rights. 
  
 Pursuant to Article 2504 bis, second paragraph of the Italian
Civil Code, the effects of the merger will run from the last filing of the merger deed, as required by Article 2504 of the Italian Civil Code, or from such subsequent date provided for by the merger deed. 
  
 The transactions of the company to be absorbed, also for income tax purposes, will be
recorded in the books of the absorbing company from January 1 of the year in which the merger becomes effective. 
  
 The Merger is technically subject to a Government veto in accordance with the Golden Share provision contained in Article 2 of Decree Law 332/1994, ratified by Law
474/1994, and Article 22, paragraph b) of Telecom Italia’s by-laws. 
  
 At
the end of the meeting of Telecom Italia’s Board of Directors on December 7, 2004, in accordance with Article 22, paragraph b) of the Absorbing Company’s by-laws and Article 2 of Decree Law 332/1994, ratified by Law 474/1994, Telecom
Italia notified the Minister for Economy and Finance of the commencement of the plan for the reorganization of the Group. The Minister for Economy and Finance, in agreement with the Minister for Productive Activities, has notified Telecom Italia
that, in his opinion, the conditions do not exist for its exercise of the veto right with respect to the adoption of the merger resolution by Telecom Italia’s shareholders’ meeting. 
  
 In any case, the Absorbing Company’s ordinary and savings shares are - and after the
Merger will continue to be - listed, among others, on the Mercato Telematico Azionario operated by Borsa Italiana S.p.A. 
  
 In addition, after the Merger, Telecom Italia’s ordinary and savings shares will continue to be listed on the New York Stock Exchange in the form of ADSs
(American Depository Shares, each of which represents 10 ordinary or savings shares). As regards the listing of Telecom Italia’s ordinary shares on the Frankfurt Stock Exchange, in light of the decisions adopted by its Board of Admission, the
shares will be delisted by the effective date of the Merger. 
  

	3.	Documentation utilized 

  
 In performing our work, we obtained from Telecom Italia and TIM, such documentation and information as was considered useful in the circumstances. We
analyzed such documentation and, in particular: 
  

	 	a)	the plan for the merger and the reports of the Boards of Directors of the two Companies addressed to the respective Extraordinary General Meetings which, on the basis of the Balance
Sheet as at September 30, 2004, propose an exchange ratio as follows: 

  

	 	•	 	1.73 Telecom Italia ordinary shares with a par value of Euro 0.55 each for each TIM ordinary share with a par value of Euro 0.06 each; 

  

	 	•	 	2.36 Telecom Italia savings shares with a par value of Euro 0.55 each for each TIM savings share with a par value of Euro 0.06 each. 

  

	 	 	The ratio for the exchange of shares has been determined by the Directors also taking into account the valuation reports of the Advisors indicated in points b), c), d) and e) below.
The report of the Board of Directors sets out in detail the valuation criteria adopted, the reasons for their choice, the values resulting from their application and the related comments; 

  

	 	b)	the “Opinion on the fairness of the share exchange ratio used for the merger” prepared by JPMorgan Chase Bank, N.A. (hereafter “JPMorgan”), acting as the
Directors’ Lead Advisor; this report, dated December 7, 2004, and prepared at the request of Telecom Italia, sets out the valuation criteria adopted, the reason for which they were chosen and the results of their application;

  

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	 	c)	the appraisal report of the exchange ratio prepared by MCC SpA, acting as the Directors’ Lead Advisor; this report, dated December 7, 2004, and prepared at the request of
Telecom Italia, sets out the valuation criteria adopted, the reason for which they were chosen and the results of their application. 

  

	 	d)	the “Fairness Opinion on the Exchange Ratio” issued by Mediobanca – Banca di Credito Finanziario S.p.A. (hereafter “Mediobanca”), acting as the
Directors’s Lead Advisor; this report, dated December 7, 2004, and prepared at the request of Telecom Italia, sets out the valuation criteria adopted, the reason for which they were chosen and the results of their application;

  

	 	e)	the “Fairness Opinion”, dated December 7, 2004, prepared by Goldman Sachs International (hereafter “Goldman Sachs”) on the express request of Telecom
Italia’s Internal Control and Corporate Governance Committee (consisting exclusively of independent directors); 

  

	 	f)	confirmations of the Fairness Opinions issued, dated January 23, 2005, by the Advisors mentioned in points b), c), d) and e) above. 

  

	 	g)	the following documentation, used by the Advisors to prepare their appraisal reports and, subsequently used also by us within the scope of our engagement: 

 

	 	-	the statutory and consolidated financial statements of Telecom Italia and TIM and their subsidiaries as of December 31, 2003 accompanied by the related Reports of the Board of
Directors, the Reports of the Board of Statutory Auditors and the Independent Auditors’ Reports; 

  

	 	-	the balance sheets of Telecom Italia and of TIM as of September 30, 2004, adopted by the Companies’ Boards of Directors as required by Article 2501-quater of the Italian
Civil Code; 

  

	 	-	the preliminary economic and financial forecast “2005-2007 plan – Preliminary 03/12/2004”, being an updated version of the economic and financial plans for the period
2004-2007, approved and communicated to the market in March 2004, as prepared by management, in accordance with the strategic, operational and financial objectives of the Group Telecom Italia. 

  

	 	-	historical market prices and trading volumes of ordinary and savings shares of the “Companies”; 

  

	 	-	publicly available information about companies operating in the same sector; 

  

	 	-	financial research and analyses published by specialist institutes and investment banks; 

  

	 	h)	The following additional documentation has been utilized by us: 

  

	 	-	data and information obtained from the Advisors and used by them for the determination of the exchange ratio; 

  

	 	-	regulations governing Telecom Italia’s convertible bonds; 

  

	 	-	the appraisal reports of the exchange ratio issued on December 7, 2004 by Lazard & Co. S.r.l., Credit Suisse First Boston (Europe) Limited, Merrill Lynch International (Milan
Office) and by Studio Casò acting as Professional Advisor to TIM, as well as the related confirmations dated January 22 (Studio Casò) and January 23, 2005; 

  

	 	-	by-laws of the companies taking part in the merger; 

  

	 	-	the reports of the independent auditors Reconta Ernst & Young S.p.A. relating to their limited audit of the Companies’s half-year reports as of June 30, 2004;

  

	 	-	review of the main conclusions reached by the independent auditors Reconta Ernst & Young SpA and discussions with them on the Companies’ 2003 financial statements, 2004
half-year report and discussions with them on the audit currently underway on the 2004 financial statements; 

  

	 	-	draft of the 2004 financial statements of the Companies approved by the boards on February 24, 2005; 

  

	 	-	accounting elements and other information as deemed necessary for this report. 

  

We have also obtained a representation letter stating that, to Telecom Italia management’s best knowledge, no significant changes in the data and information
considered in our analyses have taken place in the meantime. A similar representation letter has been obtained by Reconta Ernst & Young S.p.A. from TIM management. 
  

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	4.	Valuation methods adopted by the Boards of Directors for the determination of the exchange ratio 

  
 The Directors, also supported by their Advisors, considering the importance and complexity of the merger transaction, deemed it appropriate
to identify the valuation methods which, in addition to be in accordance with current best practice, would enable the two companies to be valued on a homogeneous basis. 
  

	4.1.	Selection of the methods and valuation criteria 

  
 The Board of Directors of Telecom Italia determined the exchange ratio by selecting, among a number of valuation methods, those deemed more appropriate to express the
value of the entities involved in the merger, considering the activities carried out by the absorbing company and by the company to be absorbed. 
  
 In addition, as suggested by corporate doctrine and professional practice, the Directors compared the values attributed to the companies participating in the merger
process under the assumption that they will continue as a going concern. These values cannot be considered representative of a valuation in absolute terms of the two companies taking part in the merger, nor can they be compared with any acquisition
or sale prices (which normally reflect majority premiums or minority discounts). 
  
 The Directors of Telecom Italia, supported by their Advisors, selected the valuation methods and principles to be adopted taking into account: 
  

	–	the specific objectives attributed to the valuations with reference to the underlying transaction; 

  

	–	the nature of the activities carried out by each company taking part in the merger. 

  
 In connection with the first aspect, in the selection of the valuation principles the Directors referred to the purpose of the valuation and
to the relevant factors that make it possible to estimate the value of the entities concerned. As the objective is to express comparable values in order to determine the exchange ratio, the Directors adopted valuation methods based on similar
criteria for both of the companies involved in the merger. This did not necessarily mean that identical valuation methods were used for all of the businesses directly or indirectly involved in the merger, especially if operating in different
sectors, but it did mean adopting the same logical approach to the valuation. 
  
 As regards this second aspect, the Directors took into consideration Telecom Italia’s various areas of operations, as well as the fact that Telecom Italia’s controlling interest in TIM is a significant portion of its total assets.

  
 In light of the above, for the purpose of determining the values of Telecom
Italia and TIM, given that both are equally important in the valuation process, the Directors used as their principal method the Discounted Cash Flow for TIM and the Sum-of-the-Parts for Telecom Italia, and Stock-Market Price as control method.

  
 Discounted Cash Flow or “DCF” method: under this method, the
economic value of an enterprise is equal to the sum of the following components: 
  

	 	-	operating cash flows that the company will be able to generate in the future, discounted at a rate representing the weighted average cost of capital, which represents the weighted
average cost of the types of financing used (risk capital and debt capital, net of the tax effects); 

  

	 	-	an estimate of the net financial position and minority interests, which, in this case, were referred as of December 31, 2004. 

  
 In applying the DCF method, the Directors made reference to the above mentioned preliminary
economic and financial forecast 2005-2007. 
  
 Sum-of-the Parts method:
under this method, the value of a company is determined as the sum of the values of each of its businesses (understood as economic entities which can be individually evaluated), adjusted to take into account the financial position of the company,
minority interests and, where significant, other effects such as those relating to any off-balance sheet items and potential tax benefits. 
  
 Under this method, the main businesses (Telecom Italia and TIM) valuation was based on the to the Discounted Cash Flow method. In particular, TIM was valued based on the
range of values identified by using this method. 

  

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 The other activities were valued using the market
price method, the market multiples method, the financial statement values method, the discounted cash flow method and/or the values published in analysts’ research reports on such companies, where available. 
  
 In order to test the accuracy of the exchange ratio obtained in this way, the Directors made
a further test using the stock market price method. 
  
 Stock-Market price
method : when the companies involved in the merger have shares listed on regulated markets, doctrine and professional practice suggest to consider the results deriving from the stock prices of the respective shares, averaged over an adequate
period of time. In this case, the Directors deemed the stock prices particularly significant and, on the basis of the stock-market prices at December 3, 2004 (last date of stock trading prior to the announcement of the transaction by the Boards of
Directors), they note that both companies show high levels of volumes exchanged, high capitalization and a high liquidity of their respective shares. 
  

	4.1.1	Sum-of-the-Parts method – Telecom Italia 

  
 According to the Sum-of-the-Parts method, the value of Telecom Italia is determined as the sum of the values of the individual businesses of the company, considered as an
economic entity which can be individually evaluated. Taking into account the complexity of the company’s structure and the various areas of operations of the Telecom Italia Group, the core businesses (Telecom Italia and TIM) were evaluated on
the basis of the Discounted Cash Flow method. The other activities were valued either at book or market value, and/or at the values published in analysts’ research reports on such companies, where available. 
  
 This sum, for each of the companies taking part in the merger, has been suitably adjusted to
reflect the estimated financial position as of December 31, 2004, adjusted to take into account the proportional net debt and minority interests and, where significant, other effects such as those relating to any off-balance sheet items and
potential tax benefits. 
  
 For Telecom Italia, the Directors have also taken into
consideration the pro-forma effect of converting the convertible bonds in accordance with the fully-diluted method, which assumes their conversion into ordinary shares. 
  

	4.1.2	Discounted Cash Flow – TIM 

  
 The DCF method has been applied by determining the present value of operating cash flows, gross of any component of a financial nature (“Free Cash Flows” or
“FCF”). Under this method, the economic value of an enterprise is equal to the sum of the following components: 
  

	–	operating cash flows that the company will be able to generate in the future, discounted at a rate representing its weighted average cost of capital; 

  

	–	an estimate of the net financial position and minority interests, which, in this case, were as of December 31, 2004. 

  
 In applying the DCF method, the Directors made reference to the operating cash flows
connected to the main activities, as shown in the economic and financial forecasts. 
  
 To this final figure was then added an estimate of the net financial position as of December 31, 2004. The Directors also took into account minority interests, the effects of the planned disposal of Corporacion Digitel (Venezuela), certain
tax benefits and the possible exercise of financial instruments giving rise to the subscription of TIM shares (i.e. stock options) exclusively to the extent that their exercise was reasonably based on the economic and financial benefits. 

 

	4.1.3	Stock-Market price method – Telecom Italia / TIM 

  
 The exchange ratios resulting from application of the above methods were then tested by the Directors by using the stock-market price method. The stock-market price
method estimates the value of a company’s equity on the basis of stock-market prices measured over a significant period of time, ending up on a date close to the one of the valuation. 
  

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 In order to mitigate short-term fluctuations that
typically characterize financial markets, the Directors extended their analysis of stock-market prices to the average prices expressed by the market over sufficiently long periods of time. 
  
 Since both Telecom Italia and TIM are listed on the Mercato Telematico Italiano (MTA)
operated by Borsa Italiana Spa and are two of the largest Italian companies in terms of market capitalization, the Directors felt that the market prices of their stock constituted a reliable benchmark. 
  

	5.	Valuation problems encountered by the Directors  

  
 Telecom Italia’s Board of Directors did not encounter any particular difficulties in carrying out the valuations for the purposes of calculating the exchange ratio.

  

	6.	Results of the valuation performed by the Directors  

  

	6.1.	Telecom Italia 

  
 As regards the Sum-of-the Parts method, Telecom Italia’s Directors, with the help of their Advisors, identified the following per-share values for the ordinary shares prior to the dividend distribution expected
to take place in April 2005, and therefore before the completion of the merger: 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Value per Telecom Italia ordinary share (€)
	  	2.99	  	3.22	  	3.44

  
 As regards the savings shares, the
Directors calculated the following values, considering the average market discounts for the last month, three months and six months prior to December 3, 2004, as well as the discount on the last day that Telecom Italia and TIM shares were priced by
the market before the merger was announced (on December 3, 2004), which gave a discount of between 26 and 27%. 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Value per Telecom Italia savings share (€)
	  	2.21	  	2.37	  	2.52

  
 As regards the
corresponding values of the Telecom Italian shares, adjusted for the effect of the dividend distribution expected to take place in April 2005, the result is: 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Value per Telecom Italia ordinary share (€)
	  	2.89	  	3.12	  	3.34
	 Value per Telecom Italia savings share (€)
	  	2.09	  	2.25	  	2.41

  

	6.2.	TIM 

  
 As regards the Discounted Cash Flow method and using also as a test method the multiples of comparable operations and the values identified by research analysts, where available, and taking account of the estimated net financial
position as of December 31, 2004 and of minority interests, as well as the effects of the planned disposal of Corporacion Digitel (Venezuela) and certain tax benefits, the Directors identified the following values, prior to the dividend distribution
expected to take place in April 2005: 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Value per TIM ordinary share (€)
	  	5.32	  	5.58	  	5.84

  
 As regards the savings shares, the
Directors calculated the following values, considering the average market discounts for the last month, three months and six months prior to December 3, 2004, as well as the discount on the last day that Telecom Italia and TIM shares were priced by
the market before the merger was announced (on December 3, 2004), which gave a discount of around zero. 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Value for each TIM savings share (€)
	  	5.31	  	5.58	  	5.84

  

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 As regards the corresponding values of the TIM
shares, adjusted for the effect of the dividend distribution expected to take place in April 2005, the result is: 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Value per TIM ordinary share (€)
	  	5.07	  	5.33	  	5.58
	 Value per TIM savings share (€)
	  	5.05	  	5.31	  	5.57

  

	6.3.	Calculation of the exchange ratio 

  
 Based on the valuations carried out with the help of their respective Advisors, the Directors defined the values of the companies taking part in the merger for the
purpose of calculating the exchange ratio. 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Telecom Italia ordinary shares for each TIM ordinary share
	  	1.67	  	1.71	  	1.75
	 Telecom Italia savings shares for each TIM savings share
	  	2.31	  	2.36	  	2.42

  
 Based on these valuation methods and a
comparison between the various valuations carried out, the Boards of Directors of Telecom Italia and TIM obtained the following exchange ratio: 
  

	 	•	 	1.73 Telecom Italia ordinary shares of par value Euro 0.55 each per TIM ordinary share of par value Euro 0.06 each; 

  

	 	•	 	2.36 Telecom Italia savings shares of par value Euro 0.55 each per TIM savings share of par value Euro 0.06 each; 

  

	6.4.	Stock-Market price method, used as a test method 

  
 In order to test the accuracy of the exchange ratio obtained in the manner described above, the Board of Directors made a further test using the method based on
stock-market prices. 
  
 This method was applied taking account of the mean
exchange ratios (Telecom Italia ordinary shares per TIM ordinary share and Telecom Italia savings shares per TIM savings share) expressed by the market during different time periods prior to the day that Borsa Italiana S.p.A. suspended trading in
Telecom Italia and TIM shares as the Merger was about to be announced (based on closing prices on December 3, 2004; the mean based on closing prices for the previous 1, 3, 6 and 12 months), adjusted for the dividend distribution planned by Telecom
Italia and TIM for April 2005, prior to the Merger. 
  
 On the other hand, the
Directors did not take account of the market prices of TIM and Telecom Italia’s stock after the Merger was announced, as these prices were not deemed to be relevant, being influenced by the announcement. 
  
 The following table shows the mean exchange ratios obtained by the Directors in the various
time periods mentioned above. 
  

													
	 	  	12/3/04

	  	1
month

	  	3
months

	  	6
months

	  	12
months

	  	12
months*

	 Telecom Italia ordinary shares per TIM ordinary share
	  	1.72	  	1.69	  	1.71	  	1.74	  	1.75	  	1.74
	 Telecom Italia savings shares per TIM savings share
	  	2.47	  	2.41	  	2.36	  	2.39	  	2.44	  	2.45

	*	Mean exchange ratios calculated by adjusting closing prices prior to May 24, 2004 for the distribution of dividends paid out on that date. 

  
 The next table shows the minimum, mean and maximum exchange ratios (number of Telecom Italia
ordinary shares per TIM ordinary share and the number of Telecom Italia savings share per TIM savings share) expressed by the stock market during the periods under consideration. 
  

							
	 	  	Minimum

	  	Mean

	  	Maximum

	 Telecom Italia ordinary shares per TIM ordinary share
	  	1.69	  	1.72	  	1.75
	 Telecom Italia savings share per TIM savings share
	  	2.36	  	2.42	  	2.47

  

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 The Directors were reassured by the fact that these
values are in line with the exchange ratios based on the fundamentals as shown in the previous paragraph. 
  

	6.5.	Procedures for assigning the shares and carrying out the share exchange 

  
 Telecom Italia will increase its share capital by up to a maximum par value of €1,420,690,865.55 by issuing up to maximum 2,291,344,587 ordinary shares and up to
maximum 291,729,714 savings shares in accordance with the above exchange ratio, without taking into consideration the TIM ordinary and savings shares held by Telecom Italia and the TIM shares held by TIM itself, which will be cancelled without
receiving any Telecom Italia shares in exchange. 
  
 The Directors have foreseen
that: 
  

	–	the newly issued shares earmarked for the exchange will be assigned to the persons entitled to such shares, through their authorized intermediaries who are participants of the Monte
Titoli S.p.A. central securities depository, at the effective date of the Merger; 

  

	–	non-dematerialized TIM shares may only be exchanged upon delivery of such shares to an authorized intermediary for deposit with the central securities depository on a dematerialized
basis; 

  

	–	as part of the procedure for the assignment of Telecom Italia shares, the authorized intermediaries will provide TIM minority shareholders with a service to handle any fractions of
shares, at market price and at no cost in terms of expenses, stamp duty or commissions, that will permit the number of newly-issued shares to which the shareholders are entitled on the basis of the exchange ratios to be rounded up or down to the
nearest whole number. 

  

	7.	Work performed  

  

	7.1.	Work performed on the “documentation utilized” as mentioned at point 3. 

  
 The valuation methods used by the Directors, also based on the indications given by their Advisors, take as a basis of reference in
accordance with Article 2501-quater of the Italian Civil Code, the Company’s Balance Sheet as of September 30, 2004. We have carried out a limited audit to identify the accounting principles used in preparing this Balance Sheet and any
significant changes that have taken place since the half-year reports of Telecom Italia and TIM as of June 30, 2004, which were subjected to limited audits by Reconta Ernst & Young. Note that the statutory and consolidated financial statements
of TIM and Telecom Italia as of December 31, 2003 were audited by Reconta Ernst & Young S.p.A. 
  
 We have also performed the following procedures : 
  

	–	we have met with the Telecom Italia and TIM management to obtain information on the subsequent events with respect to the financial statements mentioned above that could have a
significant effect on the amounts being examined here; 

  

	–	with respect to the above mentioned preliminary economic and financial forecast 2005-2007 of the Telecom Italia Group, while considering the inherent uncertainty and limits of any
type of forecast, we have discussed with the management of Telecom Italia and TIM the main characteristics of the forecasting process and the criteria used for their compilation. 

  
 The above activities have been performed to the extent necessary for the purpose of our
engagement, indicated in paragraph 1 above. 
  

	7.2.	Work done on the methods used to determine the exchange ratio 

  
 We have examined the methods followed by the Directors, also based on the indications given by their Advisors, for the determination of the relative value of the
Companies and, thus, of the Exchange Ratio, ascertaining their technical suitability under the circumstances. 
  
 We have also performed the following procedures: 
  

	–	analysis of the Directors’ report relating to the proposed merger and of the Advisors reports to verify the completeness and consistency of the processes followed by the
Directors in the determination of the exchange ratio, as well as the homogeneity in the application of the valuation methods; 

  

 11 

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	–	sensitivity analyses on the valuation methods used to verify to what extent the exchange ratio would be affected by changes in significant assumptions and parameters applied in the
Advisors’ reports; 

  

	–	verification of the consistency of data utilized, with respect to the reference sources and with the “Documentation utilized”, described in paragraph 3 above;

  

	–	verification of the mathematical correctness of the computation of the exchange ratio, by applying the valuation methods adopted by the Directors, also based on the indications
given by their Advisors; 

  

	–	meetings with the Advisors of Telecom Italia, to discuss the activities performed, the problems encountered and the solutions adopted. 

  
 We have also obtained representation that, with reference to each single business unit
considered on a stand alone basis, to Telecom Italia management’s best knowledge, no changes in the data and information considered in our analyses have taken place in the meantime. 
  

	8.	Comments on the suitability of the methods used and the accuracy of the estimates 

  
 With reference to this engagement, we believe it is worth noting that the principal purpose of the decision-making process used by the
Directors was to make an estimate of the relative values of the Companies involved in the merger, by applying homogeneous criteria, in order to obtain the exchange ratio. In fact, the main objective of valuations for mergers is to identify
comparable values in order to determine the exchange ratio, rather than to determine absolute values for the Companies concerned. As such, valuations for merger transactions have a meaning solely in respect of their relative profile and cannot be
regarded as estimates of the absolute values of the Companies involved, for transactions different from the merger and for which they were not made. 
  
 In connection with the valuation methods adopted, we note that: 
  

	–	they are widely used in Italian and international practice, they have solid doctrinal bases and are based on parameters determined according to a generally accepted methodology;

  

	–	they appear adequate in the circumstances, in light of the characteristics of the companies involved in the merger; 

  

	–	in conformity with the valuation context required for a merger, the methods have been developed on a stand-alone basis; 

  

	–	the approach adopted by the Directors complies with the requirement to use homogeneous valuation methods, thereby achieving comparable values; 

  

	–	the use of a principal and a control method has, in any case, made it possible to enlarge the valuation process and test the results obtained. 

  
 We have the following comments on the ways in which the Directors developed the valuation
methods: 
  

	–	the Sum-of-the Parts method is generally applied in professional practice to value complex enterprises made up of various areas of business. In this specific case, using the DCF
method made it possible to appreciate the operational characteristics of the Companies taking part in the Merger. 

  

	–	choosing the DCF method for the main business areas of TIM is justified by the activity carried on, for which both the balance sheet and the economic and financial aspects are
significant elements for the valuation process; 

  

	–	the Stock-Market Price method, adopted by the Directors for control purposes, is particularly suitable in the case of companies with a high market capitalization, a large and
widespread float, and high trading volumes. Lastly, the results obtained are supported by analysts’ consensus in the three months preceding the announcement of the transaction; 

  

	–	the method of calculating the exchange ratio for the TIM savings shares involved in the merger is appropriate under the circumstances and in any case objective, also considering the
limits of the empirical approach used. 

  

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	9.	Specific limitations encountered by the auditors in carrying out the engagement 

  
 During our engagement, we did not encounter any limitations or difficulties worthy of mention in this section of the report. 
  

	10.	Conclusion 

  
 Based on the documentation examined and the procedures described above, and considering the nature and extent of our work as explained in this report, we are of the opinion that the valuation methods used by the
Directors, also based on indications from their Advisors, are reasonable and not arbitrary under the circumstances, and that they have been correctly applied in calculating the following exchange ratio contained in the merger plan, namely:

  

	 	•	 	1.73 Telecom Italia ordinary shares with a par value of €0.55 per share for each TIM ordinary share with a par value of €0.06 

  

	 	•	 	2.36 Telecom Italia savings shares with a par value of €0.55 per share for each TIM savings share with a par value of €0.06 

  
 Milan, February 28, 2005 
  
 Mazars & Guérard S.p.A. 
  

			
	signed Riccardo Vogliotti	 	signed Vincenzo Miceli
	Partner	 	Partner

  

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 ANNEX VII 
  

PLAN FOR THE MERGER BY INCORPORATION OF 
  
 TELECOM ITALIA MOBILE S.P.A. 
  
 INTO 
  
 TELECOM ITALIA S.P.A. 
  
 AUDITORS’ REPORT 
 relating to the exchange ratio of shares 
 pursuant to Article 2501 sexies of the Italian Civil Code (*) 
  
 (Translation from the original Italian text) 
  
 (*) With respect to the CONSOB Communication N. 73063 of October 5, 2000, this report, whose translation is attached, does
not express an opinion on the fairness of the transaction, the value of the security, or the adequacy of consideration to shareholders and therefore the issuance of the report would not impair the independence of Reconta Ernst & Young S.p.A.
under the U.S. independence requirements. 

Table of Contents

 PLAN FOR THE MERGER BY INCORPORATION OF 
  
 TELECOM ITALIA MOBILE S.P.A. 
  
 INTO TELECOM ITALIA S.P.A. 
  
 AUDITORS’ REPORT 
 relating to the exchange
ratio of shares 
 pursuant to Article 2501 sexies of the Italian Civil Code. 
  
 (Translation from the original Italian text) 
  
 To the Shareholders of 
 Telecom Italia Mobile S.p.A. 
  

	1.	OBJECTIVE, SUBJECT AND SCOPE OF THE ENGAGEMENT

  

	 	In connection with the planned incorporation of Telecom Italia Mobile S.p.A. (hereinafter “TIM” or the “Company to be Absorbed”) into Telecom Italia S.p.A.
(hereinafter “Telecom Italia” or the “Absorbing Company” and, together with TIM, the “Companies”), on December 28, 2004 we were appointed as experts by the President of the Turin Court, based on a request presented by
TIM, to prepare our report on the exchange ratio of the shares of the Absorbing Company with those of the Company to be Absorbed (hereinafter the “Exchange Ratio”), in accordance with Article 2501 sexies of the Italian Civil Code.

  

	 	To this end, TIM has provided us with the plan for the merger (hereinafter the “Merger” or “Plan for the Merger”), accompanied by the Directors’ Report,
which identifies, explains and justifies, pursuant to Article 2501 quinquies of the Italian Civil Code, the Exchange Ratio, as well as the Balance Sheet as of September 30, 2004 required by Article 2501 quater of the Italian Civil
Code. 

  

	 	The Plan for the Merger will be subject to approval at the Extraordinary General Meeting of the shareholders of TIM to be held on April 5, 2005, first call and second call on April
6, 2005. In addition, the Plan for the Merger will be subject to approval at the Special General Meeting of TIM savings shareholders, in accordance with Article 146, first paragraph, subparagraph b), of the Italian Unified Text for Finance
(“TUF”). 

  

	 	Similarly, the shareholders of Telecom Italia will be required to approve the Merger at the Extraordinary General Meeting to be held on April 5, 2005, first call and, if required,
second call on April 6, 2005 or, third call on April 7, 2005. 

  

	 	Mazars & Guerard S.p.A. was appointed by the President of the Milan Court, based on a request presented by Telecom Italia to prepare a similar report on the Exchange Ratio.

  

	 	In order to provide the shareholders with adequate information regarding the Exchange Ratio, this report illustrates the methods adopted by the Directors in determining the Exchange
Ratio and the difficulties encountered by them. In addition, this report also indicates whether, under the circumstances, such methods are reasonable and not arbitrary, whether the Directors have considered the respective importance of such methods
and whether the methods have been correctly applied. 

  

	 	In our examination of the valuation methods adopted by the Directors, also based on indications from their advisors, we have not carried out a valuation of the Companies
participating in the Merger. This was done solely by the Directors and the advisors appointed by them. 

  

	2.	SUMMARY OF THE TRANSACTION 

  

	 	The Boards of Directors of TIM and Telecom Italia held on December 7, 2004 have developed a plan, for a comprehensive reorganization of the activities of the Telecom Italia Group
(the “Reorganization Plan”). The goal, both for TIM and Telecom Italia, is to improve their competitive position, given the greater operational and financial synergies and efficiencies that will arise. 

  

	 	As indicated in the report of the Board of Directors of TIM, the proposed transaction provides for the Merger of TIM into Telecom Italia, pursuant to Articles 2501 and following of
the Italian Civil Code. 

  

	 	On January 23, 2005, the Board of Directors of TIM approved the Plan for the Merger of TIM into Telecom Italia, confirming the Exchange Ratio preliminarily indicated by the Board of
Directors on December 7, 2004. 

  

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	 	The Merger will be effected on the basis of the balance sheets of TIM and Telecom Italia as of September 30, 2004, adopted by the Boards of Directors of the Companies as the Balance
Sheets required by Article 2501 quater of the Italian Civil Code. 

  

	 	In order to implement the Reorganization Plan, prior to the Merger and to its effectiveness, TIM is expected to spin off its mobile communications business in Italy (the
“Spin-off”) to a company wholly owned by TIM, to be known as Tim Italia S.p.A. 

  

	 	As part of the Reorganization Plan, Telecom Italia made: (i) a voluntary partial tender offer for 2,456,534,241 TIM ordinary shares, representing 29.12% of TIM’s ordinary share
capital at December 20, 2004 and 28.67% of TIM’s total share capital at the same date; (ii) a voluntary tender offer for all 132,069,163 TIM savings shares, representing 100% of TIM’s savings share capital and approximately 1.54% of its
total share capital (hereinafter referred to, jointly, as the “Offer”). The Offer price was €5.6 for each TIM ordinary and savings share and its effectiveness was subject to the condition, for both classes of shares, that two thirds
of the number of shares subject of the Offer be tendered. 

  

	 	The Offer commenced on January 3, 2005 and terminated on January 21, 2005. Telecom Italia’s Board of Directors has favorably assessed the results of the Offer, particularly
given that the TIM ordinary shares tendered exceeded the number of TIM ordinary shares subject to the Offer and thus confirmed the effectiveness of the Offer. 

  

	 	The Absorbing Company will succeed to all TIM’s legal rights and obligations in force at the effective date of the Merger, including those arising in connection with TIM’s
stock option plans (to this end, the Absorbing Company will make the necessary capital increases to service such plans). 

  

	 	The Merger is technically subject to the veto right of the Italian Government pursuant to the Golden Share provisions under Article 2 of Law Decree 332/1994, ratified by Law
474/1994, and Article 22, paragraph b) of Telecom Italia’s bylaws. 

  

	 	At the end of the meeting of Telecom Italia’s Board of Directors on December 7, 2004, in accordance with Article 22, paragraph b) of the Absorbing Company’s bylaws and
Article 2 of Law Decree 332/1994, ratified by Law 474/1994, Telecom Italia notified the Minister for the Economy and Finance of the commencement of the Reorganization Plan of the Group. The Minister for Economy and Finance, in agreement with the
Minister for Productive Activities, has notified Telecom Italia that he does not consider that the conditions exist for the exercise of the veto right with respect to the adoption of the Merger resolution by Telecom Italia’s shareholders’.

  

	 	The Absorbing Company’s ordinary and savings shares are and, following the Merger, will continue to be, listed on the Mercato Telematico operated by Borsa Italiana S.p.A..

  

	 	In addition, following the Merger, Telecom Italia’s ordinary and savings shares will continue to be listed on the New York Stock Exchange in the form of ADS (American
Depositary Shares, each of which represents ten ordinary or savings shares). 

  

	 	In implementing the Merger, the Absorbing Company will cancel the TIM ordinary and savings shares owned by the Absorbing Company, cancel own shares held by TIM and will issue new
ordinary and savings shares to be exchanged for the existing shares. 

  

	 	The newly-issued shares of the company resulting from the Merger will have normal entitlement to all the pertinent rights. 

  

	 	The Merger will be effective from the date of the last filing of the Merger deed, or from such later date as may be specified in the Merger deed itself, while for accounting and tax
purposes, the transactions of the incorporated company will be included in the financial statements of the Absorbing Company as of January 1 of the year in which the transaction becomes effective. 

  

	3.	DOCUMENTATION UTILIZED 

  

	 	In performing our work, we obtained from TIM and Telecom Italia, such documentation and information as was considered necessary in the circumstances. We analyzed such documentation
and, in particular: 

  

	 	a)	the Plan for the Merger and the reports of the Boards of Directors of the two Companies, addressed to the respective Extraordinary General Meetings, proposing an Exchange Ratio as
follows: 

  

	 	–	1.73 Telecom Italia ordinary shares with a par value of €0.55 per share for each TIM ordinary share with a par value of €0.06; 

  

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	 	–	2.36 Telecom Italia savings shares with a par value of €0.55 per share for each TIM savings share with a par value of €0.06. 

  

	 	 	The Exchange Ratio has been determined by the Board of Directors also taking into account the reports of the advisors (“Advisors”) indicated in points b) and c) below. The
report of the Board of Directors of TIM sets out in detail the valuation criteria adopted, the reasons for their choice, the values resulting from their application and the related comments; 

  

	 	b)	the valuation reports of the Exchange Ratio prepared by Lazard & Co. S.r.l. and Credit Suisse First Boston as advisors of the Directors; these reports set out the valuation
criteria adopted, and the results of their application; 

  

	 	c)	the fairness opinions prepared by Merril Lynch International, Milan Branch and by Studio Casò, Dr. Angelo Casò in person, as advisors designated upon indication
of the independent Directors, members of the Internal Control Committee of TIM; 

  

	 	d)	the following documentation, used by the Advisors to prepare their reports and, subsequently, within the scope of our engagement, also utilized by us: 

  

	 	–	the financial statements and the consolidated financial statements of TIM and Telecom Italia and of their significant subsidiaries as of and for the year ended December 31, 2003,
accompanied by the Reports of the Boards of Directors, the Reports of the Boards of Statutory Auditors and the Independent Auditors’ Reports; 

  

	 	–	the balance sheets of TIM and Telecom Italia as of September 30, 2004 accompanied by the Directors’ reports; 

  

	 	–	the draft financial statements of TIM and Telecom Italia as of and for the year ended December 31, 2004, approved by the Board of Directors on February 23, 2005 and February 24,
2005, respectively. 

  

	 	–	Telecom Italia Group’s “Preliminary economic and financial plan - 2005-2007 Plan-Preliminary December 3, 2004” prepared by management; 

  

	 	–	historical market prices and trading volumes of ordinary and savings shares of TIM and Telecom Italia; 

  

	 	–	publicly available information about companies operating in the same sector; 

  

	 	–	financial research and analyses, published by specialized institutions and investment banks; 

  

	 	e)	additional documentation, as follows, has been utilized by us: 

  

	 	–	data and information obtained from the Advisors and used by them for the determination of the Exchange Ratio; 

  

	 	–	by-laws of the Companies participating in the Merger; 

  

	 	–	reports on the Plan for the Merger of the Boards of Directors of TIM and Telecom Italia of December 7, 2004; 

  

	 	–	interim financial statements of TIM and Telecom Italia as of June 30, 2004 and for the six month period then ended, accompanied by the auditors’ review reports;

  

	 	–	accounting elements and other information as deemed necessary for this report. 

  

	 	Finally, we obtained representation from TIM, based on management’s best knowledge and belief, that no significant changes occurred in the data and information used in our
analysis. The same representation has been obtained by Mazars & Guerard S.p.A. from the management of Telecom Italia. 

  

	4.	VALUATION METHODS ADOPTED BY THE BOARD OF DIRECTORS
FOR THE DETERMINATION OF THE EXCHANGE RATIO 

  

	 	The Directors of TIM, also in view of information provided by the Advisors, determined the Exchange Ratio on the basis of a number of valuation methods, selected among those more
appropriate to reflect the value of the entities involved in the Merger, considering the activities carried-out by the Absorbing Company and by the Company to be Absorbed. 

  

 4 

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	4.1.	Selection of the methods and valuation criteria 

  

	 	The Directors of TIM, supported by their Advisors, selected the valuation methods and criteria to be applied taking into account: 

  

	 	a)	the specific objectives of the valuations in connection with the Merger; 

  

	 	b)	the nature of the activities performed by each of the Companies participating in the Merger. 

  

	 	Concerning these aspects, in selecting the valuation principles and criteria, the Directors made reference to the purpose of the exercise and to elements of significance allowing
the value of the businesses to be calculated. 

  

	 	Given the objective of obtaining comparable values for the determination of the Exchange Ratio, the Directors adopted valuation methods based on uniform criteria for both Companies
participating in the Merger. 

  

	 	These values were obtained on a going-concern basis and can be neither considered as representative of stand-alone valuations of the two Companies participating in the Merger, nor
compared with any potential acquisition or disposal prices (which normally take into account potential majority premiums and minority discounts). Nor do these values reflect the strategic, operational and financial synergies expected from the
Merger. 

  

	 	Based on this premise, the Directors of TIM and Telecom Italia adopted two methods: the stock-market price method and the sum-of-parts method, the latter primarily through the
application of the discounted cash flow or DCF methodology to the various business units. 

  

	 	The valuation process of the Directors was further supported by considering financial analysts’ target prices for the TIM and Telecom Italia shares, and making reference to
market multiples for comparable companies. 

  

	 	Finally, the Directors considered, on one hand, the various areas of operations of TIM and Telecom Italia, and, on the other hand, the fact that the controlling investment of
Telecom Italia in TIM represents a significant component of the total assets of Telecom Italia. 

  

	4.1.1.	Description of Methodologies Used 

  

	 	The following methodologies were used: 

  

	 	Stock-market prices method: where companies participating in a merger have shares listed on regulated securities exchanges, theory and professional practice suggest that
account be taken of the results deriving from the market prices of the respective shares, averaged over appropriate periods of time. In this case, the Directors considered the market prices to be particularly significant, taking into account the
high capitalization and market liquidity of TIM and Telecom Italia; the extensive coverage the two companies receive in analysts’ research reports; and the existence among their shareholders of numerous international institutional investors.

  

	 	Sum-of-parts method: under this method, a company’s value is calculated as the sum of the values of its separate units (meaning economic entities that can be valued
independently) adjusted to take into account the company’s financial position and minority interests. 

  

	4.1.2.	Stock-Market Prices 

  

	 	The stock-market prices method estimates the value of the equity on the basis of stock-market prices during a relevant period that expires at a date close to that on which the
valuation is carried out. 

  

	 	The Directors considered the market prices over various periods prior to the announcement of the Merger (December 3, 2004) and prior to the date when press articles began to refer
to the potential reorganization (the week of November 16-19, 2004), in order to focus on the values of the two companies before possible announcement effects. 

  

	 	In order to mitigate the short-term fluctuations that are typical of the financial markets, the Directors extended the analysis of the share prices to the average market prices over
appropriately long periods. 

  

	 	To this end, in applying the stock-market prices method the Directors analyzed historical volume-weighted average prices within the 12 months prior to November 16, 2004.

  

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	 	The Directors identified the averages for 1, 2, 3, 6 and 12 months as those within a range of constant ratios. 

  

	 	The Directors considered more relevant the stock-market prices for various periods before the week of November 16-19, 2004, although the differences between these values and those
of the date of the announcement of the Merger are not significant. 

  
 4.1.3. Sum-of-Parts method 
  

	 	According to the sum-of-parts method, the value of TIM and Telecom Italia is determined as the sum of the values of the individual units of each company, considered as economic
entities that can be valued independently. Such sum is suitably adjusted to take account of the financial position and minority interests for each of the Companies Participating in the Merger. 

  

	 	For the valuation of the individual units, the Discounted Cash Flow or DCF methodology was primarily used, as applied to the principal assets of TIM and Telecom Italia: the Italian
wireline and mobile services and the major subsidiaries abroad. 

  

	 	For the valuation of the remaining assets of TIM and Telecom Italia, reference was made to their stock-market value, where available and appropriate, and for those less important or
not consolidated, to their book value or to the estimates of financial analysts in research reports. 

  

	 	The DCF methodology was applied by discounting operating cash flows gross of any component of a financial nature (Free Cash Flows or “FCF”). Under this methodology, the
value of a company is equal to the sum of the following components: 

  

	 	–	operating cash flows that the company will be able to generate in the future, discounted at a rate representing the weighted average cost of capital; 

  

	 	–	net financial position and minority interests; 

  

	 	–	surplus assets, if any. 

  

	 	In applying the DCF methodology, the Directors made reference to the cash flows of the main activities as shown by the “Preliminary economic and financial plan - 2005-2007
Plan-Preliminary December 3, 2004”, which is the update of the business and financial plans approved and announced to the market in March 2004. The plans were developed by management in conformity with Telecom Group’s strategic,
operational and financial objectives. 

  

	 	In the valuation, the Directors estimated the net financial position at December 31, 2004 and the value of minority interests; these were determined primarily, depending on the
circumstances, with reference to their book or market value, in view of their limited importance in relation to the overall valuation of the two companies. 

  

	 	In order to divide the results obtained for the equity value of the two companies between their ordinary and savings shares, the Directors made reference to the average discounts
implied by the 1, 2, 3, 6 and 12 month averages of the prices of TIM and Telecom Italia savings shares compared to those of their ordinary shares. 

  

	 	The Directors believe that the consensus view is that other methods of dividing the equity value between ordinary and savings shares would introduce discretionary factors into the
valuation, unsupported by objective factors. 

  

	5.	VALUATION DIFFICULTIES ENCOUNTERED BY THE DIRECTORS 

  

	 	In carrying out the valuations for the purpose of determining the Exchange Ratio, the Board of Directors of TIM has not encountered difficulties. 

  

	6.	RESULT OF THE VALUATION PERFORMED BY THE DIRECTORS

  

	 	The Directors have applied the valuation methods described above, both taking into account and excluding the effects of the distribution of dividends in April 2005 (assumed to be
equal to those distributed in 2004). 

  

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	6.1.	Stock-Market Prices 

  

	 	Based on the results of the valuations made in accordance with the stock-market prices method, the Directors of TIM identified the following valuations and ratios:

  

													
	 Market prices
 (ordinary shares)

	  	Stock market value not
adjusted for dividend

	  	Ratio

	  	Stock market value
adjusted for dividend

	  	Ratio

	  	 Telecom
 Italia (€)

	  	 TIM
 (€)

	  	  	 Telecom
 Italia (€)

	  	 TIM
 (€)

	  
	 Weighted averages
	  	 	  	 	  	 	  	 	  	 	  	 
	 November 16, 2004
	  	2.82	  	4.81	  	1.71	  	2.71	  	4.55	  	1.68
	 1 month average
	  	2.70	  	4.68	  	1.73	  	2.59	  	4.42	  	1.71
	 2 month average
	  	2.63	  	4.56	  	1.73	  	2.52	  	4.30	  	1.70
	 3 month average
	  	2.58	  	4.50	  	1.74	  	2.48	  	4.25	  	1.71
	 6 month average
	  	2.55	  	4.51	  	1.77	  	2.45	  	4.25	  	1.74
	 12 month average
	  	2.54	  	4.52	  	1.78	  	2.44	  	4.27	  	1.75

  

													
	 Market prices
 (savings
shares)

	  	Stock market value not
adjusted for dividend

	  	Ratio

	  	Stock market value
adjusted for dividend

	  	Ratio

	  	Telecom
Italia (€)

	  	 TIM
 (€)

	  	  	Telecom
Italia (€)

	  	TIM
(€)

	  
	 Weighted averages
	  	 	  	 	  	 	  	 	  	 	  	 
	 November 16, 2004
	  	2.05	  	4.78	  	2.33	  	1.94	  	4.51	  	2.33
	 1 month average
	  	2.01	  	4.62	  	2.30	  	1.89	  	4.35	  	2.30
	 2 month average
	  	1.95	  	4.53	  	2.32	  	1.84	  	4.26	  	2.32
	 3 month average
	  	1.92	  	4.48	  	2.34	  	1.80	  	4.22	  	2.34
	 6 month average
	  	1.86	  	4.45	  	2.39	  	1.75	  	4.18	  	2.39
	 12 month average
	  	1.84	  	4.45	  	2.42	  	1.72	  	4.18	  	2.43

  

	6.2.	Sum-of-Parts 

  

	 	With respect to the sum-of-parts method, the Directors of TIM identified the following ranges for the values and the ratios of the ordinary and savings shares.

  
 SUM-OF-PARTS 
  

																			
	 Euro

	  	 Values per share not
 adjusted for dividend

	 	 	 Values per share
 adjusted for dividend

	 
	  	Telecom
Italia

	 	 	TIM

	 	 	Ratio

	 	 	Telecom
Italia

	 	 	TIM

	 	 	Ratio

	 
	 Value per ordinary share
	  	(2.97-3.28	)	 	(5.26-5.50	)	 	(1.68-1.77	)	 	(2.86-3.17	)	 	(5.1-5.25	)	 	(1.65-1.75	)
	 Value per savings share
	  	(2.18-2.41	)	 	(5.26-5.50	)	 	(2.29-2.41	)	 	(2.06-2.29	)	 	(4.99-5.24	)	 	(2.29-2.42	)

  

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	6.3.	Determination of the Exchange Ratio 

  

	 	Taking into account the valuations prepared by the Advisors, the Board of Directors has established the relative values of the Companies Participating in the Merger for the purpose
of determining the Exchange Ratio. 

  

	 	The ratios derived by applying the foregoing methods by the Directors of TIM are summarized below: 

  

							
	 METHOD
 (ORDINARY SHARES)

	  	EXCHANGE RATIO
NOT ADJUSTED
FOR DIVIDEND

	 	 	EXCHANGE RATIO
ADJUSTED FOR
DIVIDEND

	 
	 Market Price method
	  	 	 	 	 	 
	 - November 16, 2004
	  	1.71	 	 	1.68	 
	 Weighted averages:
	  	 	 	 	 	 
	 - 1 month average
	  	1.73	 	 	1.71	 
	 - 2 month average
	  	1.73	 	 	1.70	 
	 - 3 month average
	  	1.74	 	 	1.71	 
	 - 6 month average
	  	1.77	 	 	1.74	 
	 - 12 month average
	  	1.78	 	 	1.75	 
	 Sum-of-Parts method
	  	(1.68-1.77	)	 	(1.65-1.75	)
			
	 METHOD
 (SAVINGS SHARES)

	  	EXCHANGE RATIO
NOT ADJUSTED
FOR DIVIDEND

	 	 	EXCHANGE RATIO
ADJUSTED FOR
DIVIDEND

	 
	 Market Price method
	  	 	 	 	 	 
	 - November 16, 2004
	  	2.33	 	 	2.33	 
	 Weighted averages:
	  	 	 	 	 	 
	 - 1 month average
	  	2.30	 	 	2.30	 
	 - 2 month average
	  	2.32	 	 	2.32	 
	 - 3 month average
	  	2.34	 	 	2.34	 
	 - 6 month average
	  	2.39	 	 	2.39	 
	 - 12 month average
	  	2.42	 	 	2.43	 
	 Sum-of-Parts method
	  	(2.29-2.41	)	 	(2.29-2.42	)

  

	 	The Directors, on the basis of the valuations of the Companies participating in the Merger, determined the following Exchange Ratio: 

  

	 	–	1.73 Telecom Italia ordinary shares with a par value of €0.55 per share for each TIM ordinary share with a par value of €0.06; 

  

	 	–	2.36 Telecom Italia savings shares with a par value of €0.55 per share for each TIM savings share with a par value of €0.06. 

  

	 	The Directors indicate that the effects of the Offer for TIM ordinary and savings shares, initiated by Telecom Italia, that commenced on January 3, 2005 and terminated on January
21, 2005, do not require the Exchange Ratio to be altered since the Offer was made on economic terms consistent with the valuations used to determine the Exchange Ratio. 

  

	 	In determining the Exchange Ratio, the Directors made an analysis of the reasonably foreseeable effects of the possible exercise of the right of withdrawal by holders of TIM savings
shares. It was deemed, considering also the prices of the shares in the relevant period, that the result of such withdrawals would not require the Exchange Ratio to be modified, since it was reasonable to presume that the withdrawal price would be
lower than the value attributed to TIM shares for the purposes of the Merger on the basis of the valuation methods applied. 

  

	6.4.	Procedures for assigning the shares and carrying out the share exchange 

  

	 	The Absorbing Company will carry out the exchange by increasing its share capital by up to a maximum of €1,420,690,865.55, through the issuance of up to a maximum of
2,291,344,587 ordinary shares and up to a maximum of 291,729,714 savings shares, all with a par value of €0.55 per share. The increase in Telecom Italia’s share capital for purposes of the share exchange has been calculated without taking
into consideration the TIM ordinary and savings shares held by Telecom Italia or TIM’s treasury shares, which will be cancelled in the Merger and will not participate in the share exchange. 

  

 8 

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	7.	WORK DONE 

  

	7.1.	Work done on the “documentation utilized” as mentioned at point 3. 

  

	 	Taking into consideration that the Plan for the Merger, in accordance with Article 2501 quater of the Italian Civil Code, takes, as a reference basis, the Balance Sheets of
the Companies as at September 30, 2004, we have performed limited procedures in order to identify the accounting principles utilized for the preparation of the above mentioned Balance Sheets and the major changes in the financial conditions with
respect to the semi-annual report as of June 30, 2004 and for the six month period then ended of TIM and Telecom Italia, on which we have performed a limited review. The statutory and consolidated financial statements of TIM and Telecom Italia as of
December 31, 2003 and for the year then ended were audited by us. 

  

	 	In addition, we have performed the following activities: 

  

	 	–	we met and discussed with the management of TIM and Telecom Italia to obtain information on the subsequent events with respect to the balance sheets mentioned above that could have
a significant effect on the values being examined here; 

  

	 	–	with respect to the “Preliminary economic and financial plan - 2005–2007 Plan-Preliminary December 3, 2004” of the Telecom Italia Group, while considering the
inherent uncertainty and limits of any type of forecast, we have discussed with the management of TIM and Telecom Italia the main characteristics of the forecasting process and the criteria used for their compilation. 

  

	 	The above activities have been performed to the extent necessary for the purpose of our engagement, indicated in paragraph 1 above. 

  

	7.2.	Work done on the methods used to determine the Exchange Ratio 

  

	 	We have examined the methods followed by the Directors, also based on the indications given by their Advisors, for the determination of the relative value of the Companies and,
thus, of the Exchange Ratio, ascertaining their technical suitability under the circumstances. 

  

	 	We have also performed the following procedures: 

  

	 	–	analysis of the report prepared by the Directors’ of TIM on the Plan for the Merger and of the reports of the Advisors to verify the completeness and consistency of the
processes to determine the Exchange Ratio, as well as the homogeneity in the application of valuation methods; 

  

	 	–	sensitivity analyses within the valuation methods adopted, with the aim to verify to what extent the Exchange Ratio would be affected by changes in the assumptions and parameters,
considered to be significant, utilized in the reports of the Advisors; 

  

	 	–	verification of the consistency of data utilized, with respect to the reference sources and with the “Documentation used”, described in paragraph 3 above;

  

	 	–	verification of the mathematical correctness of the calculation of the ratios, derived from the application of the valuation methods used by the Directors; 

 

	 	–	meetings with the Advisors of TIM, to discuss the activities performed, the issues encountered and the solutions adopted. 

  

	8.	COMMENTS ON THE SUITABILITY OF THE METHODS USED
AND THE VALIDITY OF THE ESTIMATES 

  

	 	With reference to this engagement, we note that the principal purpose of the process used by the Directors was to establish an estimate of relative values of the companies involved
in the Merger, by applying homogeneous criteria, in order to obtain comparable values. In fact, the main objective of valuations for mergers is to identify comparable values in order to determine the Exchange Ratio, rather than to determine absolute
values of the companies involved. As such, valuations for merger transactions have a meaning solely in respect of their relative profile and cannot be regarded as estimates of the absolute values of the companies involved, for transactions different
from the merger for which they were carried out. 

  

	 	In connection with the valuation methods adopted, we note that: 

  

	 	–	they are widely used in Italian and international professional practice, they are based on accepted valuation doctrine and on parameters determined according to a generally accepted
methodology; 

  

	 	–	they appear adequate in the circumstances, in light of the characteristics of the Companies involved in the Merger; 

  

 9 

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	 	–	in conformity with the valuation framework required by the Merger, the methods have been developed on a stand alone basis; 

  

	 	–	the methodology adopted by the Board of Directors ensures that the valuation methods are homogeneous and thus that the values are comparable; 

  

	 	–	the application of more than one method broadened the valuation process and allows substantial verification of the results obtained. 

  

	 	With reference to the application of the valuation methodologies made by the Directors, we note that: 

  

	 	–	the stock-market prices method is particularly suitable in connection with companies with a high capitalization, a large and widespread float and high volumes of exchange. In this
case, the adoption of averages over a sufficiently long period of time mitigates the effect of share fluctuations, connected with the general situation of the stock markets; 

  

	 	–	the sum-of-parts method is generally applied by professional practice in the valuation of complex enterprises, characterized by numerous areas of business. In this case, the
utilization of the DCF method allows appropriate consideration to be given to the operational characteristics of the companies participating in the Merger. The selection of the DCF method for the main business areas of TIM and Telecom Italia is
justified by the activity of the businesses which gives significance to both the economic and financial aspects for the purpose of the valuation; 

  

	 	–	the results obtained with the stock-market prices method and the sum-of-parts method are supported by an analysis of the “consensus” of financial analysts on target prices
of TIM and Telecom Italia, as well as, by the analysis of comparable market multiples. 

  

	9.	SPECIFIC LIMITATIONS ENCOUNTERED BY THE AUDITORS IN
CARRYING OUT THE ENGAGEMENT 

  

	 	During our engagement, we did not encounter limitations or difficulties that merit mention in this section of the report. 

  

	10.	CONCLUSION 

  

	 	Based on the documentation we have examined and on the procedures described above, and considering the nature and extent of our work as described in this report, we believe that the
valuation methods adopted by the Directors, also based upon the advice of their Advisors are, under the circumstances, reasonable and not arbitrary and they have been correctly applied by them in their determination of the Exchange Ratio of shares
indicated in the Plan for the Merger, as follows: 

  

	 	–	1.73 Telecom Italia ordinary shares with a par value of €0.55 per share for each TIM ordinary share with a par value of €0.06; 

  

	 	–	2.36 Telecom Italia savings shares with a par value of €0.55 per share for each TIM savings share with a par value of €0.06. 

  
 Milan, February 28, 2005 
  
 Reconta Ernst & Young S.p.A. 
  
 Signed by Felice Persico, partner 
  

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 ANNEX VIII (a) 
  
 TRANSLATION FROM THE ORIGINAL DOCUMENT ISSUED IN ITALIAN PREPARED EXCLUSIVELY FOR INFORMATIVE PURPOSES. THE ORIGINAL DOCUMENT IN
ITALIAN PREVAILS ON ANY TRANSLATION. 
  
 Dottor Marco Tronchetti Provera

 Chairman 
 Telecom Italia S.p.A. 
 Piazza Affari, 2 
 Milan 
 Italy 
  
 Milan, December 7 2004 
  

	1.	INTRODUCTION 

  
 On December 6 2004, Telecom Italia S.p.A. (“Telecom Italia”) engaged JPMorgan Chase Bank N.A. (“JPMorgan”) to act as its financial adviser (the
“Engagement”) in connection with the acquisition of Telecom Italia Mobile S.p.A. (“TIM”) ordinary and savings shares (the ‘“Acquisition”) and the merger between Telecom Italia and TIM (the “Merger”) (the
Acquisition and the Merger together, the “Transaction”). 
  
 As part of
the Engagement, Telecom Italia has requested that JPMorgan provide an opinion (the “Opinion”) as to the fairness of the share exchange ratio with respect to the Merger. Telecom Italia has not requested that JPMorgan express its opinion on
the underlying business decision to proceed with and/or to execute the Transaction, nor does the Opinion provided by JPMorgan have regard to that decision. Likewise, Telecom Italia has not requested that JPMorgan provide, nor has JPMorgan provided,
any legal, accounting or tax advice in connection with the Transaction. 
  
 This
letter represents the final report of JPMorgan (the “Final Report”) with regards to the Opinion requested. 
  
 The Final Report has been prepared for the internal and exclusive use of the Board of Directors of Telecom Italia (the “Board of Directors”) in support of the
decisions to be taken by it. Therefore, the Final Report may not be disclosed, in whole or in part, to any third party or used for any purpose whatsoever other than those indicated in the Engagement and in the Final Report itself, provided that the
Final Report may be transmitted to the experts appointed in compliance with the law and its content may be disclosed publicly where required by regulations of the Italian and/or U.S. stock exchange authorities. Any other use, in whole or in part, of
the Final Report will have to be previously agreed and authorised in writing by JPMorgan. 
  
 In preparing the Final Report, JPMorgan has relied upon and assumed, without independent verification, the truthfulness, accuracy and completeness of the information and the financial data provided by Telecom Italia.
Publicly available information deemed relevant for the purpose of the analyses contained in the Final Report has also been used. JPMorgan has therefore relied upon all specific information as received and declines any responsibility should the
results presented be affected by the lack of completeness or truthfulness of such information. Therefore the Final Report is based on: (i) our interpretation of the information which Telecom Italia, as well as its representatives and advisers, have
supplied to us to date; (ii) our understanding of the terms upon which Telecom Italia intends to consummate the Transaction and upon which Telecom Italia intends to execute the Acquisition; (iii) the assumption that the Transaction will be
consummated in accordance with the expected terms and within the expected time periods. 
  
 In the execution of the Engagement, JPMorgan has elaborated its own analyses based on the methodologies illustrated below, reaching the conclusions contained in the final paragraph of this Final Report. 
  
 The conclusions described in the Final Report have been prepared with the sole purpose of
analysing the relative values and the share exchange ratio for the purpose of the Merger and, therefore, the values contained in this Final Report have no relevance for purposes other than those related to the Merger. The Final Report and the
Opinion concern exclusively the share exchange ratio in connection with the Merger and do not express any valuation by JPMorgan as to the absolute value of the shares of Telecom Italia and TIM. 
  
 The conclusions contained in this Final Report are based on the whole of the valuations
contained herein and therefore no part of the Final Report may be used in isolation from the document in its entirety. 
  

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 The Final Report and the Opinion are necessarily based on economic, market and other conditions as of the date hereof,
and the written and oral information made available to us until December 7 2004. It should be understood that subsequent developments may affect the conclusions of the Final Report and of the Opinion and that, in addition, JPMorgan has no obligation
to update, revise, or reaffirm the Opinion. 
  
 In addition, JPMorgan is
expressing no opinion as to the price at which any securities of Telecom Italia or TIM will trade on the stock market at any time. Other factors after the date hereof may affect the value of the businesses of Telecom Italia or TIM either before or
after completion of the Acquisition and/or the Merger, including but not limited to: (i) the total or partial disposal of the shares of Telecom Italia or TIM by their respective shareholders within a short period of time after the date of
announcement or completion of the Acquisition or the Merger, (ii) changes in prevailing interest rates and other factors which generally influence the price of securities, (iii) adverse changes in the current capital markets, (iv) the occurrence of
adverse changes in the financial condition, the businesses, certain extraordinary transactions or the prospects of Telecom Italia or TIM, (v) any actions taken or restrictions imposed by any state or governmental agencies or regulatory authorities,
and (vi) the execution of the Transaction in accordance with the expected terms and within the expected time periods. No opinion is expressed by JPMorgan whether any alternative transaction might have been more beneficial to Telecom Italia or the
probability that the Merger will be completed. 
  
 JPMorgan has acted as financial
advisor to Telecom Italia with respect to the proposed Transaction and will receive a fee from Telecom Italia for the services provided, as well as an additional fee upon completion of the Transaction or in certain other circumstances. 

 
 It is understood that JPMorgan or certain JPMorgan affiliates, in the ordinary course of
their activities, may actively trade in the equity and debt securities of Telecom Italia or TIM or companies directly or indirectly controlling, controlled, affiliated or participated by Telecom Italia and/or TIM for their own account or for the
account of customers, and, accordingly, may at any time hold long or short positions in such securities. It also remains understood that JPMorgan or certain JPMorgan affiliates may have and may in the future have commercial banking, investment
banking, trust and other relationships and/or engagements with counterparties which may have interests with respect to Telecom Italia, TIM or companies directly or indirectly controlling, controlled, associated or participated in by Telecom Italia
and/or TIM. Finally, it remains understood that JPMorgan or certain JPMorgan affiliates may have fiduciary or other relationships and engagements whereby JPMorgan or certain JPMorgan affiliates may exercise voting power over securities of various
persons, which securities may from time to time include securities of Telecom Italia, TIM, or companies directly or indirectly controlling, controlled, affiliated or participated in by Telecom Italia and/or TIM, or other parties with an interest
with respect to the Transaction. 
  

	2.	PURPOSES OF THE ASSESSMENT OF THE EXCHANGE
RATIO 

  
 This Final Report is
intended to: 
  

	•	 	Provide the Board of Directors with useful elements, data and references in order to assess the fairness of the Merger exchange ratio and, if appropriate, propose it for approval to
the Shareholders’ Meeting 

  

	•	 	Provide the same elements to the auditing firm appointed to express its own opinion as required by law 

  
 This Final Report is provided solely for the benefit of the Board of Directors of Telecom Italia. Therefore, no one, with the exception of
members of the Board of Directors of Telecom Italia, is authorised to rely upon this opinion. The shareholders of Telecom Italia, to whom this Final Report does not confer any rights, shall use their own financial advisers if they deem it necessary.

  

	3.	SOURCES OF INFORMATION USED FOR THE VALUATION

  
 In the execution of the Engagement, JPMorgan has collected and
analysed certain publicly available data and information and other documentation provided by Telecom Italia (the “Information”). 
  
 In particular: 
  

	•	 	Consolidated and statutory 2002 and 2003 accounts of Telecom Italia, TIM, Telecom Italia Media 

  

	•	 	Half-yearly and quarterly reports for the years 2002, 2003 and 2004 of Telecom Italia, TIM, Telecom Italia Media 

  

	•	 	The preliminary Plan 2005-2007 of the Telecom Italia Group prepared by the management of the Telecom Italia Group (December 3 2004 version) 

  

 2 

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	•	 	Table of the Telecom Italia Group with the estimated net financial position at 31/12/2004 

  

	•	 	Summary table of Telecom Italia with the holdings of the Telecom Italia Group 

  

	•	 	Note of Telecom Italia regarding the debt “ex legge 58/1992” 

  

	•	 	Summary note on the stock option plans of Telecom Italia and TIM 

  

	•	 	Summary table of Telecom Italia on outstanding convertible bonds and warrants 

  

	•	 	Summary table of the treasury shares owned by Telecom Italia and TIM 

  

	•	 	Note of Telecom Italia on certain fiscal aspects 

  
 In addition, JPMorgan has analysed publicly available information, including: 
  

	•	 	Financial research and analysis published by brokers and investment banks; 

  

	•	 	Research and analysis concerning competitors or companies with similar operating characteristics; 

  

	•	 	Share price performance 

  
 JPMorgan has not been requested to conduct, nor JPMorgan has conducted, any independent evaluation or appraisal of any assets or liabilities of Telecom Italia or TIM. 
  
 The Final Report is necessarily based on financial, economic and market information available
for evaluation as of the date hereof. The accuracy, truthfulness, and completeness of the Information have not been independently verified by JPMorgan. 
  

	4.	DESCRIPTION OF THE TRANSACTION 

  
 The Transaction is part of a unified project aimed at the simplification of the structure of
the Telecom Italia Group, described below in its key terms: 
  

	•	 	Voluntary public tender offer (“PTO”) for the Acquisition of (i) 29.1% of TIM ordinary shares, equivalent to two thirds of the free float, and (ii) 100% of TIM savings
shares. The PTO price will be equal to Euro 5.6 for each TIM ordinary and savings share, equivalent to a total amount of about Euro 14.5 billion. The PTO will be subject to the achievement of a minimum level of acceptance equivalent to two thirds of
the shares subject to the offer for each category 

  

	•	 	Merger by incorporation of TIM into Telecom Italia with an exchange ratio of 1.73 Telecom Italia ordinary shares for each TIM ordinary share and 2.36 Telecom Italia savings shares
for each TIM savings share 

  

	•	 	Expected distribution of a dividend per ordinary and savings share by Telecom Italia and TIM in May 2005 (prior to the completion of the Merger) in line with those respectively
distributed in May 2004 

  

	•	 	Preliminary timetable envisaging the completion of the Acquisition through the PTO by the end of January 2005 and the completion of the Merger by July 2005 

 

	5.	VALUATION METHODOLOGIES USED FOR THE ASSESSMENT OF THE
EXCHANGE RATIO 

  
 In the assessment of the exchange ratio, we have used the valuation methodologies that are commonly used, also in an international context, for transactions of a similar nature and for companies operating in this sector. 
  
 In particular, the exchange ratio has been assessed by looking at the relative valuation of
the companies considered, giving priority to the consistency and comparability of the criteria adopted compared to the simple assessment of the absolute value of the economic capital of the companies considered as individual entities. 
  
 As a consequence, the results indicated in this document refer to the assessment of the
relative values of the economic capital of Telecom Italia and TIM. From such perspective, the valuations have been performed by considering the two companies as independent entities from an operating standpoint. Hence, they do not include any
considerations concerning strategic, operating and financial synergies expected from the Merger. 
  
 The valuation of TIM has been primarily performed using the Discounted Cash Flow fundamental methodology. 
  
 The valuation of Telecom Italia has been performed using the Sum-of-the-Parts fundamental methodology, which it is market practice to employ to assess the value of a
group operating in various business sectors, and the main businesses have been primarily valued with the Discounted Cash Flow methodology. 
  

 3 

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 The estimated range for the exchange ratio has therefore been calculated as the ratio between the estimated value of a
TIM share and the estimated value of a Telecom Italia share based on the minimum and maximum values of the respective ranges. 
  
 In order to verify the accuracy of the assessment of the exchange ratio determined using the criterion mentioned above, we have also performed an additional check based
on the average exchange ratio expressed by the stock market over different time periods. 
  

	6.	VALUATION OF TIM 

  
 The valuation of TIM has been primarily performed using the Discounted Cash Flow fundamental methodology, with use also made for testing and control purpose of the method
of market multiples, the method of comparable transaction multiples and the values identified by research analysts, where available. 
  
 To the value calculated using the criteria indicated above was added up algebraically the value of the estimated net financial position at 31 December 2004, adjusted to
take account of minority interests, where material, and the net value of other adjustments including the effects of the expected sale of Corporacion Digitel (Venezuela) and certain tax benefits. 
  
 The table below shows the minimum, mid-point and maximum values for each TIM ordinary share,
identified using the fundamental method described above, before adjustment for the distribution of dividends expected for the month of May 2005 (and hence prior to completion of the Merger). 
  

							
	 	  	Minimum

	  	Mid-point

	  	Maximum

	 Values per TIM ordinary share (Euro)
	  	5.28	  	5.58	  	5.87

	Note:	the figures in this table have been rounded up 

  
 The table below shows the minimum, mid-point and maximum values of the TIM savings share calculated based on the TIM ordinary share with no discount applied. The zero
discount is substantially in line with the average market discount during the last three months, and takes into account the small average market premium and the small average market discount during the last six months. 
  

							
	 	  	Minimum

	  	Mid-point

	  	Maximum

	 Values per TIM savings share (Euro)
	  	5.28	  	5.58	  	5.87

	Note:	the figures in this table have been rounded up 

  
 The table below shows the minimum, mid-point and maximum values of the TIM ordinary and savings shares, obtained using the fundamental method described above, and
adjusted for the distribution of their respective dividends expected for the month of May 2005 (assumed to be in line with their respective dividends per share paid in May 2004). 
  

							
	 	  	Minimum

	  	Mid-point

	  	Maximum

	 Values per TIM ordinary share (Euro)
	  	5.02	  	5.32	  	5.61
	 Values per TIM savings share (Euro)
	  	5.01	  	5.31	  	5.60

	Note:	the figures in this table have been rounded up 

  

	7.	VALUATION OF TELECOM ITALIA 

  
 The valuation of Telecom Italia has been performed using the Sum-of-the-Parts fundamental
methodology, in which the main activities (Telecom Italia S.p.A. and TIM) have been valued primarily with the Discounted Cash Flow method. In particular, TIM was valued based on the range of values obtained using this method, adjusted for the
distribution of dividends expected to be paid in May 2005. The other residual activities have been valued using the criterion of market values, where listed on regulated stock markets, and/or the market multiples method, also using book values and
values identified by research analysts for such businesses, where available, as a verification criterion. 
  
 To the sum of the values of the activities calculated in the manner described above, we have added up algebraically the value of the estimated net financial position at 31/12/2004, adjusted to take into account the
effects of the proportional net debts and minority interests, where relevant, the effect of the TIM shares dividend 

  

 4 

Table of Contents

 
expected to be paid in May 2005 and the net value of other adjustments including the value of certain off-balance sheet items and certain tax benefits;
furthermore it was adjusted to take account of the pro-forma effect of the conversion of the 1.5% 2001-2010 convertible bonds, consistently with the fully-diluted method, which assumes their conversion into ordinary shares. 
  
 The following table shows the minimum, mid-point and maximum values for each Telecom Italia
ordinary share identified using the Sum-of-the-Parts fundamental methodology consistently with the fully-diluted method, before adjustment for the dividend payment expected for the month of May 2005 (and hence prior to completion of the Merger).

  

							
	 	  	Minimum

	  	Mid-point

	  	Maximum

	 Values per Telecom Italia ordinary share (Euro)
	  	2.95	  	3.20	  	3.45

	Note:	the figures in this table have been rounded up 

  
 The following table shows the minimum, mid-point and maximum values for each Telecom Italia savings share calculated based on a discount of 27%, which is substantially in
line with the average market discount during the last month, the last 6 months, and the discount of the last day of trading (December 3). 
  

							
	 	  	Minimum

	  	Mid-point

	  	Maximum

	 Values per Telecom Italia savings share (Euro)
	  	2.15	  	2.34	  	2.52

	Note:	the figures in this table have been rounded up 

  
 The following table shows the minimum, mid-point and maximum values of the Telecom Italia ordinary and savings shares, identified using the Sum-of-the-Parts fundamental
method, and adjusted for the distribution of their respective dividends expected for the month of May 2005 (assumed to be in line with their respective dividends per share paid in May 2004). 
  

							
	 	  	Minimum

	  	Mid-point

	  	Maximum

	 Values per Telecom Italia ordinary share (Euro)
	  	2.84	  	3.10	  	3.35
	 Values per Telecom Italia savings share (Euro)
	  	2.04	  	2.22	  	2.41

	Note:	the figures in this table have been rounded up 

  

	8.	CONCLUSIONS OF THE ASSESSMENT AND VERIFICATION OF THE
EXCHANGE RATIO 

  
 The following table summarises the estimated range for the exchange ratio calculated as a ratio between the estimated value for each TIM share and the estimated value for each Telecom Italia share based on the minimum and the maximum of
their respective ranges previously identified for ordinary and savings shares. 
  

							
	 	  	Minimum

	  	Mid-point

	  	Maximum

	 Telecom Italia ordinary shares for each TIM ordinary share
	  	1.68	  	1.72	  	1.77
	 Telecom Italia savings shares for each TIM savings share
	  	2.33	  	2.39	  	2.46

	Note:	the figures in this table have been rounded up 

  
 In order to verify the accuracy of the estimated exchange ratio determined with the criterion mentioned above, we have also performed an additional control based on the
exchange ratios (Telecom Italia ordinary shares for each TIM ordinary share and Telecom Italia savings shares for each TIM savings share) expressed by the stock market over different time periods (data as of December 3, 1-month, 3-month, 6-month and
12-month averages) adjusted to take into account the effect of the payment of the respective dividends expected for the month of May 2005 (prior to the Merger) assumed to be in line with the respective dividends per share paid in May 2004.

  

											
	 	  	3/12/04

	  	1 month

	  	3 months

	  	6 months

	  	12 months

	 Telecom Italia ordinary shares for each TIM ordinary share
	  	1.72	  	1.69	  	1.71	  	1.74	  	1.74
	 Telecom Italia savings shares for each TIM savings share
	  	2.47	  	2.41	  	2.36	  	2.39	  	2.45

 Note: the figures in this table have been rounded up.
The 12-month average exchange ratio has also been adjusted to take into account the effect of the distribution of dividends in May 2004 
  

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 The results of the valuation carried out using the main methodology, further verified in light of the control methodology
based on the average exchange ratio expressed by the stock market, show that the exchange ratios of 1.73 Telecom Italia ordinary shares for each TIM ordinary share and of 2.36 Telecom Italia savings shares for each TIM savings share are fair, from a
financial point of view, to Telecom Italia. 
  
 Best regards, 
  

	
	 /s/ FEDERICO IMBERT

	
	 Federico Imbert

	 Managing Director – Chairman Italy

	 JPMorgan Chase Bank N.A.

  

			
	 /s/ FRANCESCO ROSSI FERRINI

	 	 /s/ GUIDO TUGNOLI

		
	 Francesco Rossi Ferrini
	 	 Guido Tugnoli

	 Managing Director
	 	 Managing Director

	 JPMorgan Chase Bank N.A.
	 	 JPMorgan Chase Bank N.A.

  

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 ANNEX VIII (b) 
  
 ORIGINAL DOCUMENT ISSUED ON JPMORGAN CHASE BANK N.A. HEADED PAPER. 
  
 TRANSLATION FROM THE ORIGINAL DOCUMENT ISSUED IN ITALIAN PREPARED EXCLUSIVELY FOR
INFORMATIVE PURPOSES. THE ORIGINAL DOCUMENT IN ITALIAN PREVAILS ON ANY TRANSLATION. 
  
 Milan, January 23 2005 
  
 Telecom Italia S.p.A.

 Piazza Affari, 2 
 Milano 
 Italia 
  
 To the kind attention of Dott. Marco Tronchetti Provera, Chairman 
  
 Dear Sirs, 
  
 With reference to our fairness opinion dated 7 December
2004 on the exchange ratios for the ordinary shares and the savings shares regarding the merger of Telecom Italia S.p.A. and Telecom Italia Mobile S.p.A. provided pursuant to our engagement letter dated 6 December 2004 (the “Fairness
Opinion”), using the same criteria upon which the Fairness Opinion was given as well as the same premises, qualifications and assumptions set out therein, we hereby confirm, as of the date hereof, the conclusions set out in the Fairness
Opinion. 
  
 Please note that in providing this confirmation we have not taken
into account the share prices of either Telecom Italia S.p.A. or Telecom Italia Mobile S.p.A. subsequent to the announcement of the proposed merger between these two companies. 
  
 Best regards, 
  

	
	 /s/ FEDERICO IMBERT

	
	 Federico Imbert

	 Managing Director – Chairman Italy

	 JPMorgan Chase Bank N.A.

  

			
	 /s/ FRANCESCO ROSSI FERRINI

	 	 /s/ GUIDO TUGNOLI

		
	 Francesco Rossi Ferrini
	 	 Guido Tugnoli

	 Managing Director
	 	 Managing Director

	 JPMorgan Chase Bank N.A.
	 	 JPMorgan Chase Bank N.A.

Table of Contents

 ANNEX VIII (c) 
  
 Summary description of the analyses carries out by JPMorgan Chase Bank, as Telecom Italia’s financial advisor, with reference to its
Fairness Opinion 
  
 Telecom Italia retained JPMorgan Chase Bank N.A.
(“JPMorgan”) to advise it in connection with the proposed Merger and related transactions, including as to the fairness, from a financial point of view, to Telecom Italia of the exchange ratio with respect to the Merger. 
  
 In selecting JPMorgan as its financial advisor, Telecom Italia considered JPMorgan’s
knowledge of the business and affairs of Telecom Italia and TIM, as well as its qualification as an internationally recognized investment banking firm that has substantial experience in transactions similar to the Merger and related transactions.
JPMorgan, as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. 
  
 On December 7, 2004, at a meeting of the Telecom Italia board of directors held to consider the Merger and related transactions, JPMorgan delivered a written opinion to the Telecom Italia board to the effect that, as
of that date, based on the procedures followed, and subject to the premises, qualifications and assumptions on the scope of review undertaken described in the opinion, the Merger exchange ratios of 1.73 Telecom Italia ordinary shares for each TIM
ordinary share and of 2.36 Telecom Italia savings shares for each TIM savings share were fair, from a financial point of view, to Telecom Italia. 
  
 On January 23, 2005, JPMorgan confirmed to the board of directors of Telecom Italia in writing the conclusion of its December 7, 2004 opinion, taking into account the
same criteria used, as well as the premises, qualifications and assumptions set out therein. In providing this confirmation, JPMorgan did not take into account the prices of the shares of Telecom Italia or TIM subsequent to the announcement of the
proposed Merger. 
  
 JPMorgan’s December 7, 2004 opinion and its January 23,
2005 letter (the JPMorgan reports) were directed to the Telecom Italia board of directors and addressed only the fairness, from a financial point of view, to Telecom Italia of the Merger exchange ratios for both the ordinary and the savings shares,
which were arrived at by the boards of directors of Telecom Italia and TIM after considering the advice of their respective financial advisors. JPMorgan provided the reports to inform and assist the Telecom Italia board of directors in connection
with its consideration of the Merger and related transactions. This summary of the JPMorgan reports is included only for informational purposes, and neither this summary nor the JPMorgan reports constitute a recommendation to any securityholder of
Telecom Italia or TIM as to whether they should take any action with respect to the Merger and related transactions. The JPMorgan reports did not address the underlying decision of the Telecom Italia board or the TIM board to approve the Merger and
related transactions, or whether any alternative transaction might have been more beneficial. 
  
 The full text of JPMorgan’s December 7, 2004 opinion, which sets forth the assumptions made, procedures followed, matters considered, documents reviewed and limitations on the review undertaken by JPMorgan in
connection with the opinion, as well as the full text of JPMorgan’s January 23, 2005 confirmation letter, are attached as Annex VIII (a) and Annex VIII (b) and are incorporated by reference into this document. You are urged to read the opinion
and confirmation letter carefully and in their entirety. 
  
 In the course of
performing its review and analyses for the purpose of rendering its December 7, 2004 opinion, JPMorgan, among other things: 
  

	•	 	reviewed documents that set out the terms of the proposed Merger and related transactions; 

  

	•	 	reviewed financial and other information that was publicly available or furnished to JPMorgan by Telecom Italia, including internal financial analyses and forecasts for Telecom
Italia and for TIM prepared by Telecom Italia or TIM management; 

  

	•	 	held discussions with various members of the senior management of Telecom Italia and TIM and with their respective representatives and advisors; 

  

	•	 	reviewed the historical market price and trading activities of Telecom Italia and TIM securities; 

  

	•	 	reviewed publicly available equity analyst research reports; and 

  

	•	 	conducted other financial studies, analyses and investigations as it deemed appropriate. 

  

 1 

Table of Contents

 In the course of its review and analysis and in rendering the JPMorgan reports, JPMorgan relied upon the accuracy and
completeness of all financial and other information reviewed by it and did not assume any responsibility for independent verification of such information. With respect to the financial and operating forecasts provided by Telecom Italia and by TIM,
JPMorgan assumed that those forecasts had been reasonably prepared on bases reflecting the best estimates and judgments then available of the respective managements of those companies as to the future financial and operating performance of those
companies. 
  
 JPMorgan did not prepare any independent evaluation or appraisal of
the assets or liabilities of, nor did JPMorgan conduct a physical inspection of any of the assets of, Telecom Italia or TIM or any of their subsidiaries. With respect to the projections provided to JPMorgan, JPMorgan notes that projecting future
results is inherently subject to substantial uncertainty. Although those projections constituted one of many items that JPMorgan employed in the formation of its reports, changes to the projections could affect JPMorgan’s conclusion.
JPMorgan’s reports were based on economic, industry, regulatory, market, political and other conditions existing at the date of its reports, including in the case of its December 7, 2004 opinion, market prices of Telecom Italia’s and
TIM’s securities. These conditions are generally beyond Telecom Italia’s or TIM’s control and are subject to rapid and unpredictable changes, which changes could affect the conclusion JPMorgan expressed. JPMorgan made no independent
investigation of any legal matters affecting Telecom Italia or TIM and assumed the correctness of legal, tax and accounting advice given to each of Telecom Italia and TIM. JPMorgan assumed that the Merger and related transactions will be consummated
in accordance with the expected terms and within the expected time periods. 
  
 The following is a brief summary of the material financial analyses performed by JPMorgan in connection with rendering its December 7, 2004 opinion. The summary is not a complete description of the analyses performed by JPMorgan. The
preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. The order of the analyses described, and the results of those analyses, do not necessarily represent the relative
importance or weight given to the analyses by JPMorgan. Selecting portions of this summary without considering the analyses as a whole could create an incomplete view of the processes underlying JPMorgan’s analyses and opinion. The analyses
JPMorgan performed are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those suggested by the analyses. Additionally, the analyses relating to the value of businesses do
not purport to be prices realizable in a transaction or to reflect actual or future market valuations or trading ranges. 
  
 JPMorgan expressed no opinion as to the prices at which the ordinary shares or savings shares of Telecom Italia will trade following completion of the Merger, or as to
the prices at which the ordinary shares and savings shares of Telecom Italia or TIM will trade prior to completion of the Merger. 
  
 JPMorgan did not use the values resulting from its analyses for any purpose other than that of evaluating the fairness to Telecom Italia of the Merger exchange ratios for
the ordinary and savings shares and those values should not be used for any other purpose. In accordance with customary investment banking practice, JPMorgan employed generally accepted valuation methods in preparing its December 7, 2004 opinion. In
particular, in evaluating the Merger exchange ratio, JPMorgan focused on the relative valuations of Telecom Italia and TIM, giving priority to the consistency and comparability of the criteria adopted, rather than the absolute value of those
companies. JPMorgan carried out its analyses considering the two companies as separate entities and therefore ignored any strategic, operational or financial synergies that may result from the Merger, as well as any control premiums and minority
discounts. The valuation of TIM has been primarily performed by JPMorgan using the Discounted Cash Flow as fundamental methodology. JPMorgan adopted a “sum-of-the-parts” approach with respect to Telecom Italia because Telecom Italia’s
businesses operate in different operational, industrial and strategic environments and because of the differing importance and materiality of those businesses in relation to Telecom Italia as a whole. 
  
 Lastly, JPMorgan compared the range of exchange ratios calculated using the above criteria
with the exchange ratios derived from the relative historical trading prices of the ordinary and savings shares of Telecom Italia and TIM over selected time periods prior to the announcement of the transaction. 
  
 Valuation of TIM. The valuation of TIM has been primarily performed by JPMorgan using
the Discounted Cash Flow as fundamental methodology, based on operating and financial assumptions, forecasts and other information prepared by the management for the years 2005 through 2007, which were extended through 2014, and for the calculation
of terminal values, as described below. The weighted average cost of capital (WACC) reflects assumptions which are consistent with market benchmarks relating to the cost of debt capital and the cost of equity capital, as well as with the capital
structure of the activity to be valued. The growth rates used by 

  

 2 

Table of Contents

 
JPMorgan for the projections from the years 2008 through 2014 and for the terminal value are consistent with relevant market benchmarks. A 2007-2014 revenue
CAGR of 3.3% and an average EBITDA margin of 46.1% were assumed for the 2008-2014 financial projections, and a terminal value growth rate of 2.0% and a WACC of 8.9% were used in the discounted cash flow valuation. 
  
 As a further part of its analysis, JPMorgan compared the values derived from the discounted
cash flow analysis to values derived by applying relevant multiples in line with those of certain comparable companies, to values derived by applying relevant multiples in line with those of certain comparable transaction and to values identified by
research analysts, where available. 
  
 The values derived from the foregoing
analyses were adjusted to take into account net debt as of 31 December 2004, minority interests, where material, and the net value of other adjustments, including the effects of the expected sale of Corporacion Digitel (Venezuela) and certain tax
benefits. 
  
 The following table shows the minimum, mid-point and maximum values
per TIM ordinary share before adjustment for the dividend expected to be paid in May 2005. 
  

							
	 	  	Minimum

	  	Mid-point

	  	Maximum

	 Values per TIM ordinary share (Euro)
	  	5.28	  	5.58	  	5.87

 Note: the figures in this table have been rounded up

  
 The table below shows the minimum, mid-point and maximum values for each TIM
savings share, calculated based on the value of the TIM ordinary share with no discount applied. The zero discount is substantially in line with the average market discount during the last three months before the last day of trading prior to the
announcement of the transaction (December 3, 2004), and takes into account the small average market premium and the small average market discount during the last six months. 
  

							
	 	  	Minimum

	  	Mid-point

	  	Maximum

	 Values per TIM savings share (Euro)
	  	5.28	  	5.58	  	5.87

 Note: the figures in this table have been rounded up

  
 The table below shows the minimum, mid-point and maximum values of the TIM
ordinary and savings shares, adjusted to take into account the effect of the distribution of dividends expected to be paid in May 2005 (assumed to be in line with the respective dividends per share paid in May 2004). 
  

							
	 	  	Minimum

	  	Mid-point

	  	Maximum

	 Values per TIM ordinary share (Euro)
	  	5.02	  	5.32	  	5.61
	 Values per TIM savings share (Euro)
	  	5.01	  	5.31	  	5.60

 Note: the figures in this table have been rounded up

  
 Valuation of Telecom Italia. JPMorgan analyzed the two main businesses
of Telecom Italia, Telecom Italia S.p.A. and TIM, primarily using the discounted cash flow method. In particular, TIM was valued based on the range of values obtained using this method, adjusted for the distribution of the dividends expected to be
paid in May 2005. The remaining Telecom Italia businesses, which are minor in relation to Telecom Italia as a whole, were analyzed using their market value, where their securities are publicly traded, and on various other criteria depending on the
nature of the business, including market multiples and book value. In addition, JPMorgan compared the values derived by the foregoing analyses with values identified by research analysts for such businesses, where available. 
  
 With regards to Telecom Italia S.p.A. activities, JPMorgan performed a discounted cash flow
analysis based on operating and financial assumptions, forecasts and other information prepared by the management for the years 2005 through 2007, which were extended through 2014, and for the calculation of terminal value, as described below. The
weighted average cost of capital (WACC) reflects assumptions which are consistent with market benchmarks relating to the cost of debt capital and the cost of equity capital, as well as with the capital structure of the activity to be valued. The
growth rates used by JPMorgan for the projections from the years 2008 through 2014 and for the terminal value are consistent with relevant market benchmarks. A 2007-2014 revenue compound annual growth rate (CAGR) of 0.2% and an average earnings
before interest, taxes, depreciation and amortization (EBITDA) margin of 44.6% were assumed for the 2008-2014 financial projections, and a terminal value growth rate of 0.0% and a WACC of 7.3% were used in the discounted cash flow valuation.

  

 3 

Table of Contents

 To the values calculated in the manner described above was added the estimated net financial position of Telecom Italia
at 31/12/2004, the effects of the proportional net debts and minority interests, where material, the effect of the TIM shares dividend expected to be paid in May 2005 and the net value of other adjustments including the value of certain off-balance
sheet items and certain tax benefits; furthermore it was adjusted to take account of the pro-forma effect of the conversion of the Telecom Italia 1.5% 2010 convertible bonds, consistently with the fully-diluted method. 
  
 The following table shows the minimum, mid-point and maximum values for each Telecom Italia
ordinary share consistently with the fully-diluted method, before adjustment for the dividend expected to be paid in May 2005. 
  

							
	 	  	Minimum

	  	Mid-point

	  	Maximum

	 Values per Telecom Italia ordinary share (Euro)
	  	2.95	  	3.20	  	3.45

 Note: the figures in this table have been rounded up

  
 The following table shows the minimum, mid-point and maximum values for each
Telecom Italia savings share calculated based on a discount of 27%, which is substantially in line with the average market discount during the last month, the last 6 months, and the discount of the last day of trading prior to the announcement of
the transaction, December 3, 2004. 
  

							
	 	  	Minimum

	  	Mid-point

	  	Maximum

	 Values per Telecom Italia savings share (Euro)
	  	2.15	  	2.34	  	2.52

 Note: the figures in this table have been rounded up

  
 The table below shows the minimum, mid-point and maximum values of the Telecom
Italia ordinary and savings shares, adjusted to take into account the effect of the distribution of dividends expected to be paid in May 2005 (assumed to be in line with the respective dividends per share paid in May 2004). 
  

							
	 	  	Minimum

	  	Mid-point

	  	Maximum

	 Values per Telecom Italia ordinary share (Euro)
	  	2.84	  	3.10	  	3.35
	 Values per Telecom Italia savings share (Euro)
	  	2.04	  	2.22	  	2.41

 Note: the figures in this table have been rounded up

  
 Analysis of the Exchange Ratio. JPMorgan compared the results derived
from the application of the above valuation methods for TIM and Telecom Italia, obtaining the following ranges of implied Merger exchange ratios. 
  

							
	 	  	Minimum

	  	Mid-point

	  	Maximum

	 Telecom Italia ordinary shares for each TIM ordinary share
	  	1.68	  	1.72	  	1.77
	 Telecom Italia savings shares for each TIM savings share
	  	2.33	  	2.39	  	2.46

 Note: the figures in this table have been rounded up

  
 JPMorgan also compared the ranges of Merger exchange ratios set forth above
against the Merger exchange ratios derived from the relative historical trading prices of the ordinary and savings shares of the two companies over selected time periods prior to the announcement of the transaction, adjusted to take into account the
effect of the distribution of dividends expected to be paid in May 2005, assumed to be in line with the respective dividends per share paid in May 2004. 
  

											
	 	  	3/12/04

	  	 Average
of 1
month
 Ending
3/12/04

	  	 Average
of 3
months
 Ending
3/12/04

	  	 Average
of 6
months
 Ending
3/12/04

	  	 Average
of 12
months
 Ending
3/12/04

	 Telecom Italia ordinary shares for each TIM ordinary share
	  	1.72	  	1.69	  	1.71	  	1.74	  	1.74
	 Telecom Italia savings shares for each TIM savings share
	  	2.47	  	2.41	  	2.36	  	2.39	  	2.45

 Note: the figures in this table have been rounded up.
The 12-month average exchange ratio has also been adjusted to take into account the effect of distribution of dividends paid in May 2004. 
  

 4 

Table of Contents

 On 22 November 2004, JPMorgan was retained by Telecom Italia initially to assist in considering the feasibility of, and,
upon Telecom Italia’s decision to proceed, to act as its financial advisor with respect to, the Merger and related transactions, which engagement was formalized in an engagement letter dated 6 December 2004. JPMorgan and its affiliates will
receive from Telecom Italia maximum total fees of approximately euro 45 million upon completion of the Merger in consideration for rendering advisory services and acting as global co-ordinator, bookrunner and mandated lead arranger of the euro 12
billion term loan facility entered into in connection with the Merger and related transactions. Telecom Italia has also agreed to reimburse JPMorgan for its reasonable expenses incurred in connection with its services, including the fees and
disbursements of outside counsel, and will indemnify JPMorgan against certain liabilities. JPMorgan and its affiliates, in the ordinary course of their activities, may actively trade for their own account or for the accounts of customers the equity
and debt securities of Telecom Italia or TIM or companies directly or indirectly controlling, controlled by, affiliated with Telecom Italia or TIM or in which Telecom Italia or TIM holds securities or companies having interests in Telecom Italia or
TIM, and, accordingly, JPMorgan and its affiliates may at any time hold long or short positions in such securities. JPMorgan and its affiliates have in the past represented Telecom Italia and TIM or companies directly or indirectly controlling,
controlled by, affiliated with Telecom Italia or TIM or in which Telecom Italia or TIM holds securities or companies having interests in Telecom Italia or TIM in connection with a variety of commercial banking, investment banking, capital markets,
and other transactions. JPMorgan and its affiliates may currently have and may in the future have commercial banking, investment banking, trust or other relationships or engagements with counterparties that may have interests with respect to Telecom
Italia, TIM or companies directly or indirectly controlling, controlled by, associated with Telecom Italia or TIM or in which Telecom Italia or TIM holds securities, which interests may in some cases be contrary to the interests of any of those
companies. JPMorgan and its affiliates may have fiduciary or other relationships or engagements in which JPMorgan or its affiliates may exercise voting power over securities of various persons, which securities may from time to time include
securities of Telecom Italia, TIM, or companies directly or indirectly controlling, controlled by, affiliated with Telecom Italia or TIM or in which Telecom Italia or TIM holds securities, or other parties with an interest with respect to Telecom
Italia, TIM or the Merger and related transactions. 
  

 5 

Table of Contents

 ANNEX IX (a) 
  
 Original document drawn up on Mediobanca letterhead 
  
 The Fairness Opinion has been prepared by Mediobanca in Italian only. Accordingly, in the event of any discrepancies
between the original and the English translation attached hereunder, the Italian version shall prevail 
  
  
 Telecom Italia S.p.A. - TIM S.p.A. 
  
 Fairness opinion 
 on merger exchange ratio 
  
 7 December 2004 

Table of Contents

  
  
  
 [THIS PAGE INTENTIONALLY LEFT BLANK] 
  

 
  
  

 2 

Table of Contents

 CONTENTS 
  

			
	 	  	page

	 
1. FOREWORD
	  	 
		
	 
1.1. Nature of mandate and purpose of document
	  	4
	 
1.2. Transaction description
	  	5
	 
1.3. Date of reference
	  	5
	 
1.4. Documents used
	  	5
	 
1.5. Assumptions and limitations
	  	5
		
	 
2. COMPANY INFORMATION
	  	 
		
	 
2.1. Telecom Italia S.p.A
	  	6
	 
2.2. TIM S.p.A
	  	6
		
	 
3. VALUATION METHODS USED
	  	 
		
	 
3.1. Basic principles
	  	6
	 
3.2. Methods used
	  	7
		
	 
4. RESULTS AND CONCLUSIONS
	  	 
		
	 
4.1. Methods based on fundamentals
	  	8
	 
4.2. Stock market price methods
	  	8
	 
4.3. Conclusions
	  	9

Table of Contents

 7 December 2004 
  

	
1.	FOREWORD 

  

	
1.1.	Nature of mandate and purpose of document 

  
 Telecom Italia S.p.A. (“Telecom Italia”) has launched a corporate restructuring programme (the “Programme”) aimed at creating an integrated fixed line
and mobile telephony operator. The Programme includes, inter alia, Telecom Italia launching a public tender offer (the “PTO”) for Telecom Italia Mobile S.p.A. (“TIM”) and the latter being merged into Telecom Italia.

  
 Regarding the proposed merger, at a meeting held on 7 December 2004, the Board
of Directors of Telecom Italia decided on the exchange ratio (the “Exchange Ratio”) for shares in Telecom Italia and TIM (jointly, the “Companies”), which it set at: 
  
 1.73 ordinary Telecom Italia shares 
 for every 1 ordinary TIM share 
  
 2.36 Telecom Italia savings shares 
 for every 1 TIM savings share 
  
 In this connection, Telecom Italia has asked Mediobanca – Banca di Credito Finanziario
S.p.A. (“Mediobanca”) to express its professional opinion regarding the fairness or otherwise of the Exchange Ratio thus chosen. 
  
 Telecom Italia has not asked Mediobanca to give a valuation of the underlying business rationale for implementing the Programme, neither has Mediobanca given such a
valuation herein, nor does it intend to. Telecom Italia has not asked Mediobanca to provide, and Mediobanca has not provided, services regarding the legal, accounting and tax issues raised by the Programme. 
  
 This document (the “Document”) is intended solely to furnish the Board of Directors
of Telecom Italia with the professional opinion of Mediobanca in respect of the fairness or otherwise of the Exchange Ratio chosen. 
  
 This opinion may be viewed by the Board of Directors of Telecom Italia as one factor in assessing the fairness of the Exchange Ratio it has set, which, without prejudice
to the foregoing, it may change, at its own absolute discretion in respect of judgement and decision-making, on the basis of other considerations and contingent and subjective factors. Indeed, the Boards of Directors of Telecom Italia and TIM retain
absolute sovereignty with regard to the terms on which and the methods according to which the proposed merger should take place, and to the drawing up of the relevant illustrative reports, irrespective of whether they choose to avail themselves of
the services of financial advisors, as they have done in this case. 
  
 Assessment
of the fairness of the Exchange Ratio, and of the estimates of the Companies’ economic capital in relative terms used in determining the Exchange Ratio, have been carried out solely in view of the specific objectives indicated. They may
therefore not be used for any other purpose, or viewed in isolation from the context in which they were formulated, or treated as representative in absolute terms of a valuation for either of the Companies or their subsidiaries or used as a
benchmark for comparing theoretical or effective disposal prices which are necessarily the result of a negotiating process, or for comparison of any other kind. In particular, such estimates may not in any way be viewed as indicative of the market
values at which Telecom Italia and TIM shares may be traded on regulated markets at any time. 
  
 This Document is being issued solely for the benefit of the Board of Directors of Telecom Italia, and its content may not be disclosed or divulged to third parties without prior authorization in writing from
Mediobanca. Mediobanca does not authorize third parties to rely on the analysis and conclusions contained herein, and expressly declines all liability for any damages arising from use of the Document for any purposes or ends other than those
indicated herein. Shareholders in Telecom Italia and TIM and any other third parties who may be interested should therefore consult their own financial advisors, if they deem appropriate. Without prejudice to the foregoing, Mediobanca hereby
authorizes the Board of Directors of Telecom Italia to disclose the Document to the Board of Directors of TIM, and to include it among the company deeds required by law and Consob regulations in connection with the merger process. 
  
 The conclusions set forth herein are based on the sum of analyses described hereunder.
Accordingly, no part of the Document may be considered separately from the Document as a whole. 
  

 4 

Table of Contents

	
1.2.	Transaction description 

  
 The merger referred to herein forms part of the wider Programme, which may be summarized as follows: 
  

	–	Telecom Italia will launch a PTO for the 66.7% of TIM it does not already own and for all TIM savings shares, which offer being conditional inter alia upon an acceptance rate
of at least 66.7% of the ordinary and savings shares being bid for, at a price of 5.6 per share irrespective of category; 

  

	–	a syndicate of Italian and international banks will grant Telecom Italia a credit line worth a total of € 12bn in order to fund the transaction; 

 

	–	upon completion of the PTO, TIM will be merged into Telecom Italia after TIM has spun off its mobile telephony business assets to a wholly-owned subsidiary.

  

	
1.3.	Date of reference 

  
 The date of reference for the work contained herein has been conventionally set at 31 December 2004. 
  

	
1.4.	Documents used 

  
 In carrying out its mandate, Mediobanca has used mostly the following documentation: 
  

	–	Telecom Italia and TIM Articles of Association currently in force; 

  

	–	Telecom Italia and TIM statutory and consolidated accounts for the 2002-2003 two-year period, including accompanying schedules, reviews of operations, statutory audit committee
reports and external auditors’ reports; 

  

	–	Telecom Italia and TIM interim and quarterly accounts for 2002, 2003 and 2004; 

  

	–	estimates for Telecom Italia and TIM accounts for the twelve months to December 2004; 

  

	–	the Telecom Italia group 2005-2007 business plan as updated by management to 3 December 2004 but not yet approved by Telecom Italia’s Board of Directors;

  

	–	other documents and information provided by Telecom Italia and TIM themselves, or otherwise obtained in the course of meetings with management; 

  

	–	stock market information, sector reports issued by independent analysts, and other information in the public domain. 

  

	
1.5.	Assumptions and limitations 

  
 The Document has been drawn up based on the following assumptions and limitations: 
  

	a)	in the course of executing the mandate conferred upon us, we have relied on the truthfulness, accuracy and completeness of the information provided, and have made no independent
assessment or verification thereof; 

  

	b)	our analysis of the fairness or otherwise of the Exchange Ratio is based on the assumption that the Companies constitute going concerns, and takes no account of the possibility of
events of an extraordinary and unpredictable nature, for example (such instances not to be construed restrictively) changes to economic, financial, monetary, political or market conditions, or action taken by state or government entities or
regulatory authorities in the Companies’ sector of activity, such as might influence evaluation of the fairness or otherwise of the Exchange Ratio. Mediobanca is under no obligation to update or amend the Document on the basis of information,
circumstances or events subsequent to the date on which it was drawn up; 

  

	c)	our analysis has not involved identifying or quantifying any potential liabilities (or lower than expected assets), but does take into account situations reflected in the accounts
of Telecom Italia and TIM and situations which the management of the Telecom Italia group has brought to the attention of Mediobanca. Furthermore, Mediobanca has not carried out any independent valuation of the individual assets and liabilities of
the Telecom Italia group, including off-balance sheet assets and liabilities; 

  

	d)	the value of the Companies used for purposes of assessing the fairness of the Exchange Ratio, where and to the extent to which it is based on figures that are provisional in nature,
depends on the assumptions used in preparation of the aforementioned estimates proving to be correct. The analysis carried out by Mediobanca is based inter alia on the delivery of earnings and financial targets set forth in the operating
plans drawn up by the Companies’ management. Critical review of such plans would require more indepth analysis from industrial and business stand-points than has been carried out for the purposes hereof, and would require capabilities other
than those typically provided by an investment bank; 

  

 5 

Table of Contents

	e)	use of the Document is restricted to the Board of Directors of Telecom Italia with reference to the aims stated under the foregoing section 1.1; 

  

	f)	the Fairness Opinion is advisory in nature and may not be considered as binding or obligatory; it does not constitute a valuation or an estimate report as defined under regulations
currently in force. 

  

	
2.	COMPANY INFORMATION 

  

	
2.1.	TELECOM ITALIA S.p.A. 

  
 Telecom Italia is listed on the screen-based market or MTA operated by Borsa Italiana S.p.A. and has as its purpose: 
  

	–	the installation and operation, via any technique, means or system, of fixed and mobile telecommunications equipment and machinery, including space systems via artificial satellite
equipment, radioelectric stations inter alia on board ships, and connections for maritime mobile radio communications, and the installation and operation of dedicated and/or integrated networks to provide and manage telecommunications
services under concession without territorial restrictions for general use on the free market (including such services as result from technological developments), for example planning, development, operation, maintenance and sale of
telecommunications, IT, telematic and electronic products, services and systems; 

  

	–	the execution of activities connected with, or otherwise useful to, pursuit of the company’s objects, including publishing, advertising, IT, telecommunications and multimedia
activities and more generally commercial, financial, real estate, research, training and advisory activities; 

  

	–	acquisition – as a secondary activity – of holdings in companies or enterprises whose business falls within the corporate object of Telecom Italia as defined above or is
otherwise connected therewith or complementary or analogous thereto, including companies operating in the electronic manufacturing and the insurance businesses; 

  

	–	control, strategic, technical, administrative and financial co-ordination, and direction and management of the financial activities of the companies and their subsidiaries,
including the execution of any transaction or activity connected thereto. 

  
 The share capital of Telecom Italia is EUR 8,861,181,281.15 fully paid up, made up of 16,111,238,693 par value EUR 0.55 shares, 10,315,317,624 of which are ordinary shares and 5,795,921,069 are non-convertible savings
shares. 
  
 Telecom Italia owns 56.3% of the ordinary capital and 55.4% of the
share capital of TIM, itself and via subsidiaries. 
  

	
2.2.	TIM S.p.A. 

  
 TIM is listed on the screen-based market or MTA operated by Borsa Italiana S.p.A., and has as its object the installation and operation of systems to provide and manage
telecommunications services without territorial restrictions, in particular mobile telecommunications services under concession on the free market, or otherwise to carry out services connected therewith, including, for example, the planning,
development, operation, maintenance and sale of telecommunications, IT, telematic and electronic products, services and systems, with the exception of those activities restricted to individuals registered with relevant professional bodies.

  
 The share capital of TIM amounts to EUR 513,964,432.74 fully paid up,
comprising 8,566,073,879 par value 0.06 shares, 8,434,004,716 of which are ordinary shares and 132,069,163 non-convertible savings shares. 
  

	
3.	VALUATION METHODS USED  

  

	
3.1.	Basic principles 

  
 Generally accepted valuation principles have been adopted in execution of the mandate, with special emphasis having been given to those principles most widely used on a
national and international basis in terms of estimates carried out in connection with mergers, which are summarized as follows: 
  

	–	in view of the rationale for such valuations – to determine a share exchange ratio for the purpose of such transactions – priority has been given to applying largely
uniform criteria which are compatible with the features of the companies being valued; 

  

	–	the valuations have been carried out on a stand-alone basis, and for this reason take no account of any synergies possibly deriving from the merger or any other extraordinary
transaction which could influence the value of the company post-merger; 

  

 6 

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	–	it should also be made clear that the aim of the valuation is not so much to estimate the respective economic capital of the companies concerned as to obtain substantially
comparable values in order to enable a share exchange ratio to be determined. Accordingly the results yielded by this analysis may not be used for reasons other than that of determining a range for the Exchange Ratio; 

  

	–	where the merger involves listed companies, stock market price is normally a useful indicator. However, such data must be employed with due care rather than used as the only factor
to be taken into consideration, especially when the two companies are already related through shareholdings as is the case in this instance, and should be complemented by other valuation methodologies. 

  

	
3.2.	Methods used 

  
 Bearing in mind the characteristics of the two Companies, it was deemed appropriate to use fundamentals-based methods as well as stock market price methods. 

 
 Methods based on fundamentals 
  
 For the purpose of valuing groups, theory and professional practice both advocate two
alternative procedures: 
  

	–	estimating the value of the group in its entirety on a consolidated basis (the “consolidation” method) using consolidated accounts; 

  

	–	a separate valuation of the parent company and subsidiaries (the “traditional” or “cascade” method) based on their statutory accounts. 

 
 The first procedure involves use of consolidated accounts, while the second involves the
so-called “cascade” method which means analysing the value of the parent company and subsidiaries separately based on their statutory accounts. The consolidation method enables earnings or financial duplications resulting from intra-group
transactions to be eliminated, and means no account has to be taken of the group’s company structure. However, in the case of parent companies which engage in dissimilar activities with divergent profiles and trends, the use of consolidated
accounts does not fully reflect the diversity existing between the various sectors of business which would be provided by applying different valuation criteria. Hence, in the event of parent companies carrying out different operational activities,
the application of consolidation-based valuation methods may give rise to misleading results. To correct this problem, the most frequently adopted solution involves sub-dividing groups into units carrying out similar activities, in each case using
valuation criteria that are appropriate to the activities concerned. 
  
 In the
case under review, the consolidation-based method has been deemed to be appropriate. However, in view of the different features of the Companies involved, it has been applied using different approaches, i.e. consolidated accounts for TIM and
sum-of-the-parts for Telecom Italia. 
  
 For the purpose of determining the
fairness of the Exchange Ratio, the value of TIM’s economic capital has been estimated using the discounted cash flow or DCF method, in view of the more focused nature of its business. This method is based on the general concept whereby the
value of a company is equal to the discounted value of all cash flows which the said company is able to generate in the future. Out of the various alternative methods developed theoretically and in line with practice broadly adopted, unlevered
discounted cash flow has been used, whereby the value of a company is equal to the sum of the operating cash flows generated in the years taken as the time horizon of an analytical forecast contained in its business plan and discounted at a rate
equal to the average weighted cost of capital, and the terminal value, i.e. the discounted value of operating cash flows which the company will continue to generate in the periods subsequent to that covered by explicit forecasts, plus the value of
all assets and liabilities not included in the operating cash flows for methodological reasons, less the current value of its net financial commitments. 
  
 The relative value of Telecom Italia’s economic capital for the purpose of determining the fairness or otherwise of the Exchange Ratio has been estimated as the sum
of the economic values of its individual areas of activity, i.e. wireline, mobile, internet & media, etc., which are obtained by applying appropriately differentiated valuation methodologies. In particular, for its core businesses, i.e. fixed
telephony and TIM, the DCF method as described above has been used, whereas for the other activities which are less significant vis-a-vis the group as a whole, methods based on the market multiples of comparable listed companies, on market prices
and balance sheet indicators, have been used on a case-by-case basis. 
  
 As far
as regards the determination of value per share, for Telecom Italia, in line with national and international valuation practice, the economic capital value obtained by applying the methods described above has been 

  

 7 

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divided on the assumption that the ratio between the values of the different classes of shares may be derived from those actually recorded in the respective
stock market prices of such shares over a sufficiently meaningful period of time. To this end, the average of stock market prices recorded in the three months prior to 4 December 2004 has been used for reference purposes. For TIM, given the limited
percentage accounted for out of the total number of shares comprising its share capital by savings shares, and given also the terms of the public tender offer, whereunder both categories of shares receive equal treatment, it has been decided to
assign the same value to both ordinary and savings shares. 
  
 Stock market
price methods 
  
 The stock market price method is one of the so-called
“direct” valuation methods, i.e. those which, in order to identify the value of listed companies, use actual prices recorded by the market in transactions involving shares in the capital of the company being valued. Such methods, although
they may not be adopted unconditionally in calculating absolute values of economic capital, nonetheless constitute useful benchmarks to enable the ratio between the economic capital of two listed companies to be expressed in relative terms. The
results provided by direct methods derive from a logical process which is different from analytical-type valuation methods, the latter being based on explicit assumptions formulated by the person carrying out the valuation. The market expresses
prices which ought to summarize investors’ expectations with regard to the multiple factors involved in making the stocks and companies being valued attractive or otherwise, e.g. profitability, risk, growth, liquidity, etc. If markets were
perfectly efficient, i.e. long-term oriented, large quantities traded, perfectly transparent, investors fully economically rational, etc., the valuation process ought to be exhausted by such price indications as may be derived from the market. For
this reason, when certain conditions subsist, such as listing on regulated markets featuring a high level of efficiency, large free float, high quantities traded, business prospects being appreciated by an appropriate number of financial analysts on
an ongoing basis, in such a way as to contribute to the dissemination of information which is useful with a view to ensuring market prices reflect earnings forecasts and risk profiles more accurately, stock market prices represent an extremely
useful factor in the valuation process, providing summary benchmarks whereby to calculate the appreciation or otherwise of the value of the company being valued. In view of the foregoing and the features of the Company involved, we have used the
stock market price method in order to complete the valuation framework. To strike an accurate balance between the need to use recent data reflecting the stock’s current market value, and the need to mitigate the volatility effect of daily stock
market prices via observations recorded over a sufficiently extended time horizon, we have analysed the trend in stock market prices over differing time horizons, i.e. the one month, three months, six months and twelve months prior to 4 December
2004. 
  

	
4.	RESULTS AND CONCLUSIONS 

  

	
4.1.	Methods based on fundamentals 

  
 By applying the method described above, and also taking into account dividend payouts assumed to be in line with those of the previous financial year and which are
scheduled to take place before the merger is consummated, the values per share of Telecom Italia and TIM from a relative viewpoint and the respective exchange ratios expressed in terms of the number of Telecom Italia shares to be received for every
1 TIM share held, are comprised within the following ranges: 
  

					
	 	  	Ordinary

	  	Non-conv.
sav.

	 Telecom Italia per share (EUR)
	  	2.85 – 3.38	  	2.08 – 2.47
	 TIM per share (EUR)
	  	5.04 – 5.67	  	5.04 – 5.67
	 	  	
	  	

	 Exchange ratio
	  	1.68 – 1.77	  	2.30 – 2.42
	 	  	
	  	

  

 8 

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4.2.	Stock market price methods 

  
 By applying the methodology described above, and also taking into account dividend payouts assumed to be in line with those of the previous financial year and which are
scheduled to take place before the merger is consummated, the values per share of Telecom Italia and TIM from a relative viewpoint and the respective exchange ratios expressed in terms of the number of Telecom Italia shares to be received for every
1 TIM share held, are comprised within the following ranges: 
  

									
	 Ordinary shares

	  	Avg.
1 month

	  	Avg.
3 months

	  	Avg.
6 months

	  	Avg.
12 months

	 TIM price (EUR)
	  	4.65	  	4.37	  	4.29	  	4.30
	 Telecom Italia price (EUR)
	  	2.75	  	2.55	  	2.47	  	2.45
	 	  	
	  	
	  	
	  	

	 Exchange ratio
	  	1.69	  	1.71	  	1.74	  	1.75
	 	  	
	  	
	  	
	  	

					
	 Non-conv. sav.

	  	Avg.
1 month

	  	Avg.
3 months

	  	Avg.
6 months

	  	Avg.
12 months

	 TIM price (EUR)
	  	4.72	  	4.34	  	4.22	  	4.21
	 Telecom Italia price (EUR)
	  	1.96	  	1.84	  	1.76	  	1.72
	 	  	
	  	
	  	
	  	

	 Exchange ratio
	  	2.41	  	2.36	  	2.39	  	2.44
	 	  	
	  	
	  	
	  	

  

	
4.3.	Conclusions 

  
 To sum up, the exchange ratios determined by applying the methods described above vary within the following ranges: 
  

					
	 	 	Fundamental
methods

	  	Stock market
methods

	 Ordinary shares
	 	1.68 – 1.77	  	1.69 – 1.75
	 Non-convertible savings shares
	 	2.30 – 2.42	  	2.36 – 2.44

  
 In view of and within the limitations
of the mandate conferred upon us as described above, it is our opinion that, as at the date hereof, the Exchange Ratio set by the Board of Directors of Telecom Italia at: 
  
 1.73 ordinary Telecom Italia shares 
 for every 1 ordinary TIM share 
  
 2.36 Telecom Italia savings shares 
 for every 1 TIM savings share 
  
 is within the value ranges listed above, and is therefore to be seen as fair for Telecom
Italia. 
  
 M E D I O B A N C A 
  
 Signed by Clemente Rebecchini and Francesco Coatti 
  

			
	 To:
	  	 Telecom Italia S.p.A.

	 	  	 Piazza degli Affari, 2

	 	  	 20123 Milan

	 	  	 Italy

  
 For the attention
of:  The Board of Directors 
  

 9 

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 ANNEX IX (b) 
  
 Original document drawn up on Mediobanca letterhead 
  
 This letter has been prepared by Mediobanca in Italian only. Accordingly, in the event of any discrepancies between the original and the
English translation attached hereunder, the Italian version shall prevail 
  
 23 January 2005 
  
 Dear Sirs, 
  
 We refer to our fairness opinion dated 7 December 2004 (the “Fairness
Opinion”), in which we expressed our professional opinion regarding the fairness of the share exchange ratio set in respect of the proposed merger between TIM and Telecom Italia. 
  
 You have informed us that since 7 December 2004, no event has occurred which has significantly influenced or might
significantly influence any of the documents, information, data, projections or assumptions furnished by you to us and referred to in the Fairness Opinion, nor the financial or earnings situation, business, assets or liabilities or prospects of
Telecom Italia S.p.A., TIM S.p.A. and/or the companies controlled by them. 
  
 Based on, and subject to, the foregoing, and taking into account the same criteria, assumptions, aims and limitations laid down in the Fairness Opinion, we hereby confirm the conclusions set forth therein as at the
date hereof. 
  
 This letter may not be viewed in isolation from
the context in which it was formulated, nor separately from the Fairness Opinion and the documents with which you have furnished us, nor may it be disclosed, transferred, reproduced, quoted in part or in full, or referred to, without prior
authorization from Mediobanca. Without prejudice to the foregoing, Mediobanca hereby authorizes the Board of Directors of Telecom Italia to disclose the document to the Board of Directors of TIM, and to include it among the company deeds required by
law and by Consob regulations in relation to the merger process. 
  
 Yours very truly, 
  
 M E D I O B A N C A 
  
 Signed by Clemente Rebecchini and Francesco
Coatti 
  

			
	 To:
	 	 Telecom Italia S.p.A.

	 	 	 Piazza degli Affari, 2

	 	 	 20123 Milan

	 	 	 Italy

  
 For the attn of: The Board of
Directors 

Table of Contents

 ANNEX IX (c) 
  
 This document has been prepared by Mediobanca in Italian only. Accordingly, in the event of any discrepancies between the original and
the English translation attached hereunder, the Italian version shall prevail 
  
 Summary of analysis carried out by Mediobanca in connection with the issue of a fairness opinion under the terms of its engagement as financial advisor to Telecom Italia 
  
 Under the terms of a mandate conferred by Telecom Italia S.p.A. (“Telecom Italia”)
on Mediobanca – Banca di Credito Finanziario S.p.A. (“Mediobanca”) with regard to the merger of Telecom Italia Mobile S.p.A. (“TIM”) into Telecom Italia, Telecom Italia requested Mediobanca to furnish it with its
professional opinion regarding the fairness or otherwise of the exchange ratio (the “Exchange Ratio”) Telecom Italia had set in respect of Telecom Italia and TIM shares. 
  
 On 7 December 2004, Mediobanca duly furnished the Board of Directors of Telecom Italia with its fairness opinion (the “Fairness
Opinion”), in which it stated that as at the date thereof, and having taken into account the criteria, assumptions, aims, and limitations set forth therein, the Exchange Ratio set by the Board of Directors of Telecom Italia at 1.73 ordinary
Telecom Italia shares for every ordinary TIM share held, and 2.36 Telecom Italia savings shares for every TIM share held, should be seen as fair for Telecom Italia. 
  
 Subsequent to that date, in a letter dated 23 January 2005 (the “Letter of Confirmation”), based on and subject to the recitals to
and the restrictions contained in the Letter of Confirmation and the Fairness Opinion, Mediobanca confirmed the conclusions set forth in the Fairness Opinion issued on 7 December 2004 to the Board of Directors of Telecom Italia as at the date of the
Letter of Confirmation. 
  
 The Fairness Opinion issued by Mediobanca on 7
December 2004, and the Letter of Confirmation issued by Mediobanca on 23 January 2005 were drawn up for the sole purpose of furnishing the Board of Directors of Telecom Italia with the professional opinion of Mediobanca in respect of the fairness or
otherwise of the Exchange Ratio. 
  
 Assessment of the fairness of the Exchange
Ratio, and of the estimates of the economic capital of Telecom Italia and TIM used in the determining of the Exchange Ratio, may not be used for any other purpose, or viewed in isolation from the context in which they were formulated, nor seen as
representative of a valuation in absolute terms for either of the companies and their respective subsidiaries, nor used as a benchmark for comparison with theoretical or effective disposal prices, which are necessarily an expression of a negotiation
process, or for comparison of any other kind. In particular, such estimates may not in any way be viewed as indicative of the market prices at which Telecom Italia and TIM shares may be traded on regulated markets at any time. 
  
 The Fairness Opinion is advisory in nature, and is neither binding nor mandatory, nor does it
constitute a valuation or an estimate report as defined under current regulations. 
  
 The full Fairness Opinion issued by Mediobanca on 7 December 2004, which sets forth the criteria, assumptions, purposes and limitations of the analysis carried out by Mediobanca in connection with the Fairness Opinion, and the full Letter
of Confirmation issued by Mediobanca on 23 January 2005 are attached to the Information Document, and are to be viewed as an integral part thereof. 
  
 In carrying out its mandate, Mediobanca has mostly used the following documentation: 
  

	 	–	Telecom Italia and TIM Articles of Association currently in force; 

  

	 	–	Telecom Italia and TIM statutory and consolidated accounts for the 2002-2003 period, including accompanying schedules, reviews of operations, statutory audit committee reports and
external auditors’ reports; 

  

	 	–	Telecom Italia and TIM interim and quarterly reports for 2002, 2003 and 2004; 

  

	 	–	estimates for Telecom Italia and TIM statutory and consolidated accounts for the twelve months to 31 December 2004; 

  

	 	–	the Telecom Italia group 2005-2007 business plan as updated by management to 3 December 2004, but not yet approved by Telecom Italia’s Board of Directors;

  

	 	–	other documents and information furnished by Telecom Italia and TIM themselves, or otherwise obtained in the course of meetings with management; 

  

	 	–	stock market information, sector reports issued by independent analysists, and other information in the public domain. 

  

 1 

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 In the course of the analyses it has carried out in relation to the Fairness Opinion, Mediobanca has relied on the
truthfulness, accuracy and completeness of the information provided, and has made no independent assessment or verification thereof. Mediobanca’s analysis of the fairness or otherwise of the Exchange Ratio is based on the assumption that the
companies involved constitute going concerns, and takes no account of the possibility of events of an extraordinary and unpredictable nature, for example (such instances not to be construed restrictively) changes to economic, financial, monetary,
political or market conditions, or action taken by state or government entities or regulatory authorities in the companies’ sectors of activity, such as might influence appraisal of the fairness or otherwise of the Exchange Ratio. The analysis
has not involved identifying or quantifying any potential liabilities (or lower than expected assets), but does take into account situations reflected in the accounts of Telecom Italia and TIM, and situations which the management of the Telecom
Italia group has brought to the attention of Mediobanca. Furthermore, Mediobanca has not carried out any independent valuation of the individual assets and liabilities of the Telecom Italia group, including off-balance sheet assets and liabilities.
Finally, it should be pointed out that the value of Telecom Italia and TIM used for purposes of assessing the fairness or otherwise of the Exchange Ratio, where and to the extent to which it is based on figures that are provisional in nature,
depends on the assumptions used in preparation of the aforementioned estimates proving to be correct. The analysis carried out by Mediobanca is based inter alia on the delivery of the earnings and financial targets set forth in the operating
plans drawn up by the companies’ management. Critical analysis of such plans would require more indepth analysis from the industrial and business standpoints than has been carried out for the purposes hereof, and would require capabilities
other than those typically provided by an investment bank. 
  
 The Fairness
Opinion and the analyses carried out by Mediobanca do not constitute the only aspects to be taken into consideration by the Board of Directors of Telecom Italia in respect of the merger approval, and for this reason should not be deemed to be
determining in the decision of the Board of Directors of Telecom Italia. 
  
 A
brief summary of the financial analysis carried out by Mediobanca in relation to the Fairness Opinion issued on 7 December 2004 is given below. This summary is not intended to be an exhaustive description of the work carried out by Mediobanca. It
should be noted above all that valuation in fact consists of a series of analyses and includes estimates. These should be considered as a whole, and cannot be described in a summary document. 
  
 The date of reference for the Fairness Opinion was conventionally set at 31 December 2004.

  
 In executing its mandate Mediobanca employed generally accepted valuation
principles, with special emphasis being given to those principles most widely used in respect of merger transactions on a national and international basis. In particular, given the rationale for such valuations, namely to determine a share exchange
ratio with a view to such transactions, priority was given to applying broadly uniform criteria which are compatible with the characteristics of the companies being valued. In addition, the valuations were carried out on a stand-alone basis, and for
this reason took no account of any synergies possibly deriving from the merger, or of any other extraordinary transaction that could influence the value of the companies post-merger. 
  
 Bearing in mind the characteristics of Telecom Italia and TIM, Mediobanca deemed it appropriate to adopt fundamentals-based methods as well
as stock market price methods. 
  
 Methods based on fundamentals

  
 The value of TIM’s economic capital was estimated by using the
discounted cash flow or DCF method. In particular the unlevered discounted cash flow method was used whereby the value of a company is deemed to be equal to the sum of the operating cash flows generated in the years taken as the time horizon of an
analytical estimate contained in its business plan and discounted at a rate equal to the average weighted cost of capital, and the terminal value, i.e. the discounted value of operating cash flows which the company will continue to generate in the
periods subsequent to that covered by explicit estimates, plus the value of all assets and liabilities not included in the operating cash flows for methodological reasons, less the current value of its net financial commitments. 
  
 In applying this method, Mediobanca has used provisional data compiled by Telecom Italia
management for the 2005-2007 period, extending the explicit projection period to 2010. For 2008-2010, an annual revenue growth rate of 3-5.5% and operating margins consistent with the 2005-2007 business plan forecasts were assumed. Cash flows have
been discounted at a rate of around 9.1%, which is representative of the average weighted cost of capital calculated on the basis of a capital structure in line with the one currently in place. Regarding the estimated terminal value a growth rate of
approx. 2.5% has been used, in line with the relevant market 

  

 2 

Table of Contents

 
benchmarks. To complete the procedure thus illustrated, a sensitivity analysis was then carried out with reference both to the weighted average cost of
capital used to discount the cash flows, and to the growth rate used in order to estimate the terminal value. 
  
 The value of Telecom Italia’s economic capital was estimated using the sum-of-the-parts method, that is to say, as the sum of the economic values of its individual areas of activity, i.e. wireline, mobile,
Internet and media, etc., which are obtained by applying appropriately differentiated valuation methodologies. In particular, for its core businesses, i.e. fixed line telephony and TIM, the DCF method as described above has been used, whereas for
the other activities which are less significant in terms of the group as a whole, methods based on the market multiples of comparable listed companies, market prices and balance sheet indicators have been used as appropriate, on a case-by-case
basis. 
  
 In applying DCF methodology to Telecom Italia’s fixed line
telephony operations, Mediobanca has used provisional data compiled by Telecom Italia management for the 2005-2007 period, extending the explicit projection period until 2010. For 2008-2010, an annual revenue growth rate of 0.0% and operating
margins consistent with the 2005-2007 business plan have been assumed. Cash flows have been discounted at a rate of around 6.8%, which is representative of the average weighted cost of capital calculated on the basis of a capital structure which is
in line with that currently in place. Regarding the estimated terminal value, a growth rate of approx. 0.0% has been used, in line with the relevant market benchmarks. As with the procedure outlined above for TIM, a sensitivity analysis was also
carried out with reference both to the weighted average cost of capital used to discount the cash flows, and to the growth rate used in order to estimate the terminal value. 
  
 To complete the analysis carried out, the multiples implied in the values thus obtained were compared with the market multiples of
comparable listed companies. 
  
 As far as regards the determination of value per
share, for Telecom Italia, in line with national and international valuation theory and practice, the value of the economic capital obtained by applying the methods described above has been divided on the assumption that the ratio between the values
of the different classes of share may be derived from those actually recorded in their respective stock market prices over a sufficiently meaningful period of time. To this end, average market prices in the three months prior to 4 December 2004 were
used. For TIM, given the limited percentage of savings shares out of the total number of shares comprising its share capital, and given also the terms of the public tender offer, whereunder both categories of share were treated equally, it was
decided to assign the same value to both ordinary and savings shares. 
  
 By
applying the methods described above, and also taking into account dividend payouts by Telecom Italia and TIM scheduled to take place before the merger is consummated and assumed to be in line with those distributed in the previous financial year,
the following ranges of values for Telecom Italia and TIM shares and the relative exchange ratios are obtained: 
  

					
	 	  	Ordinary

	  	Non-conv.
sav.

	 Telecom Italia price per share (EUR)
	  	2.85 – 3.38	  	2.08 – 2.47
			
	 TIM price per share (EUR)
	  	5.04 – 5.67	  	5.04 – 5.67
			
	 Exchange ratio
	  	1.68 – 1.77	  	2.30 – 2.42

  
 Stock market price methods

  
 When certain conditions subsist, such as listing on regulated markets
featuring a high level of efficiency, large free float, high quantities traded, business prospects being appreciated by an appropriate number of financial analysts on an ongoing basis, in such a way as to contribute to the dissemination of
information which is useful with a view to ensuring market prices reflect earnings forecasts and risk profiles more accurately, stock market prices represent an extremely useful factor in the valuation process, providing summary benchmarks whereby
to calculate the appreciation or otherwise of the value of the company being valued. In view of the foregoing and the features of the companies concerned, we have used the stock market price method in order to complete the valuation framework. To
strike an accurate balance between the need to use recent data reflecting the stock’s current market price, and the need to mitigate the volatility effect of daily stock market prices via observations recorded over sufficiently extensive time
horizons, we have analysed the trend in stock market prices over differing time horizons, i.e. the one month, three months, six months and twelve months prior to 4 December 2004. 
  

 3 

Table of Contents

 By applying the methods described above, and also taking into account dividend payouts by Telecom Italia and TIM
scheduled to take place before the merger is consummated and assumed to be in line with those distributed in the previous financial year, the following ranges of values for Telecom Italia and TIM shares and the relative exchange ratios are obtained:

  

									
	 Ordinary shares

	  	Avg.
1 month

	  	Avg.
3 months

	  	Avg.
6 months

	  	Avg.
12 months

	 TIM price (EUR)
	  	4.65	  	4.37	  	4.29	  	4.30
	 Telecom Italia price (EUR)
	  	2.75	  	2.55	  	2.47	  	2.45
	 Exchange ratio
	  	1.69	  	1.71	  	1.74	  	1.75
					
	 Non-conv. savings shares

	  	Avg.
1 month

	  	Avg.
3 months

	  	Avg.
6 months

	  	Avg.
12 months

	 TIM price (EUR)
	  	4.72	  	4.34	  	4.22	  	4.21
	 Telecom Italia price (EUR)
	  	1.96	  	1.84	  	1.76	  	1.72
	 Exchange ratio
	  	2.41	  	2.36	  	2.39	  	2.44

  
 Mediobanca, as part of its own
corporate advisory and investment banking activities, regularly carries out valuations of enterprises, companies and/or groups of companies in relation to public tender offers, mergers and acquisitions and subscriptions and placements of equities.
Mediobanca was selected by the Board of Directors of Telecom Italia to act as its financial advisor in view of its experience and reputation on the market. In the past, Mediobanca has provided Telecom Italia with a variety of financial services, in
respect of which it has received compensation in line with market standards. 
  
 Mediobanca and its subsidiaries might in the course of their everyday business carry out transactions or hold positions involving Telecom Italia or TIM shares or shares in companies directly or indirectly controlled by these companies, on
their own behalf or on behalf of their clients. 
  
 In pursuance of the mandate
executed on 7 December 2004, Mediobanca is acting as financial advisor to Telecom Italia. Based on the terms of the said mandate, Telecom Italia has agreed to pay Mediobanca a fee of up to € 20m. Telecom Italia has also agreed to reimburse
Mediobanca for out-of-pocket expenses incurred in the course of executing its mandate, and to indemnify Mediobanca against any liabilities which might arise in relation thereto. Lastly, Mediobanca also took part in the EUR 12bn syndicated loan
granted to Telecom Italia, executed in the form of a multi-tranche term loan facility, in the capacity of mandated lead arranger, in respect of which it received a fee of approx. € 4.2m. 
  

 4 

Table of Contents

 ANNEX X (a) 
  

ORIGINAL DOCUMENT ISSUED ON MCC HEADED PAPER. TRANSLATION FROM THE ORIGINAL DOCUMENT ISSUED IN ITALIAN PREPARED EXCLUSIVELY FOR INFORMATIVE PURPOSES. THE ORIGINAL
DOCUMENT IN ITALIAN PREVAILS ON ANY TRANSLATION. 
  

	1.	Introduction 

  

	1.1.	Summary 

  
 MCC S.p.A. – Capitalia Gruppo Bancario (“MCC”) was appointed by Telecom Italia S.p.A. (“Telecom Italia”, and, together with its subsidiary and affiliated companies, the “Telecom Italia
Group” or the “Group”) as financial advisor in connection with the proposed merger of T.I.M. S.p.A. (“TIM” and together with Telecom Italia the “Companies”) into Telecom Italia (the “Merger”). 

 
 As part of the engagement, Telecom Italia has requested MCC to provide, to the Board of
Directors of Telecom Italia S.p.A. (the “BoD”), an opinion as to the fairness of the exchange ratios between the ordinary and savings shares of TIM and the ordinary and savings shares of Telecom Italia with respect to the Merger (the
“Exchange Ratios”). 
  
 This document (the “Opinion”)
summarizes the main valuation analyses performed by MCC as a part of the engagement and it is intended to provide the BoD with all the useful information, data and references needed to assess to the Shareholders’ Meeting the fairness of the
Exchange Ratios to the Telecom Italia’s shareholders from a financial standpoint. 
  
 The content of this Opinion, which is exclusively addressed to the BoD for its exclusive use, is confidential and may not be used for any purpose other than those set forth herein; moreover, this Opinion may not be disclosed, in whole or in
part, to any third parties. The Telecom Italia shareholders and/or any other third parties shall use their own financial advisers if they deem it necessary. MCC does not assume any liability with respect to any damage related to any incorrect use of
the information contained in this Opinion. 
  
 MCC authorizes the BoD of Telecom
Italia (i) to include this Opinion into the corporate documents as provided for by the applicable law, regulations and (ii) to provide the auditing firm appointed to express its own opinion as required by the law, in order to verify
the fairness of the Exchange Ratios. Any other use, in whole or in part, of this Opinion shall have to be previously agreed and authorized in writing by MCC. 
  
 The conclusions contained in this Opinion are based on the whole of the valuations contained herein and therefore no part of this Opinion may be used apart from the
document in its entirety. 
  
 Capitalia Gruppo Bancario, to which MCC belongs,
grants financings, in the course of its ordinary business, to Telecom Italia. Moreover Telecom Italia holds 3% of MCC share capital. 
  

	1.2.	Rationale of the Opinion 

  
 The Exchange Ratios reported in this Opinion and the corresponding valuation of the Companies were prepared with the sole purpose of determining relative values and
identifying appropriate exchange ratios as to assure an equal treatment to the shareholders of Telecom Italia. The relative values contained in this Opinion have no relevance for purposes other than those related to the Merger. This Opinion only
addresses the share exchange ratio in connection with the Merger and does not constitute an opinion as to the absolute value of the Telecom Italia and TIM shares nor as to the strategic/industrial rationale of the Merger. 
  

	2.	The Transaction 

  
 Companies involved in the Merger: 
  

	 	•	 	Telecom Italia S.p.A., surviving company, registered at the Registry of Companies of Milan, with legal office in Milan, Piazza degli Affari 2, wholly paid-up capital equal to €
8.861.181.281,15 made up of No. 10.315.317.624 ordinary shares and No. 5.795.921.069 non convertible saving shares (book value of € 0,55 each for both ordinary and saving shares); 

  

	 	•	 	T.I.M S.p.A., target company, registered at the Registry of Companies of Turin, with legal office in Turin, Via Giannone 4, wholly paid-up capital equal to € 513.964.432,74
made up of No. 8.434.004.716 ordinary shares and No. 132.069.163 non convertible saving shares (book value of € 0,06 each for both ordinary and saving shares). 

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 As of the date hereof, Telecom Italia holds: 
  

	 	•	 	No. 4.734.081.519 ordinary shares of TIM, corresponding to 56,13% of the outstanding ordinary shares and to 55,27% of the total outstanding shares (direct shareholding);

  

	 	•	 	No. 14.224.000 ordinary shares of TIM, corresponding to 0,169% of the outstanding ordinary shares and to 0,166% of the total outstanding shares (through Telecom Italia Finance).

  
 Telecom Italia holds treasury shares corresponding approximately
to 0,98% of the outstanding ordinary shares, while TIM holds treasury shares corresponding approximately to 0,01% of the outstanding ordinary shares. 
  
 The transaction described (the “Transaction”) is part of an integrated project: 
  

	 	1.	Partial Voluntary Public Tender Offer launched by Telecom Italia for 66,7% of the outstanding ordinary shares of TIM not held by Telecom Italia and Public Voluntary Tender Offer
launched by Telecom Italia for 100% of the outstanding saving shares of TIM (“PTO”); the success of the PTO is subject to an acceptance threshold equal to 66,7% of the shares tendered for both categories of shares;

  

	 	2.	issue of up to € 12 billion financing facility to Telecom Italia to meet the financial requirements deriving from the PTO (the “Financing”); 

 

	 	3.	merger of TIM into Telecom Italia upon success of the PTO. As per the non tendered shares, the merger assumes that the holders of TIM ordinary shares will receive newly-issued
Telecom Italia ordinary shares and the holders of TIM savings shares will receive newly-issued Telecom Italia savings shares. 

  

	3.	Important Notice and Documents Considered 

  
 The valuation of the Companies described in this Opinion refers to January 1, 2005. 
  
 The analyses and the conclusions described in this Opinion are to be interpreted on the basis of the following main considerations and
limitations: 
  

	 	1.	the Companies were valued on a going-concern basis, assuming no significant changes in management and operations; 

  

	 	2.	the valuation was carried out on the basis of projections which were considered reasonable at the date of the valuation; extraordinary and non predictable events were not taken into
account; 

  

	 	3.	the valuations were performed considering the Companies as independent entities from an operating standpoint; hence, the valuations do not include any strategic, operating and
financial synergies that may result from the Merger; 

  

	 	4.	when dealing with financial and operating forecasts delivered by Telecom Italia and TIM, MCC assumed that the forecasts were performed reasonably and were based on the best
estimates and valuations that Telecom Italia and TIM management could rely on at the date in which they were disclosed; 

  

	 	5.	the Exchange Ratios contained in this Opinion were based on Telecom Italia and TIM share values “ex-dividend” accrued in 2004. The dividend amount estimate was based on
the information and the guidelines provided by the Companies. We assumed that the dividend accrued in 2004 would be paid between January 1, 2005 and the date of the closing of the Transaction; 

  

	 	6.	This Opinion did not involve the carrying out by MCC of any due diligence activity nor independent audit on the accounts of the Companies, nor the check of the existence of any
fiscal, contractual and social securities liabilities or related to environmental issues not reported in the balance sheets of the Companies (Telecom Italia and TIM balance sheets are audited by Reconta Ernst & Young S.p.A.);

  

	 	7.	MCC relied upon and assumed, without independent analysis, the truthfulness, accuracy and completeness of the information and the financial data provided by Telecom Italia. MCC
relied upon all specific information as received; therefore, MCC declines any liability should the collected and analyzed data be affected by the lack of completeness or truthfulness of such information. 

  
 This Opinion is also based on: 
  

	 	•	 	MCC’s understanding of the information provided by Telecom Italia, as well as its representatives and advisers, to date; 

  

	 	•	 	the assumption that the Transaction will be carried out within the expected terms, conditions and time frame. 

  

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 In the execution of the engagement, MCC has collected and analyzed information and other documentation provided by
Telecom Italia and certain publicly available data. 
  

	 	•	 	Telecom Italia and TIM corporate bylaws; 

  

	 	•	 	Telecom Italia, TIM and Telecom Italia Media S.p.A. consolidated and statutory accounts, for the year 2003; 

  

	 	•	 	Telecom Italia, TIM and Telecom Italia Media S.p.A. half-yearly and quarterly reports as of as June 30, 2004 and September 30, 2004; 

  

	 	•	 	an updated version of the updated Group Business Plan of Telecom Italia (the Group Business Plan was approved in March, 2004): “2005-2007 Plan – Preliminary
03/12/2004”. The Telecom Italia BoD has not approved yet the “2005-2007 Plan – Preliminary 03/12/2004”. MCC received an updated version of the Business Plan on December 3, 2004; 

  

	 	•	 	Standard & Poor’s and Moody’s letters addressed to Telecom Italia respectively on December 2, 2004 and December 3, 2004; 

  

	 	•	 	publicly available information such as press releases, financial research and analysis published by brokers and investment banks; 

  

	 	•	 	market information (share price performance, volumes, estimates on revenues, margins, net income etc.), collected through publicly available sources such as Reuters, Bloomberg,
Thomson Research, Il Sole-24 Ore; 

  

	 	•	 	other data, written and oral information / documents supplied by Telecom Italia and its management. 

  
 This Opinion is based on economic, market and other conditions as of the date hereof, and the written and oral information made available to
MCC until December 6, 2004. Subsequent developments may affect the conclusions of this Opinion and, in addition, MCC has no obligation to update, revise, or modify this Opinion. 
  
 In addition, MCC expressed no opinion as to the price at which any securities of Telecom Italia and TIM would trade on the stock market at
any time. Other events occurred after the date hereof may affect the value of the business of Telecom Italia and/or TIM either before or after completion of the PTO and/or the Merger, including but not limited to: 
  

	 	•	 	the total or partial disposal of the shares of Telecom Italia or TIM by their respective shareholders within a short period of time after the date of announcement or completion of
the PTO or the Merger; 

  

	 	•	 	changes in prevailing interest rates and other factors which generally affect the price of securities; 

  

	 	•	 	adverse changes in the current capital markets; 

  

	 	•	 	adverse changes in the financial condition, the business, certain extraordinary transactions of Telecom Italia or TIM; 

  

	 	•	 	any actions taken or restrictions imposed by any State or governmental agencies or regulatory authorities; and 

  

	 	•	 	the execution of the Transaction in accordance with the expected terms and within the expected time frame. 

  
 No opinion is expressed by MCC whether any alternative transaction might have been more
beneficial to Telecom Italia. 
  
 MCC acted as financial advisor to Telecom Italia
with respect to the Transaction. MCC will receive a fee from Telecom Italia for the services provided, as well as an additional fee for the services provided as Mandated Lead Arranger in relation to the Financing. 
  

	4.	Valuation Methodologies 

  
 MCC selected commonly used criteria for transactions of a similar nature in an international context and for companies operating in the telecommunication sector, and in
connection with the purposes of the valuation. In particular, MCC gave priority to the consistency and comparability of the criteria adopted. The main driver for valuations, as far as mergers are concerned, is the adoption of the same valuation
criteria for the companies involved in the merger. The above mentioned driver foresees the selection of the most appropriate criteria for the companies being valued aimed at providing valuations which can be comparable for the calculation of the
Exchange Ratios. 
  

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 The methodologies adopted should be considered part of an integrated valuation process. Each methodology leads to results
that should be interpreted in connection with the overall process. Results arising from one methodology might prove to be misleading. 
  
 The conclusions of the valuations might be affected by changes in the current capital market conditions, extremely volatile, changes in the economic and financial
environment, and/or in the outlook of Telecom Italia, TIM or the comparable companies. The aforementioned changes might significantly affect the results reported in this Opinion. 
  
 The Sum-of-the-Parts (or “SOP”) approach was used as the fundamental methodology and an additional methodology based on the
average market values of Telecom Italia and TIM shares expressed by the stock market over different time periods was used as a further check. 
  
 In order to value the Telecom Italia and TIM saving shares, MCC took into account: (i) for Telecom Italia the last three months average discount over the ordinary
shares, equal to 26,2%; (ii) a non-meaningful discount of TIM saving shares over TIM ordinary shares in the last month, resulting in the same per-share value for both category of shares. 
  

	4.1.	The Sum of the Parts 

  
 The SOP methodology assesses the value of a company operating in different and non-comparable business sectors. 
  
 On the basis of the SOP criterion, the value of Telecom Italia was determined as the sum of
the values of the different business units. 
  
 In particular, within the SOP
valuation of Telecom Italia, we performed the valuation of TIM shares fair value. 
  
 Telecom Italia Group–Valuation Methodologies of business units 
  

	 	•	 	Wireline Activities (fixed telephony, ADSL and VAS): Discounted Cash Flow (“DCF”) methodology. 

  

	 	•	 	Wireless Activities (TIM): Discounted Cash Flow (“DCF”) methodology. 

  

	 	•	 	Internet & Media Activities: SOP methodology (the main business units - Internet, broadcasting and business office - were valued with the DCF methodology and with the
trading comps methodology). 

  

	 	•	 	Activities in Latin America: DCF methodology (Chile and Bolivia). 

  

	 	•	 	Other Activities: either market value, book value or market consensus. 

  

	4.2.	Market Value 

  
 Both Telecom Italia and TIM are listed companies with a significant market capitalization and a relevant free float: MCC performed an additional valuation based on the share prices traded on the stock market.

  
 In particular, in order to mitigate the fluctuations that typically
characterize the financial markets, and in compliance with the best market practice, MCC extended the analysis of the market prices over a sufficiently broad time period. The results obtained employing the Market Value methodology were compared with
the current share market prices. 
  

	5.	Key Results 

  
 5.1. The Sum of the Parts 
  
 As already explained, a SOP approach was used as the main valuation methodology of the Telecom Italia Group. 
  
 In particular, the firm values of the main business units were calculated using the criteria indicated above. We then added up algebraically the estimated value of the
consolidated net financial position of Telecom Italia as at December 31, 2004. The consolidated net financial position was adjusted for the minorities of the estimated consolidated net financial position of TIM as at December 31, 2004 and for the
estimated consolidated net financial position of Telecom Italia Media S.p.A. as at December 31, 2004. 
  

 4 

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 The following table shows the lower and upper value for each Telecom Italia and TIM share identified by the SOP
methodology. 
  
 Sum of the Parts – Telecom Italia Group and TIM

  

							
	 Telecom Italia

	  	Lower End

	  	Upper End

	 Ordinary share
	  	€	2,99	  	€	3,44
	 Saving share
	  	€	2,21	  	€	2,54
			
	 TIM

	  	Lower End

	  	Upper End

	 Ordinary share
	  	€	5,29	  	€	5,84
	 Saving share
	  	€	5,29	  	€	5,84

	Source:	MCC. 

  
 The valuation performed using the SOP identifies a range of values consistent: 
  

	 	•	 	with the average market multiples of Telecom Italia and TIM comparable companies (in terms of business, market positioning and geographical presence);

  

	 	•	 	with the DCF valuation of Telecom Italia and TIM based on the business plan prepared by MCC and compliant to the market analysts’ consensus; 

  

	 	•	 	with the analysis of the target prices expressed by research analysts. 

  

	5.2.	Market Values 

  
 In order to check the accuracy of the assessment of the Exchange Ratios determined using the SOP criterion, MCC also performed an additional check based on the average exchange ratios expressed by the stock market
over different time periods. 
  
 Telecom Italia and TIM – Market Values

  

											
	 	  	3-dec-04

	  	 Last
 month

	  	 Last
 3 months

	  	 Last
 6 months

	  	 Last
 12 months

	 Telecom Italia
	  	 	  	 	  	 	  	 	  	 
	 Ordinary Shares
	  	€2,97	  	€2,85	  	€2,65	  	€2,57	  	€2,55
	 Saving Shares
	  	€2,18	  	€2,07	  	€1,95	  	€1,88	  	€1,84
						
	 TIM
	  	 	  	 	  	 	  	 	  	 
	 Ordinary Shares
	  	€5,19	  	€4,90	  	€4,62	  	€4,55	  	€4,56
	 Saving Shares
	  	€5,37	  	€4,99	  	€4,60	  	€4,49	  	€4,48

	Source:	MCC on DataStream data (“PZ” prices). 

  

	5.3.	Valuation Results 

  
 The following table shows the values for each Telecom Italia and TIM share identified using the different aforementioned methodologies. 
  
 Telecom Italia and TIM – Valuation Results 
  

					
	 Sum of the Parts

	  	Telecom Italia

	  	TIM

	 Ordinary share
	  	€2,99 - €3,44	  	€5,29 - €5,84
	 Saving share
	  	€2,21 - €2,54	  	€ 5,29 -€5,84
			
	 Market Values

	  	Telecom Italia

	  	TIM

	 Ordinary share
	  	€2,55 - €2,97	  	€4,55 - €5,19
	 Saving share
	  	€1,84 - €2,18	  	€4,48 - €5,37

	Source:	MCC. 

  

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	6.	Conclusions 

  
 The following table shows the Exchange Ratios resulting from the analyses described in this Opinion. 
  
 The Exchange Ratios “ex-dividend” include the adjustments for the dividend payment accrued in 2004 and expected for the month of May 2005. We assumed a dividend
per Telecom Italia ordinary share equal to € 0,1041 and per TIM ordinary share equal to € 0,2567 and dividend per Telecom Italia saving share equal to € 0,1151 and per TIM saving share equal to € 0,2687. 
  
 Telecom Italia Group – Exchange Ratios 
  

									
	 	  	Sum of the Parts

	  	Market Values

	 	  	Lower End

	  	Upper End

	  	Lower End(1)

	  	Upper End(2)

	 Exchange Ratios cum dividend
	  	 	  	 	  	 	  	 
	 Ordinary Shares
	  	1,70	  	1,77	  	1,72	  	1,78
	 Saving Shares
	  	2,30	  	2,40	  	2,36	  	2,46
					
	 Exchange Ratios ex dividend
	  	 	  	 	  	 	  	 
	 Ordinary Shares
	  	1,67	  	1,74	  	1,69	  	1,75
	 Saving Shares
	  	2,30	  	2,40	  	2,36	  	2,47

	(1)	Minimum implied Exchange Ratio on market values over the analized time periods. 

  

	(2)	Minimum implied Exchange Ratio on market values over the analized time periods. 

  
 Based on and subject to the analyses described and the main methodologies used, MCC believes that the Exchange Ratios illustrated below are
fair from a financial point of view to the Telecom Italia shareholders: 
  

	 	•	 	1,73 Telecom Italia ordinary shares for each TIM ordinary shares; and 

  

	 	•	 	2,36 Telecom Italia saving shares for each TIM saving shares. 

  
 The Exchange Ratios shown above fall within the ranges identified by MCC. 
  

	
	 Piergiorgio Peluso

	MCC S.p.A.

  

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 ANNEX X (b) 
  

ORIGINAL DOCUMENT ISSUED ON MCC HEADED PAPER. TRANSLATION FROM THE ORIGINAL DOCUMENT ISSUED IN ITALIAN PREPARED EXCLUSIVELY FOR INFORMATIVE PURPOSES. THE ORIGINAL
DOCUMENT IN ITALIAN PREVAILS ON ANY TRANSLATION. 
  
 Rome,
January 23, 2005 
  
 To: 
 Telecom Italia S.p.A. 
 Piazza degli Affari, 2 
 20123 – Milano 
  
 Attn: 
 Dott. Marco Tronchetti Provera, Chairman 
  
 Dear Sirs, 
  
 we refer to our fairness opinion dated December 7, 2004 with respect to the exchange ratio concerning the merger of TIM S.p.A. into Telecom Italia S.p.A (the
“Fairness Opinion”). The Fairness Opinion was provided pursuant to our engagement letter dated December 7, 2004. 
  
 We hereby refer to your letter dated January 21, 2004 in which you informed us that, from December 7, 2004 to the date hereof, no event affected or could affect in any
material respect any of the documents, information, data, projections or assumptions referred to in the Fairness Opinion or the economic-financial condition, the business, the assets or liabilities or prospects of Telecom Italia S.p.A., or its
subsidiaries, TIM S.p.A. or its subsidiaries. 
  
 We hereby confirm that, to our
knowledge,—taking into account the same criteria as well as the same assumptions identified in the Fairness Opinion – no material event occurred since the date of the Fairness Opinion that would lead us to change the conclusions stated in
the Fairness Opinion itself, as of the date hereof. 
  
 Please note that this
confirmation does not take into account the market share prices of either Telecom Italia S.p.A. or TIM S.p.A. subsequent to the announcement of the merger between these two companies. 
  
 Best regards, 
  

	
	 Piergiorgio Peluso

	MCC S.p.A.

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 ANNEX X (c) 
  

ENGLISH TRANSLATION OF THE DESCRIPTION OF THE ANALYSES PERFORMED BY MCC AS FINANCIAL ADVISOR TO TELECOM ITALIA IN CONNECTION WITH THE FAIRNESS OPINION DATED
DECEMBER 7, 2004. TRANSLATION FROM THE ORIGINAL DOCUMENT ISSUED IN ITALIAN PREPARED EXCLUSIVELY FOR INFORMATIVE PURPOSES. THE ORIGINAL DOCUMENT IN ITALIAN PREVAILS ON ANY TRANSLATION. 
  
 MCC S.p.A. – Capitalia Gruppo Bancario (“MCC”) was appointed by Telecom Italia S.p.A. (“Telecom Italia”, and,
together with its subsidiary and affiliated companies, “Telecom Italia Group” or the “Group”) as financial advisor in connection with the merger of TIM S.p.A. (“TIM” and, together with Telecom Italia, the
“Companies”) into Telecom Italia (the “Merger”) and, more broadly, with the restructuring of the Telecom Italia Group (the “Transaction”), including, but not limited to, the Public Tender Offer by Telecom Italia on n.
2.456.534.241 ordinary shares and n. 132.069.163 saving shares of TIM (the “PTO”) and the Merger itself. 
  
 In choosing MCC as financial advisor, Telecom Italia took into account MCC’s knowledge of the Telecom Italia Group and its business, and MCC’s high standing and
strong expertise in transactions similar to the Transaction. MCC, as part of its investment banking business, is often involved in the valuation of corporates and their stocks with respect to mergers and acquisitions, stocks subscriptions, secondary
offerings of listed and non listed stocks, private placements and other valuations. 
  
 MCC presented an assessment (the “Fairness Opinion”) during the Telecom Italia Board of Directors of December 7, 2004, which examined the Transaction. The Fairness Opinion provided to the Board of Directors of Telecom Italia (the
“BoD”) an opinion, from a financial standpoint, as to the fairness to Telecom Italia’s shareholders of the following exchange ratios in connection with the Merger: 1,73 Telecom Italia ordinary shares for each TIM ordinary share and
2,36 Telecom Italia saving shares for each TIM saving share. 
  
 On January 23,
2005, MCC confirmed in written form, through a confirmation letter (the “Confirmation Letter”) addressed to the BoD that no material event occurred since the date of the Fairness Opinion that would lead MCC to change the conclusions stated
in the Fairness Opinion itself, as of the date thereof. The Confirmation Letter was based on MCC’s knowledge, taking into account the same criteria as well as the same assumptions identified in the Fairness Opinion. In releasing such
confirmation, MCC did not take into account the share market prices of either Telecom Italia or TIM subsequent to the announcement of the Transaction. 
  
 The Fairness Opinion delivered by MCC on December 7, 2004, and the Confirmation Letter delivered by MCC on January 23, 2005, (the “Opinions”), both addressed to
the BoD, only assessed the fairness to Telecom Italia, from a financial standpoint, of the exchange ratios established by Telecom Italia and TIM Boards of Directors in connection with the Merger. MCC released the Opinions in order to inform and
support the BoD with respect to its valuation of the Merger. 
  
 This document,
which summarises the content of the Opinions, is delivered only for information purposes. Consequently, neither this document nor the Opinions can be considered as a recommendation to Telecom Italia or TIM shareholders to undertake any kind of
action with respect to the Transaction. The Opinions are not intended to influence the decisions of either Telecom Italia or TIM Board of Directors in connection with the Transaction. Moreover, the Opinions did not examine the possibility that
alternative deals could prove to be more beneficial, from an economic and/or financial point of view, to the Telecom Italia Group after the Merger. MCC declines any direct or indirect liability for potential damages caused by an incorrect use of the
information contained in this document. 
  
 The Fairness Opinion delivered by MCC
on December 7, 2004, and the Confirmation Letter delivered by MCC on January 23, 2005, are attached in Appendix x (a) and Appendix x (b) of the Merger-related documentation and form an integral part hereof. The Fairness Opinion summarizes the
assumptions made, the methods used, the problems faced, the documents examined and the main limitations in connection with the analyses performed by MCC. We invite the recipients of this document to carefully examine the Opinions in their entirety.

  
 During the analyses performed in order to release the Fairness Opinion of
December 7, 2004, MCC, inter alia: 
  

	 	•	 	examined the documentation on the Transaction; 

  

	 	•	 	examined financial data, public and other information delivered to MCC by Telecom Italia, including financial analyses, budgets and business forecasts of Telecom Italia and TIM
performed by the Companies’ management teams. In particular, MCC examined an updated version of the Business Plan of the Group, approved in March 2004 (“2005-2007 Plan Preliminary 03/12/2004”); 

  

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	 	•	 	interviewed Telecom Italia and TIM senior management members, representatives and consultants; 

  

	 	•	 	examined historical market price performance and market trend of Telecom Italia and TIM stocks; 

  

	 	•	 	examined brokers’ notes; and 

  

	 	•	 	performed other analyses and research. 

  
 In preparing the Opinions, MCC assumed as correct and complete all the information examined and did not perform any independent check of such information. As per the
financial and operating forecasts provided by the Companies, MCC considered those forecasts as reasonable and based on the best estimates available to the Telecom Italia and TIM management teams at the date thereof. 
  
 MCC did not perform any independent valuation or survey on the assets and liabilities of the
Companies or their subsidiary companies, nor MCC made any inspection of their assets. As per the projections provided to MCC, MCC understands that projections are always subject to some uncertainty. Although projections represent only one driver
which MCC took into account in its Opinions, substantial changes in projections could impact the conclusions drawn by MCC. 
  
 MCC’s Opinions are based on economic, industrial, legislative, political and market conditions and on other existing conditions at the date of the Opinions. As far
as the Fairness Opinion delivered on December 7, 2004 is concerned, Telecom Italia and TIM market prices were as well considered. Some of these conditions are out of the control of the Companies and are subject to sudden and unpredictable changes,
which could impact the conclusions drawn by MCC. MCC did not carry out any independent audit on legal aspects of Telecom Italia and TIM and assumed the fairness of every legal, fiscal and accounting opinion given to Telecom Italia and TIM and to
their Boards of Directors including, for example, the opinions on legal, fiscal and accounting impact of the Transaction on Telecom Italia, TIM and their shareholders and bondholders. MCC assumed that the Merger and the Transaction will be
accomplished within the terms agreed. 
  
 The following paragraphs show the main
financial analyses performed by MCC in connection with the Fairness Opinion dated December 7, 2004. Such summary is not a complete description of the analyses performed by MCC. A fairness opinion is a complex process and cannot be easily summarized.
The flow of the described analyses and the corresponding results do not necessarily reflect their relative weight assumed by MCC. The selection of parts of this summary without taking into account the whole analysis might provide a misleading view
of the underlying assumptions and opinions developed by MCC. MCC analyses are not necessarily indicative for either the actual values or the forecasted results, which could be very different from the ones resulting from the analyses themselves.
Moreover, the analysis on the assets value does not intend to either provide values likely to be reflected within a transaction or to reflect current or forward market valuations or trends on the stock exchange. MCC, through the Opinions, expressed
no judgment as to the market price of Telecom Italia ordinary and saving shares both before and upon completion of the Merger. Although MCC analyzed (i) the right of withdraw for the holders of TIM saving shares, (ii) the PTO and
(iii) the financing related to the PTO when analysing the general terms of the Transaction, MCC expressed no opinion on the likelihood that the holders of TIM saving shares take up their right of withdraw nor on the number of TIM shareholders
accepting the PTO. 
  
 MCC used the results of its analyses for no purposes other
than the estimate of the fairness for Telecom Italia of the exchange ratios in connection with the Merger: therefore, those values should not be used for any other purpose. In accordance with the investment banking best market practice, MCC applied
commonly-used valuation methods when performing the analyses related to the Fairness Opinion. In particular, when evaluating the exchange ratios of the Merger, MCC focused on relative valuations of Telecom Italia and TIM, giving priority to the
consistency and the comparability of the adopted criteria in respect to the value of such companies. MCC considered the two companies as separate entities without taking into account either the strategic, operating and financial synergies, which
could result from the Merger, or majority premia and minority discounts. 
  
 The
valuation reported in the Fairness Opinion refers to January 1, 2005. 
  
 MCC
adopted, as the main method, (i) the “sum-of-the-parts” in connection with Telecom Italia and (ii) the discounted cash flow analysis of Telecom Italia’s Wireless business in connection with TIM. MCC compared the
main valuation results with Telecom Italia and TIM market values in different time periods. 
  
 Valuation of Telecom Italia. MCC valued the main business units of Telecom Italia by adopting, as the main methodology, the discounted cash flow analysis, in connection with a “sum-of-the-parts”
approach. The smaller-sized business units of Telecom Italia were valued through their market capitalization, if listed on regulated 

  

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markets, or with different other criteria depending on the nature of the business, including the trading multiples methodology and book values. Moreover, MCC
compared the results of the valuations described above with the corresponding values coming from the market consensus, when available. 
  
 MCC discounted cash flow analysis is based on estimated cash flows and other information provided by Telecom Italia for the years 2005 - 2007. The weighted average cost
of capital (WACC) was calculated according to the market conditions and to the more appropriate capital structure within the different business units. 
  
 The growth rates assumed by MCC for the terminal values are consistent with the main market benchmarks. 
  
 The following paragraphs summarize the main hypothesis behind the valuation of the different main business units. The valuation addresses
the Firm Value of each business unit: to the sum of the different Firm Values, we then added the consolidated net debt, as better explained below. 
  

	 	•	 	Wireline Business: terminal value growth rate equal to 0,50% and WACC equal to 8,64%. 

  

	 	•	 	Wireless Business: terminal value growth rate equal to 2,00% and WACC equal to 8,67%. 

  

	 	•	 	Telecom Italia Media: (i) terminal value growth rate equal to 1,75% and WACC equal to 11,01% (Internet Business); (ii) terminal value growth rate equal to 1,00% and
WACC equal to 8,88% (Office Products Business); (iii) EV/2004E Sales multiple equal to 2,05x (Broadcasting Business). 

  

	 	•	 	Business in Latin America: (i) terminal value growth rate equal to 2,00% and WACC of 9,29% (Chile); (ii) terminal value growth rate equal to 2,00% and WACC of 16,54%
(Bolivia). 

  
 As a further analysis, MCC compared the results of
the discounted cash flow analysis with (i) the results of the trading multiples methodology of the main comparable companies, and with (ii) the brokers’ market consensus, when available. 
  
 We then added the consolidated net debt as of December 31, 2004 to the sum of the business
units’ values, determined with the methods described above. The consolidated net debt was adjusted to take into account proportionate net debt effects and minority interests, when relevant, and the net value of other adjustments, which include
the value of some off-balance sheet items. We also took into account the pro-forma effect (i) of the conversion of the “Telecom Italia 1,5% 2001-2010 convertible with premium at the redemption” and (ii) of the exercise of
stock options “in-the-money” as of December 7, 2004, consistent with the fully-diluted methodology. 
  
 The number of shares considered in the calculation of Telecom Italia ordinary and saving shares value takes into account (i) the conversion of the “Telecom Italia 1,5% 2001-2010 convertible with premium at
the redemption” and (ii) the exercise of “in-the-money” stock options as of December 7, 2004, consistent with the fully-diluted methodology. Telecom Italia share value was calculated by dividing Telecom Italia equity value by
the number of outstanding shares net of the treasury shares. 
  
 The following
table shows the lowest, middle and highest values per Telecom Italia ordinary share, resulting from the “sum-of-the-parts” analysis, before adjustment for the payment of the 2004-related expected dividend to be paid in April 2005.

  

							
	 	  	Minimum

	  	Medium

	  	Maximum

	 Value per Telecom Italia ordinary share (€)
	  	2,99	  	3,21	  	3,44

  
 MCC compared the results of the
“sum-of-the-parts”, before adjustment for the payment of the 2004-related expected dividend to be paid in April 2005 with the target prices published by the brokers before December 7, 2004. Those target prices per Telecom Italia ordinary
share show a range of values consistent with the results of the “sum-of-the-parts”. 
  
 The following table shows the lowest, middle and highest values per Telecom Italia ordinary share, resulting from the “sum-of-the-parts”, adjusted to take into account the payment of the 2004-related
expected dividend to be paid in April 2005 (assumed equal to € 0,1041 per share, consistent with the 2003-related dividend paid out in 2004). 
  
 MCC performed such an adjustment in order to grant an equal treatment to both Telecom Italia and TIM shareholders since the Merger will occur after the payment of
2004-related dividend. 
  

							
	 	  	Minimum

	  	Medium

	  	Maximum

	 Value per Telecom Italia ordinary share (€)
	  	2,89	  	3,10	  	3,34

  

 3 

Table of Contents

 The following table shows the lowest, middle and highest values per Telecom Italia saving share resulting by discounting
Telecom Italia ordinary shares with the average market discount rate of the last 3 months before the public announcement of the Transaction, equal to approx. 26,2%. Such discount is consistent with the discount rate of the last day of trading before
the announcement of the Transaction, on December 3, 2004. The discount applied is also consistent with the average market discount rate of the latest 1, 6 and 9 months. 
  

							
	 	  	Minimum

	  	Medium

	  	Maximum

	 Value per Telecom Italia saving share (€)
	  	2,21	  	2,37	  	2,54

  
 The following table shows the lowest,
middle and highest values per Telecom Italia saving share, adjusted to take into account the payment of the 2004-related expected dividend to be paid in April 2005 (assumed equal to € 0,1151 per share, consistent with the 2003-related
dividend paid out in 2004). 
  

							
	 	  	Minimum

	  	Medium

	  	Maximum

	 Value per Telecom Italia saving share (€)
	  	2,09	  	2,25	  	2,43

  
 Valuation of TIM. MCC valued
TIM by adopting, as the main methodology, the discounted cash flow analysis on Telecom Italia Wireless business (growth rate for the terminal value equal to 2,00% and WACC equal to 8,67%). The smaller-sized business units of TIM were valued through
their market capitalization, if listed on regulated markets, or with different other criteria depending on the nature of the business, including the trading multiples methodology and book values. Moreover, MCC compared the results of the valuations
described above with the corresponding values coming from the market consensus, when available. 
  
 MCC discounted cash flow analysis is based on estimated cash flows and other information provided by Telecom Italia for the years 2005 - 2007. The weighted average cost of capital (WACC) was calculated according to
the market conditions and to the more appropriate capital structure within the different business units. 
  
 The growth rates assumed by MCC for the terminal values are consistent with the main market benchmarks. 
  
 As a further analysis, MCC compared the results of the discounted cash flow analysis with (i) the results of the trading multiples methodology of the main
comparable companies, and with (ii) the brokers’ market consensus, when available. 
  
 The results of the analysis described above were adjusted to take into account the net debt as of December 31, 2004 and, if relevant, the net value of other adjustments. 
  
 The following table shows the lowest, middle and highest values per TIM ordinary share,
resulting from the fundamental analysis, before adjusting for the payment of the 2004-related dividend to be paid in April, 2005. 
  

							
	 	  	Minimum

	  	Medium

	  	Maximum

	 Value per TIM ordinary share (€)
	  	5,29	  	5,55	  	5,84

  
 MCC compared the results of the
fundamental analysis, before adjusting for the payment of the dividend, with the target prices released by the brokers before December 7, 2004. The target prices per TIM ordinary share show a range of values consistent with the results of the
discounted cash flow analysis. 
  
 The following table shows the lowest, middle
and highest values per TIM ordinary share, resulting from the fundamental analysis, adjusted to take into account the payment of the 2004-related expected dividend to be paid in April 2005 (assumed equal to € 0,2567 per share, consistent with
the 2003-related dividend paid out in 2004). 
  

							
	 	  	Minimum

	  	Medium

	  	Maximum

	 Value per TIM ordinary share (€)
	  	5,04	  	5,29	  	5,58

  
 The lowest, middle and highest values
per TIM saving share were assumed equal to ordinary shares values, consistent with the market trend of the two classes of shares. 
  

 4 

Table of Contents

 The following table shows the lowest, middle and highest values per TIM saving share adjusted to take into account the
payment of the 2004-related expected dividend to be paid in April 2005 (assumed equal to € 0,2687 per share, consistent with the 2003-related dividend paid out in 2004). 
  

							
	 	  	Minimum

	  	Medium

	  	Maximum

	 Value per TIM saving share (€)
	  	5,03	  	5,28	  	5,57

  
 Exchange ratio analysis. MCC
compared the results of its analyses, adjusted to take into account the payment of the expected dividend, to calculate the Merger-related exchange ratios, as showed in the following table. 
  

							
	 	  	Minimum

	  	Medium

	  	Maximum

	 TIM ordinary share for Telecom Italia ordinary share (€)
	  	1,67	  	1,71	  	1,74
	 TIM saving share for Telecom Italia saving share (€)
	  	2,30	  	2,35	  	2,40

  
 Moreover, MCC compared the Merger
exchange ratios showed above, with the exchange ratios resulting from the historical market prices of ordinary and saving shares of the Companies within fixed periods before the public announcement of the Merger, adjusted to take into account the
payment of the expected dividend. 
  

											
	 	 	3/12/04

	 	1 month
average
up to
3/12

	 	3 months
average
up to
3/12

	 	6 months
average
up to
3/12

	 	12 months
average
up to 3/12

	 TIM ordinary share for Telecom Italia ordinary share (€)
	 	1,72	 	1,69	 	1,71	 	1,74	 	1,75
	 TIM saving share for Telecom Italia saving share (€)
	 	2,47	 	2,41	 	2,36	 	2,39	 	2,44

  
 MCC will receive by Telecom Italia
fees for an overall amount up to € 30 mln, upon completion of the Merger, in connection with: (i) the advisory activities carried out as financial advisor to Telecom Italia in connection with the Transaction; (ii) the activities
related to the role of mandated lead arranger for the financing facility up to € 12,0 billion granted in relation to the Transaction; (iii) the activities related to the role of lead broker and mandated broker in connection with the
PTO. Telecom Italia has further agreed to reimburse MCC for the reasonable expenses incurred in relation to the services rendered by it, included invoices or other amounts in favour of the external consultants, and to indemnify and hold harmless MCC
from certain liabilities. 
  
 Relationships between Telecom Italia Group and
MCC/Capitalia Group. MCC belongs to Capitalia Banking Group (the “Capitalia Banking Group”). The Capitalia Banking Group is a full-service banking group carrying out banking activities and investment services, also providing, through
the companies belonging to the Group, M&A advisory services, securities brokerage and other related financial and investment services, including management of collective investment schemes. Therefore, MCC and/or the other companies belonging to
the Capitalia Banking Group may hold participations in, and/or positions in financial instruments issued by, Telecom Italia, TIM or other companies of the Telecom Italia Group. Furthemore, MCC and/or the other companies of the Capitalia Banking
Group may have granted loans, or provide, have provided or be seeking to provide to Telecom Italia, TIM and/or other companies belonging to the Telecom Italia Group, its investment and/or M&A advisory services. In particular, MCC has acted as
financial advisor of Telecom Italia in connection with the Merger and the PTO and as coordinator of the collection of the acceptances to the PTO. 
  
 Telecom Italia is one of MCC shareholders with a stake equal to 3%. 
  

 5 

Table of Contents

 ANNEX XI (a) 
  
 PERSONAL AND CONFIDENTIAL 
  
 January 23, 2005 
  
 Board of Directors 
 Telecom Italia S.p.A. 
 Corso Italia, 41 
 00198 Roma 
 Italy 
  
 Gentlemen: 
  
 You have requested our opinion as to the fairness from a financial point of view to Telecom
Italia S.p.A. (the “Company”) of the exchange ratios (the “Exchange Ratios”) of one point seventy three (1.73) ordinary shares, par value Euro 0.55 per share, of the Company (the “Company Ordinary Shares”), and two
point thirty six (2.36) savings shares, par value Euro 0.55 per share, of the Company (the “Company Savings Shares”) to be received for each outstanding ordinary share, par value Euro 0.06 per share, and savings share, par value Euro 0.06
per share, of Telecom Italia Mobile S.p.A. (“TIM”) (in each case excluding shares already owned by the Company) (the “TIM Ordinary Shares” and the “TIM Savings Shares”, respectively, and, together, the
“Shares”) in connection with the potential merger by incorporation (“Fusione per Incorporazione”) of TIM into the Company (the “Merger”) pursuant to the merger plan and the board report (“Progetto di Fusione”
and “Relazione degli Amministratori”, together the “Merger Documents”) approved by you on the date hereof and as previously announced by you on December 7, 2004. The Merger follows a tender offer (the “Tender Offer”,
together with the Merger, the “Transaction”) made by the Company for up to 2,456,534,241 TIM Ordinary Shares, representing up to 29% of TIM’s outstanding ordinary share capital, and for up to 132,069,163 TIM Savings Shares,
representing all of TIM’s outstanding savings shares (excluding shares already owned by the Company), pursuant to which the Company will pay Euro 5.6 in cash for each TIM Ordinary Share accepted and Euro 5.6 in cash for each TIM Savings Share
accepted. The Tender Offer was announced by you on December 7, 2004 as part of the Transaction and the offer period closed on January 21, 2005. As a result of the Tender Offer the Company will acquire 2,456,534,241 TIM Ordinary Shares and 8,454,877
TIM Savings Shares. 
  
 Goldman Sachs International and its affiliates (together,
“Goldman Sachs”), as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for estate, corporate and other purposes. We have been engaged by the Company to undertake a study to enable us to
render our opinion as to the fairness from a financial point of view of the financial consideration to be paid by the Company in connection with the acquisition of the TIM Ordinary Shares and the TIM Savings Shares pursuant to the Transaction.
We expect to receive fees for our services in connection with the Transaction, the principal portion of which is contingent upon consummation of the Transaction, and the Company has agreed to reimburse our expenses and indemnify us against
certain liabilities arising out of our engagement. In addition, we have provided certain investment banking services to the Company from time to time, including having acted as its financial advisor in connection with the merger with Olivetti in
2003 and in connection with the separation of the Italtel joint venture in 1999 and the subsequent sale of an 80% interest in Italtel S.p.A. in 2000, as joint bookrunner with respect to an offering of the Company’s $1,250,000,000 4% Guaranteed
Senior Notes due 2010, $1,250,000,000 4.95% Guaranteed Senior Notes due 2014, and $1,000,000,000 6% Guaranteed Senior Notes due 2034 in September 2004, and as counterparty to certain derivatives and financing transactions. We also have provided
certain investment banking services to TIM from time to time, including having acted as financial advisor in connection with the restructuring of its Brazilian subsidiaries in 2004. We also may provide investment banking services to the Company and
TIM in the future. In connection with the above-described services we have received, and may receive in the future, compensation. 
  
 Goldman Sachs is a full service securities firm engaged in securities trading, investment management, financial planning and benefits counseling, risk management,
hedging, financing and brokerage activities for both companies and individuals. In the ordinary course of these activities, Goldman Sachs may provide such services to the Company, TIM and their respective affiliates, may actively trade the debt and
equity securities (or related derivative securities) of the Company and TIM for its own account and for the accounts of its customers and may at any time hold long and short positions of such securities. 
  
 In connection with this opinion, we have reviewed, among other things, (i) drafts of the
Merger Documents dated January 19, 2005; (ii) the Annual Report on Form 20-F and the Italian Annual Report of the Company for the year ended December 31, 2003 and the Annual Reports of TIM for the years ended 31 December 2001, 2002 and 

Table of Contents

 Board of Directors 
 Telecom
Italia S.p.A. 
 January 23, 2005 
 Page Two 
  
 2003; (iii) the Interim Financial Statements of the Company and of TIM for the six months
ended 30 June 2004; (iv) the Quarterly Financial Statements of the Company and of TIM for the three month periods ended 30 March 2004 and 30 September 2004; (v) certain internal financial analyses and forecasts of the Company and certain of its
subsidiaries, including TIM, prepared and approved for use in this opinion by the Company’s management; (vi) the Company letter dated January 21, 2005 relating to the absence of certain changes since December 7, 2004 and to certain other
matters; (vii) the offer document (“Documento di offerta”) dated January 2005 relating to the Tender Offer; (viii) the Information Memorandum and the Documento Informativo relating to the merger between Olivetti S.p.A.
(“Olivetti”) and the Company, dated May 2003, and (ix) Standard & Poor’s and Moody’s rating assessments and press releases in connection with the Transaction. We also have held limited discussions with certain members of the
senior management of the Company and of TIM as well as with TIM’s advisors and representatives regarding their assessment of the strategic rationale for, and the potential benefits of, the Transaction and the past and current business
operations, financial condition and future prospects of the Company and of TIM, including the expected credit rating and the expected dividend policy of the combined company subsequent to the proposed transaction. In addition, we have reviewed the
reported price and trading activity for TIM Ordinary Shares and TIM Savings Shares and for the Company Ordinary Shares and the Company Savings Shares, compared certain financial and stock market information for TIM and the Company with similar
information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations and minority buy-out transactions in the telecommunications industry specifically and in other
industries generally in Italy and elsewhere and performed such other studies and analyses, and considered such other factors, as we considered appropriate. 
  
 We have relied, without independent verification, upon the accuracy and completeness of all of the financial, accounting, legal, tax and other information discussed with
or reviewed by us and have assumed such accuracy and completeness for purposes of rendering this opinion. With respect to financial forecasts and other information and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the Company’s and TIM’s management that such financial forecasts and other information and data were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company
and of TIM, and we express no opinion with respect to such financial forecasts or other information and data or the assumptions on which they are based. In that regard, we have assumed with your consent that such financial forecasts will be realized
in the amounts and time periods contemplated thereby. In addition, we have not made an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance-sheet assets and liabilities) of the
Company or TIM or any of their respective subsidiaries. 
  
 Our opinion does not
address the underlying business decision of the Company to engage in the Transaction nor the relative merits of the Transaction as compared to any alternative business transaction that might be available to the Company. We also express no opinion as
to the prices at which the Company Ordinary Shares and the Company Savings Shares will trade at any time. Our opinion is necessarily based upon information available to us and financial, economic, political, market and other conditions as they exist
and can be evaluated on the date hereof, and we assume no duty to update or revise our opinion based on circumstances or events after the date hereof. 
  
 Our advisory services and the opinion expressed herein are provided exclusively for the information and assistance of the Board of Directors of the Company in connection
with its consideration of the Transaction and such opinion does not constitute a “perizia” within the meaning of Annex 3A no. 1 of the Regolamento Emittenti no. 11971 dated May 14, 1999 as subsequently amended, nor a
“relazione di stima” within the meaning of that statute, nor a recommendation as to how any holder of Shares should vote with respect to the Merger. 
  
 Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Exchange Ratios are fair from a financial point
of view to the Company. 
  
 Very truly yours, 
  

			
	GOLDMAN SACHS INTERNATIONAL
		
	 By:
	 	
 Managing Director

Table of Contents

 ANNEX XI (b) 
  
 Summary description of the analyses carried out by Goldman Sachs International, as Telecom Italia’s financial advisor, with
reference to its Fairness Opinion 
  
 On December 7, 2004, Goldman Sachs
International delivered an oral opinion to the board of directors of Telecom Italia, subsequently confirmed by delivery of a written opinion, dated December 7, 2004, to the effect that, as of that date and subject to the matters and assumptions set
forth in the opinions, the tender offer price of €5.6 per ordinary and savings share of Telecom Italia Mobile and the proposed exchange ratios of 1.73 ordinary shares of Telecom Italia to one ordinary share of Telecom Italia Mobile and 2.36
savings shares of Telecom Italia to one savings share of Telecom Italia Mobile, respectively, were fair from a financial point of view to Telecom Italia. 
  
 The opinion on the proposed exchange ratios was reconfirmed after the conclusion of the partial tender offer by a subsequent written opinion, dated January 23, 2005, to
the effect that, as of that date and subject to the matters and assumptions set forth in the opinions, the exchange ratios of 1.73 ordinary shares of Telecom Italia to one ordinary share of Telecom Italia Mobile and 2.36 savings shares of Telecom
Italia to one savings share of Telecom Italia Mobile, respectively, were fair from a financial point of view to Telecom Italia. 
  
 The full text of the written opinion of Goldman Sachs International, dated as of January 23, 2005, which sets forth the assumptions made, procedures followed, matters
considered and limitations on the review undertaken by Goldman Sachs International in connection with the opinion, is attached as Annex XI (a) and is incorporated by reference into this document. Holders of Telecom Italia ordinary shares and
savings shares should read the opinion in its entirety. 
  
 In connection with
its January 23, 2005 opinion, Goldman Sachs International reviewed, among other things: 
  

	 	•	 	drafts of the Merger Documents (“Progetto di Fusione” and “Relazione degli Amministratori”) dated January 19, 2005; 

  

	 	•	 	the Annual Report on Form 20-F and the Italian Annual Report of Telecom Italia for the year ended December 31, 2003 and the Annual Reports of Telecom Italia Mobile for the years
ended 31 December 2001, 2002 and 2003; 

  

	 	•	 	the Interim Financial Statements of Telecom Italia and of Telecom Italia Mobile for the six months ended 30 June 2004; 

  

	 	•	 	the Quarterly Financial Statements of Telecom Italia and of Telecom Italia Mobile for the three month periods ended 30 March 2004 and 30 September 2004; 

  

	 	•	 	certain internal financial analyses and forecasts of Telecom Italia and certain of its subsidiaries, including Telecom Italia Mobile, prepared and approved for use in this opinion
by Telecom Italia’s management; 

  

	 	•	 	Telecom Italia letter dated January 21, 2005 relating to the absence of certain changes since December 7, 2004 and to certain other matters; 

  

	 	•	 	the offer document (“Documento di Offerta”) dated January 2005 relating to the partial tender offer; 

  

	 	•	 	the Information Memorandum and the Documento Informativo relating to the merger between Olivetti S.p.A. (“Olivetti”) and Telecom Italia, dated May 2003, and

  

	 	•	 	Standard & Poor’s and Moody’s rating assessments and press releases in connection with the proposed transaction. 

  
 Goldman Sachs International also held limited discussions with certain members of the senior
management of Telecom Italia and of Telecom Italia Mobile as well as with Telecom Italia Mobile’s advisors and representatives regarding their assessment of the strategic rationale for, and the potential benefits of, the transaction and the
past and current business operations, financial condition and future prospects of Telecom Italia and of Telecom Italia Mobile, including the expected credit rating and the expected dividend policy of the combined company subsequent to the proposed
transaction. Goldman Sachs International did not participate in any of the negotiations leading up to the partial tender offer and merger. In addition, Goldman Sachs International: 
  

	 	•	 	reviewed the reported price and trading activity for Telecom Italia Mobile Ordinary Shares and Telecom Italia Mobile Savings Shares and for Telecom Italia Ordinary Shares and
Telecom Italia Savings Shares; 

  

	 	•	 	compared certain financial and stock market information for Telecom Italia Mobile and Telecom Italia with similar information for certain other companies the securities of which are
publicly traded; 

Table of Contents

	 	•	 	reviewed the financial terms of certain recent business combinations and minority buy-out transactions in the telecommunications industry specifically and in other industries
generally in Italy and elsewhere, and 

  

	 	•	 	performed such other studies and analyses, and considered such other factors, as it considered appropriate. 

  
 Goldman Sachs International relied, without independent verification, upon the accuracy and
completeness of all of the financial, accounting, tax and other information that was discussed with or reviewed by it, and Goldman Sachs International assumed the accuracy and completeness of that information for purposes of rendering its opinion.
The managements of each of Telecom Italia and Telecom Italia Mobile advised Goldman Sachs International that the financial forecasts and other information and data provided to or otherwise discussed with Goldman Sachs International were reasonably
prepared on a basis reflecting the best currently available estimates and judgments of the managements of Telecom Italia and Telecom Italia Mobile, and Goldman Sachs International expressed no opinion with respect to such financial forecasts or
other information and data or the assumptions on which they were based. In that regard, Goldman Sachs International has assumed with Telecom Italia’s consent that such financial forecasts will be realized in the amounts and time periods
contemplated thereby. In addition, Goldman Sachs International has not made an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance-sheet assets and liabilities) of Telecom Italia or
Telecom Italia Mobile or any of their respective subsidiaries. 
  
 Goldman Sachs
International provided its advisory services and opinion exclusively for the information and assistance of the board of directors of Telecom Italia in connection with its consideration of the partial tender offer and merger and Goldman Sachs
International’s opinion does not constitute a “perizia” within the meaning of Annex 3A no. 1 of the Regolamento Emittenti no. 11971 dated May 14, 1999 as subsequently amended, nor a “relazione di stima” within the meaning of
that statute. Goldman Sachs International’s opinion does not constitute a recommendation as to how any holder of Telecom Italia shares should vote with respect to the merger. 
  
 Goldman Sachs International’s opinion was necessarily based upon information available to it and financial, economic, political, market
and other conditions as they existed and could be evaluated on January 23, 2005, the date the opinion was rendered, and Goldman Sachs International assumed no duty to update or revise its opinion based on circumstances or events after that date.
Goldman Sachs International’s opinion does not address the underlying business decision of Telecom Italia to engage in the partial tender offer and merger nor the relative merits of these transactions as compared to any alternative business
transaction that might have been available to Telecom Italia. Goldman Sachs International also expressed no opinion as to the prices at which Telecom Italia ordinary shares and savings shares will trade at any time. 
  
 The following is a summary of the material financial analyses presented by Goldman Sachs
International to the board of directors of Telecom Italia on December 7, 2004 in connection with the rendering of its December 7, 2004 opinion, which analyses, as updated, Goldman Sachs International also relied upon in connection with the rendering
of its January 23, 2005 opinion. The following summary does not purport to be a complete description of the analyses performed by Goldman Sachs International. The order of the analyses described, and the results of those analyses, do not represent
the relative importance or weight given to the analyses by Goldman Sachs International. 
  
 The following summary includes information presented in tabular format. You should read these tables together with the text of each summary. 
  
 In connection with these analyses, Goldman Sachs International used two main valuation methodologies: a sum of the parts analysis and a market exchange ratio analysis. In
performing these analyses, Goldman Sachs International believed it was appropriate to apply uniform and comparable valuation methodologies. Therefore, when performing a market value methodology, Goldman Sachs International used the respective market
prices of Telecom Italia and Telecom Italia Mobile shares. In performing the sum of the parts analysis, Goldman Sachs International analyzed the various Telecom Italia Mobile assets utilizing primarily a discounted cash flow methodology; and the
resulting value for Telecom Italia Mobile from the application of that methodology was used for the Telecom Italia sum of the parts analysis. Goldman Sachs International did not use the market price of Telecom Italia Mobile shares in the sum of the
parts analysis of Telecom Italia because the use of a market value methodology in this instance would not have been consistent with the valuation methodology performed with respect to Telecom Italia Mobile. 
  

 2 

Table of Contents

 Discounted Cash Flow Analysis of Telecom Italia Mobile. Goldman Sachs International computed for Telecom Italia
Mobile an implied equity value and an implied ordinary share and savings share price using a discounted cash flow methodology based on 
  

	 	•	 	management projections of future operating cash flows for the years 2005 through 2007; 

  

	 	•	 	discount rate of 8.8% based on the weighted average cost of capital; and, 

  

	 	•	 	terminal values determined on the basis of: 

  

	 	-	the net present value of future operating cash flows beyond 2007 (the “Perpetuity Growth Method”); and 

  

	 	-	multiples applied to the 2007 projected earnings before interest, taxes, depreciation and amortization, or EBITDA (the “Exit Multiple Method”). 

 
 Telecom Italia Mobile equity value is finally derived based on the carrying value of
minorities and associates and the expected net debt as of December 31, 2004. The implied price of ordinary shares and savings shares of Telecom Italia reflects the dilutive impact of in-the-money convertible securities. Goldman Sachs International
calculated the implied share price for savings shares and ordinary shares assuming a 0.2% discount of savings shares to ordinary shares, corresponding to the average discount of those shares over the three-month period prior to December 3, 2004. In
performing this analysis Goldman Sachs International adjusted the resulting value per ordinary and savings share of Telecom Italia Mobile to take into account the expected dividend to be distributed in May 2005, as merger completion is expected by
end of June 2005. Goldman Sachs International presented the value range derived from the application of the Exit Multiple Method and the Perpetuity Growth Method as follows: 
  

			
	 	  	Value range of Telecom Italia Mobile
(Euro)

	 Implied Equity Value per Ordinary Share Price
	  	5.07 - 5.60
	 Implied Equity Value per Savings Share Price
	  	5.05 - 5.58

  
 Sum of the Parts Analysis of
Telecom Italia. Goldman Sachs International computed for Telecom Italia an implied total equity value and implied exchange ratios based on the value of the sum of the various business segments (valued as separate economic entities) less expected
net debt as of December 31, 2004. The values of the main businesses were calculated using a discounted cash flow methodology based on: 
  

	 	•	 	management projections of future operating cash flows for the years 2005 through 2007; 

  

	 	•	 	discount rates ranging from 7.3% to 20.0% based on the weighted average cost of capital for each business; and, 

  

	 	•	 	terminal values determined on the basis of the Perpetuity Growth Method and the Exit Multiple Method. 

  
 For purposes of the Perpetuity Growth Method, Goldman Sachs International selected perpetual growth rates for each business based on growth
rates estimated by research analysts for comparable businesses ranging from a low of (1.0)% to a high of 4.0%. For purposes of the Exit Multiple Method, Goldman Sachs International utilized EBITDA trading multiples ranging from 4.0x to 7.4x based on
companies comparable to each of the businesses. 
  
 Telecom Italia’s other
investments have been valued at carrying value or based on shareholders’ equity. Goldman Sachs International calculated the implied share price for savings shares and ordinary shares assuming a 26.3% discount of savings shares to ordinary
shares, corresponding to the average discount of those shares over the three-month period prior to December 3, 2004. The implied equity value of Telecom Italia reflects the dilutive impact of in-the-money stock options and convertible bonds. In
performing this analysis Goldman Sachs International adjusted the resulting value per ordinary and savings share of Telecom Italia to take into account the expected dividend to be distributed in May 2005, as merger completion is expected by end of
June 2005. For purposes of its presentation, Goldman Sachs International used the value range derived from the application of the Exit Multiple Method and the Perpetuity Growth Method as follows as well as resulting exchange ratios: 
  

			
	 	  	 Value range of Telecom Italia and
Exchange Ratios
 (Euro)

	 Implied Total Equity Value Per Ordinary Share
	  	2.82   – 3.43  
	 Implied Ordinary Exchange Ratio
	  	1.63x – 1.79x
	 Implied Total Equity Value Per Savings Share
	  	2.04   – 2.49  
	 Implied Exchange Ratio
	  	2.24x – 2.47x

  

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 Market Exchange Ratio Analysis. Goldman Sachs International analyzed the relative share prices for various periods
ending December 3, 2004, including, for purposes of mitigating the impact of short-term market fluctuations, the twelve-month period ending December 3, 2004. Goldman Sachs International calculated the implied historical exchange ratios of Telecom
Italia ordinary shares to Telecom Italia Mobile ordinary shares based on the simple average of ordinary share prices as reported as the official prices on Telematico, an automated screen trading system managed by Borsa Italiana, for the periods set
forth below ending December 3, 2004. In performing this analysis, Goldman Sachs International adjusted the price of Telecom Italia ordinary and savings shares to take into account the expected dividend to be distributed in May 2005, as merger
completion is expected by end of June 2005. Additionally, Goldman Sachs International took into account that both Telecom Italia and Telecom Italia Mobile ordinary and savings shares have significant market capitalization and liquidity. The results
of this analysis were as follows: 
  

					
	 Period

	  	Implied Ordinary
Exchange Ratio

	  	Implied Savings
Exchange Ratio

	 Three months ended December 3, 2004
	  	1.71x	  	2.36x
	 Twelve months ended December 3, 2004
	  	1.75x	  	2.44x

  
 Review of Combined Entity Key
Credit Ratios. Goldman Sachs International reviewed the estimated ratio of net debt to EBITDA 2005 for Telecom Italia/Telecom Italia Mobile as a combined entity on both a pre-merger and post-merger basis. Goldman Sachs International compared
those ratios to similar ratios for selected companies consisting of BT Group, Deutsche Telekom, Telefónica and France Telecom. Goldman Sachs International’s review of these ratios for Telecom Italia/Telecom Italia Mobile were based on
estimates provided by Telecom Italia management and, for the comparable companies, Goldman Sachs International public analyst estimates. This review indicated that, while the leverage of Telecom Italia/Telecom Italia Mobile will increase, this
should not lead to a rating downgrade. Additionally, Goldman Sachs International was informed that, based on a preliminary assessment by Standard & Poor’s and Moody’s, Telecom Italia/Telecom Italia Mobile is expected to maintain a
credit rating of BBB+ following the completion of the partial tender offer and merger. 
  
 The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses
as a whole, could create an incomplete view of the processes underlying Goldman Sachs International’s opinion. In arriving at its fairness determination, Goldman Sachs International considered the results of all these analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to Telecom Italia or Telecom Italia Mobile or the contemplated transactions. 
  
 The analyses were prepared solely for purposes of providing an opinion to the board of directors of Telecom Italia as to the fairness from a financial point of view to
the holders of ordinary shares and savings shares of Telecom Italia of the exchange ratios to be received in connection with the merger. The analyses do not purport to be appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than those suggested by these analyses. Because these analyses are
inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Telecom Italia, Telecom Italia Mobile, Goldman Sachs International or any other person assumes
responsibility if future results are materially different from those forecast. As described above, the financial analyses presented by Goldman Sachs International to the board of directors of Telecom Italia was one of many factors taken into
consideration by the board of directors of Telecom Italia in making its determination to approve the merger. 
  
 Goldman Sachs International, as part of its investment banking business, is continually engaged in preparing financial analyses with respect to businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and financial analyses for estate, corporate and other purposes. Goldman Sachs International is familiar with
Telecom Italia having provided certain investment banking services to it from time to time, including having acted as its financial advisor in connection with the merger with Olivetti in 2003 and in connection with the separation of the Italtel
joint venture in 1999 and the subsequent sale of an 80% interest in Italtel S.p.A. in 2000, as joint bookrunner with respect to an offering of Telecom Italia’s $1,250,000,000 4% Guaranteed Senior Notes due 2010, $1,250,000,000 4.95% Guaranteed
Senior Notes due 2014, and $1,000,000,000 6% Guaranteed Senior Notes due 2034 in September 2004, and as counterparty to certain derivatives and financing transactions. Goldman Sachs International is also familiar with Telecom Italia Mobile, having
provided certain investment banking services to it from time to time, including having acted as financial 

  

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advisor in connection with the restructuring of its Brazilian subsidiaries in 2004. Goldman Sachs International may also provide investment banking services
to Telecom Italia and Telecom Italia Mobile in the future. In connection with the above described services Goldman Sachs International has received, and may receive in the future, compensation. 
  
 Goldman Sachs International is a full service securities firm engaged in securities trading,
investment management, financial planning and benefits counseling, risk management, hedging, financing and brokerage activities for both companies and individuals. In the ordinary course of these activities, Goldman Sachs International may provide
such services to Telecom Italia, Telecom Italia Mobile and their respective affiliates, may actively trade the debt and equity securities (or related derivative securities) of Telecom Italia and Telecom Italia Mobile for its own account and for the
accounts of its customers and may at any time hold long and short positions of such securities. 
  
 Telecom Italia retained Goldman Sachs International on December 3, 2004 as a financial advisor in connection with the proposed transactions, which engagement was formalized in a letter dated December 6, 2004. Under
the terms of that letter, Euro 3,000,000 became payable to Goldman Sachs International on December 7, 2004. Telecom Italia has also agreed to pay Goldman Sachs International an additional Euro 9,000,000 upon the completion of the merger. In
addition, Telecom Italia has agreed to reimburse Goldman Sachs International for its out-of-pocket expenses, including fees and disbursements of its lawyers, plus value added tax, up to a maximum amount of Euro 75,000 and to indemnify Goldman Sachs
International against various liabilities arising out of or in connection with the engagement or any matter referred to in the engagement letter. 
  

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 ANNEX XII (a) 
 TRANSLATION FROM THE ORIGINAL DOCUMENT ISSUED IN ITALIAN. THE ORIGINAL DOCUMENT IN ITALIAN PREVAILS ON ANY TRANSLATION 
  

			
	 	  	LAZARD & CO. S.R.L.
	 	  	Via dell’Orso - 2 - 20121 MILANO
	 	  	CAP.SOC. € 9.000.000.
		
	STRICTLY PRIVATE AND CONFIDENTIAL	  	R.E.A. 1630616
	 	  	C.F. e P.IVA 13233960155
	 	  	TELEFONO            +39 02 72312.1
	 	  	FAX                         +39 02 72312387

  
 Telecom Italia Mobile S.p.A.

 Via Cavalli 6 
 10100 Torino 
  
 Attn: Dr. Carlo Buora, Chairman 
  
 Attn: Dr. Marco De Benedetti, CEO 
  
 December 7, 2004 
  
 Dear Members of the Board, 
  
 This document (the
“Assessment”) is being provided solely for the benefit of the Board of Directors of Telecom Italia Mobile S.p.A. (“TIM”) in connection with, and for the purposes of, its consideration, in its sole independence of
judgment, of the appropriate exchange ratio for a merger transaction by incorporation (the “Proposed Merger”) of TIM into Telecom Italia S.p.A. (“Telecom Italia”, and, when jointly with TIM, the
“Companies”). The Proposed Merger will be preceded by the launch of a tender offer by Telecom Italia on 67% of floating ordinary shares and 100% of floating savings TIM shares, and by the payment of 2004 dividends by both companies.
Holders of ordinary and savings TIM shares, other than Telecom Italia, shall be referred to as “Public Shareholders”. 
  
 This Assessment is confidential and may not be used or relied upon, or disclosed, referred to or communicated (in whole or in part) to any third party for purposes not
accounted for in this Assessment, without our prior written authorization. Furthermore, the use of data and information of single parts of this Assessment cannot be evaluated outside the broader scope and context of the full document. Any valuation
and result of this Assessment needs to be considered within, and cannot be relied upon apart from the entire document. 
  
 Further, our Assessment is necessarily based on the economic, monetary, market and other conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof may affect this Assessment and the assumptions used in preparing it, and we do not assume any obligation to update, revise or reaffirm this Assessment. In addition, the continuous changes in the
telecommunications sector and the laws and regulations applicable to such sector could affect the financial forecasts and evaluations of the Companies. 
  
 With this Assessment, Lazard shall not make any recommendation as to whether TIM should pursue (or not pursue) the Proposed Merger, or to effect the way TIM should decide
on the matter. Lazard acknowledges that the exchange ratio decided upon by the Members of the Boards of Telecom Italia and TIM will be evaluated by experts named by the Court of Milan, in compliance with article 2501 quinquies, last
paragraph, of the Civil Code. 
  
 This Assessment is being provided solely for the
benefit of the Board of Directors of TIM, and is not on behalf of, and shall not confer rights or remedies on any shareholder of Telecom Italia, TIM or any other person, or be used for any other purpose. 
  
 You have requested the Assessment of Lazard at a preliminary stage of the Proposed Merger,
with the assumptions that: (i) the Board of Directors of the Companies shall evaluate, in their sole independence of judgement, and each separately, the Proposed Merger, shall prepare and approve the merger plans, reports and 
  
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 connected documents, including all customary terms and
conditions; they shall furthermore forego independent evaluations, in compliance with Italian and foreign applicable legislation; (ii) the Proposed Merger will be consummated on the terms and subject to the conditions described in the above
mentioned merger plans and connected documents; (iii) all material governmental, regulatory or other approvals and consents required in connection with the Proposed Merger will be obtained without any negative effect on the Companies. Consequently,
we highlight that our Assessment is necessarily made at a preliminary level, and the outcomes herein contained may change, subject to several factors, including the terms and conditions included in the merger plans and connected documents as
provided by the Boards of Directors of Telecom Italia and TIM. 
  
 Lazard is
acting as financial advisor to TIM in connection with the Tender Offer and will receive a fee for its services, mostly dependent on the success of the Tender Offer. Lazard or its affiliates have in the past, or in the present, provided financial
advisory services to Telecom Italia, Pirelli & C. S.p.A, Pirelli & C. Real Estate S.p.A., Camfin S.p.A., for which they have received customary fees. In addition, certain companies affiliated with Lazard may trade shares and other securities
of the abovementioned Companies for their own account and for the accounts of their customers. 
  
 The Companies Under Evaluation 
  
 Telecom Italia Mobile 
  
 Listed on the Milan Stock Exchange
since July 17, 1995, TIM S.p.A. is one of the main mobile operators worldwide, with subsidiaries and affiliates in Europe, in Mediterranean countries and South America. 
  
 TIM launched its mobile services in Italy in 1990 and operates since 1995 as a partial spinoff from Telecom Italia mobile operations. In
October 2000, TIM won a UMTS license and, in 2002, acquired by incorporation part of the assets of BLU (the fourth mobile operator in Italy). 
  
 In the Mediterranean, TIM operates in Turkey, where it strengthened its presence since February 2004 with the merger of its former subsidiary IsTIM with Aycell, GSM
operator fully owned by the fixed line operator Turk Telecom. TIM also operates in Greece, through its subsidiary TIM Hellas (formerly, Stel Hellas), the country’s market leader. 
  
 In South America, TIM Group operates in five countries, if including its subsidiary Digitel in Venezuela, which it agreed to dispose of last
November. The main foreign market where TIM operates is Brazil, where it is the main GSM operator with a national coverage, and the second largest in terms of revenues. 
  
 Telecom Italia 
  
 Telecom Group core business, excluding the mobile operations described above, comprises companies that provide fixed telecom services, internet services, and TV
broadcasting. Telecom operates also some specialized IC&T services. 
  
 Internationally, Telecom Group provides, through subsidiaries and joint ventures, fixed-line and mobile telecom services in several markets, mainly in Europe, the Mediterranean and South America (Argentina, Brazil, Chile, etc.). 

 
 Telecom Italia Group operates also in several other segments, e.g. TV broadcasting and the
Internet through its subsidiary Telecom Italia Media, IT services and telecom services through I.T. Telecom Group, and innovative technologies through TI Labs. 
  

Material Evaluated 
  
 The Assessment is based on: 
  

	 	(i)	historical economic and financial company information; 

  

	 	(ii)	economic and financial forecasts, as contained in the “Preliminary Budget 2005-2007”; 

  

	 	(iii)	historical prices and trade volumes of ordinary and savings TIM and Telecom Italia shares; 

  
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	 	(iv)	the information and documents disclosed during the discussions with TIM and Telecom Italia senior management; 

  

	 	(v)	public information with respect to certain other companies in lines of business we believe to be generally comparable to the businesses of Telecom Italia and TIM;

  

	 	(vi)	such other financial studies, analyses and investigations as we deemed appropriate. 

  
 For the sake of this mandate, the Companies provided Lazard with the latest version of the “Preliminary Budget 2005-2007” on
December 3, 2004. This version was underseen by the Executives Committee, but not yet approved by the Board of Directors of the Companies. 
  
 With reference to our discussions with the management, for the sake of the analyses made, we assumed that: 
  

	 	(i)	the merger of TIM into Telecom Italia will be effective after the date of payment of dividends by the Companies, in May 2005 

  

	 	(ii)	in line with the disclosures to the market during the presentations of March 25, 2004, the dividends to be distributed in May 2005 will be the same as those of 2004

  
 In preparing this Assessment we have assumed and relied upon,
without independent verification, the accuracy and completeness of all of the foregoing information and dates, without having independently valued the principal assets and liabilities of the Company. 
  
 Lazard relied upon the accuracy and completeness of the information and dates above, and will
assume no responsibility as far as any independent check on the aforementioned, or any estimate or independent evaluation on debits and credits of the Companies. 
  
 With respect to the financial forecasts and projections provided to us, we have assumed that they have been reasonably prepared based on
assumptions reflecting the best currently available estimates and judgments of the management of Telecom as to the expected future results of operations and financial condition to which such forecasts and projections relate. 
  
 Valuation 
  
 In compliance with the mandate between TIM and Lazard, dated as of December 6, 2004, and with all requests submitted, Lazard does not
express any Assessment on the absolute value of the abovementioned securities, or any other method of the exchange ratio, and did not carry any independent evaluation on the absolute value of Telecom Italia or TIM securities. 
  
 Moreover, this valuation assumes that, as we were informed, the increase in debt after the
tender offer will not imply any credit downgrading by rating agencies, and the value of the securities will not be affected. 
  
 The main method used to determine the exchange ratio for the Proposed Merger was the evaluation of relative market prices (“Valuation of Market Prices”).
Furthermore, as a control methodology, a Sum of the Parts (“SOP”) valuation was carried on for TIM and Telecom Italia (on a fully diluted basis). 
  
 According to the SOP valuation, the value of a company is determined by the sum of the values of the single business units and subsidiaries, considered on a stand-alone
basis. This sum is accordingly restated to account for the financial position and minorities and, if relevant, of other biases, as off balance sheet items and potential tax shields. 
  
 With reference to the use of the relative market price valuation method, we assume: 
  

	 	•	 	the meaningfulness of the prices given by the market on which the stocks under evaluation are traded 

  

	 	•	 	the meaningfulness of the market prices of the companies under evaluation 

  

	 	•	 	the availability, on the long term, of comparable prices for the companies under evaluation 

  
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TRANSLATION 
  
 Coherently, we highlight that: 
  

	 	•	 	both Companies have a high market capitalization and a considerable non-concentrated floating share; 

  

	 	•	 	the large trade volumes for the stocks imply that the market prices can be a fair indication of the potential value of Telecom Italia and TIM; 

  

	 	•	 	considerable volumes of the Telecom Italia and TIM stocks are traded daily (on average, 1% of the capital stock): 

  

	 	•	 	over the past twelve months, TIM traded approx. 385% of its ordinary capital stock (not including shares owned by Telecom Italia); and 

  

	 	•	 	over the past twelve months, Telecom Italia traded approx. 213% of its ordinary capital stock (not including shares owned by Olimpia) 

  
 

 
  

	(*)	as a percentage of total floating shares 

  

			
	 TI    - No. floating shares
	  	5,795,921
	 TIM - No. floating shares
	  	132,069

  
  

	 	•	 	both Companies have a high float, which represents a remarkable share of the aggregate capitalization of S&P/MIB (as of November 30, 2004): 

  

	 	•	 	TIM for approx. 7.0% of S&P/MIB and approx. 7.8% of Mibtel 

  

	 	•	 	Telecom approx. 9.2% of S&P/MIB and approx. 5.4% of Mibtel 

  

	 	•	 	Telecom Italia and TIM float is significantly diluted among Italian and international institutional investors and Italian retail investors, none of which holds a strong enough
position to influence the stock performance. 

  
 With respect to the
Valuation of Market Prices, we undertook, among others, the following tasks: 
  

	 	•	 	analysis of simple averages on an historical LTM time range 

  

	 	•	 	analysis of weighted averages of volumes on an historical LTM time range 

  

	 	•	 	adjustments of the Telecom Italia and TIM stock value to account for the forecasted payment of 2004 dividends 

  
 In order to offset the effects created by rumours on stock trading, our analysis accounts
November 16, 2004 as the last day of trading, because after then, above average trade volumes and an increase in price were recorded. 
  
 Furthermore, to outweigh the short-term fluctuations typical of financial markets, we extended, customarily, our analysis of market averages on sufficiently broad time
frames. 
  
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 TRANSLATION FROM THE ORIGINAL DOCUMENT ISSUED IN ITALIAN. THE ORIGINAL DOCUMENT IN ITALIAN PREVAILS ON ANY
TRANSLATION 
  
 As far as ordinary shares are concerned, the exchange ratio is
in the range of 1.69-1.75. 
  
 

 
  

	Note:	Prices with and ex-dividends assume the same dividends as in 2004, amounting to € 0.1151 per share for Telecom Italia and € 0.2687 per share for TIM

  
 As far as savings shares are concerned, taking into
consideration the significant rise in volumes, slightly above the average, after November 16, we decided to rely on the market methodology only before the date thereof, and identified a exchange ratio range of 2.30-2.39. 
  
 

 
  

	Note:	Prices with and ex-dividends assume the same dividends as in 2004, amounting to € 0.1151 per share for Telecom Italia and € 0.2687 per share for TIM

  
 In order to verify our Assessment, we: 
  

	 	•	 	evaluated the distinct TIM business units and subsidiaries with the Discounted Cash Flow method 

  

	 	•	 	evaluated Telecom Italia, as sum-of-the-parts, with the Discounted Cash Flow method for the single business units, including the abovementioned valuation of TIM.

  
 This control methodology substantially confirmed what was found
with the Valuation of Market Prices. 
  
 In order to allocate the equity value
between the savings and ordinary shares of Telecom Italia and TIM when applying the control valuation methodology, the mean discount percentages of the savings shares relative to the ordinary shares were averaged at the 1, 2, 3, 6 and 12 months
preceding the announcement of the Proposed Merger. It is in fact a generally accepted principle that other methods to allocate the equity value between ordinary and savings shares lead to the introduction of discretionary elements into the
valuation, which are not supported by objective elements. 
  
 Furthermore, it
needs to be remarked that the range considered does not change the economic benefits of the privileges of TIM savings shares to be exchanged. 
  
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 TRANSLATION FROM THE ORIGINAL DOCUMENT ISSUED IN ITALIAN. THE ORIGINAL DOCUMENT IN ITALIAN PREVAILS ON ANY
TRANSLATION 
  
 Conclusions 
  
 Lazard shall not express an Assessment with respect to the price ordinary and savings
Telecom or any other TIM stock could be traded after the announcement of the Proposed Merger, nor with respect to the price TIM shares could be traded at after the conclusion of the Proposed Merger. 
  
 On the basis of the above considerations, and within their specific scope, Lazard values
that, as of today, a exchange ratio in the range of 1.69-1.75 Telecom Italia shares for each TIM ordinary share and a exchange ratio in the range of 2.30-2.39 Telecom Italia savings shares for each TIM savings share, after the Proposed Merger, would
be financially fair for the Public Shareholders. 
  
 Upon acceptance of this
Assessment, subject to the mandate entered into between TIM and Lazard on December 6, 2004, TIM Board of Directors agrees that this Assessment is confidential and shall not be disclosed, referred to or communicated (in whole or in part) to any
third party for any purpose whatsoever, without our prior written authorization. 
  

	
	 Very truly yours,

	
	 LAZARD & CO. S.R.L.

	  

  
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 ANNEX XII (b) 
 TRANSLATION FROM THE ORIGINAL DOCUMENT ISSUED IN ITALIAN. THE ORIGINAL DOCUMENT IN ITALIAN PREVAILS ON ANY TRANSLATION 
  

					
	

	  	 LAZARD & CO.
S.R.L
 Via dell’Orso - 2 - 20121 MILANO

		
	  
 STRICTLY PRIVATE AND CONFIDENTIAL
	  	 CAP.SOC. € 15.000.000 I.V.
 Codice Fiscale e Numero Iscrizione
 al Registro delle Imprese di Milano 13233960155
 R.E.A. n.1630616
 P.IVA 13233960155

			
	 Telecom Italia Mobile S.p.A.
 Via Cavalli 6
 10100 Torino
	  	 TELEFONO
 FAX
	  	 +39 02 72312.1
 +39 02 860592

  
 To
the Board of Directors of Telecom Italia Mobile S.p.A. 
  
 Attn.: Dr. Carlo Buora, Chairman 
  
 Attn.: Dr. Marco De Benedetti, CEO 
  
 January 23, 2005 
  
 Subject:    Merger by
incorporation of Telecom Italia Mobile S.p.A. into Telecom Italia S.p.A. 
  
 We herein refer to the document dated December 7, 2004 (the “Assessment”) that Lazard & Co. S.r.l. prepared for the Board of Directors of Telecom Italia Mobile S.p.A., evaluating the exchange ratio for the transaction above.

  
 You informed us, jointly with Telecom Italia S.p.A., that since December 7,
2004 no specific event occurred, or failed to occur, that influenced, or could have influenced, neither of the documents, information, projections, data and assumptions the Assessment refers to, nor the financial and economic situation, the
business, projected assets and liabilities of Telecom Italia Mobile S.p.A. and Telecom Italia S.p.A. and their respective subsidiaries. 
  
 On the basis of, and limited to, the above statements, and in accordance with the terms, conditions, and assumptions contained in the Assessment, herein restated, as of
today, we uphold the conclusions of the aforementioned Assessment. 
  
 This letter
is confidential and for the exclusive use of Telecom Italia Mobile S.p.A. Board of Directors, and may not be used or disclosed, referred to or communicated (in whole or in part) to any third party for any purpose whatsoever without our prior written
authorization. This Assessment is subject to the mandate entered into between Telecom Italia Mobile S.p.A. and Lazard and dated as of December 6, 2004. 
  

	
	 Very truly yours,

	
	 Lazard & Co. S.r.l.

	
	

  
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Table of Contents

 ANNEX XII (c) 
  
 TRANSLATION FROM THE ORIGINAL DOCUMENT ISSUED IN ITALIAN. THE ORIGINAL DOCUMENT IN ITALIAN PREVAILS ON ANY TRANSLATION 
  
 Summary Description of the analyses undertaken by Lazard, financial advisor of Telecom
Italia Mobile, with reference to its Assessment 
  
 In accordance with the
mandate between Telecom Italia Mobile S.p.A. (“TIM”) and Lazard & Co. S.r.l. (“Lazard”), the Board of Directors of TIM engaged Lazard to act as financial advisor for the merger (the “Proposed Merger”), in order to
provide a fairness opinion upon the appropriate exchange ratio for the realization of an operation of merger by incorporation of TIM into Telecom Italia S.p.A. (“Telecom Italia”), to be preceded by the launch of a public tender offer by
Telecom Italia on 67% of the free-float of TIM ordinary shares and 100% of the free-float of TIM savings shares. 
  
 On December 7, 2004, Lazard provided the Board of Directors of TIM with a written document (the “Assessment”), in which it was considered that, at such date and
on the basis of the procedures followed and subject to the premises and qualifications set forth in the Assessment, an exchange ratio in the range of 1.69-1.75 Telecom Italia ordinary shares for 1 TIM ordinary share, and 2.30-2.39 Telecom Italia
savings shares for 1 TIM savings share would be fair, from a financial point of view, to the holders of TIM shares, other than Telecom Italia. 
  
 Subsequently, by letter dated January 23, 2005, Lazard reaffirmed to the Board of Directors of TIM the conclusions expressed in the Assessment dated December 7, 2004, on
the basis of and subject to the premises, qualifications and hypotheses assumed regarding the scope of the analyses made as described in the letter and in the Assessment, and further subject to the assumption that no significant event had occurred
between December 7 and the aforementioned date that could result in Lazard revising the conclusions set forth in the Assessment. 
  
 Lazard was requested to provide its Assessment, and to assume and consider, among other things, that the Boards of Directors of TIM and Telecom Italia will evaluate and
propose, in their sole and independent judgement and discretion, each respectively, the Proposed Merger and the exchange ratio, and prepare and provide for the approval of the merger plans, the reports and related documentation which will contain
customary terms and conditions, as well as obtain appraisals of independent experts, all in accordance with applicable Italian and foreign laws and regulations. 
  

The Assessment delivered on December 7, 2004 and the letter of January 23, 2005 were addressed to the Board of Directors of TIM for its exclusive use and specifically
refer to the fairness of the exchange ratio from a financial point of view, for the TIM ordinary and savings shareholders other than Telecom Italia, as of the dates on which they were provided. The Assessment and the letter of confirmation do not
refer to any other aspect of the Proposed Merger and neither provide any opinion upon the decision by the Board of Directors of TIM to proceed with, or realize, the Proposed Merger, nor do they constitute any recommendation as to how the Board of
Directors of TIM should take decision regarding the Proposed Merger. The Assessment, the letter and the Summary Description provided herein do not constitute any recommendation for any shareholder of TIM or Telecom Italia to pursue any action in
relation to the Proposed Merger, including any action with respect to the Public Offer to TIM shareholders, with respect to the right of withdrawal for TIM savings shareholders, nor any recommendation as to how any shareholder should vote upon the
Proposed Merger, if presented for approval. Lazard did not express any opinion with respect to the price at which the ordinary shares or savings shares of TIM or any security of Telecom Italia could be traded following the announcement of the
Proposed Merger, or with respect to the price at which securities of Telecom Italia could be traded following completion of the Proposed Merger. 
  
 The Assessment provided on December 7, 2004, which describes the assumptions adopted, the methodologies applied, and the elements considered, documents analysed and
the limitations of the analyses carried out by Lazard for the purposes of the valuation of the exchange ratio, and the letter of confirmation dated January 23, 2005, are attached to this Document as Annexes XII (a) and XII (b). The following is a
summary to the Assessment, which needs to be referred to in full, together with the letter of confirmation. 
  
 The Assessment provided by Lazard was based on the following information: 
  

	 	(i)	historical economic and financial information relating to Telecom Italia and TIM; 

  

	 	(ii)	economic and financial forecasts and other data relating to the future operational performance provided by Telecom Italia and TIM; 

  

	 	(iii)	the historical prices and trading volumes of the ordinary shares and the savings shares of TIM, as well as the ordinary shares and the saving shares of Telecom Italia;

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 TRANSLATION FROM THE ORIGINAL DOCUMENT ISSUED IN ITALIAN. THE ORIGINAL DOCUMENT IN ITALIAN PREVAILS ON ANY
TRANSLATION 
  

	 	(iv)	the information –gathered in a limited number of meetings with senior management of TIM and Telecom, who delivered and explained the documents provided;

  

	 	(v)	the publicly available information on other companies operating in lines of business believed to be generally comparable to the businesses of Telecom Italia and TIM; and

  

	 	(vi)	such other financial studies, analyses and investigations as deemed appropriate. 

  
 For the purpose of completing the necessary analyses for the Assessment, Lazard assumed and relied upon the accuracy and completeness of all
of the foregoing information and data of a financial, legal, accounting, fiscal, etc. type provided and did not undertake any independent investigation of such information or any independent valuation of the assets or liabilities of Telecom Italia
or TIM. With respect to the financial forecasts, Lazard assumed that they were reasonably prepared based on the best currently available estimates and judgments of Telecom Italia and TIM management as to their expected future results of operations.
Lazard does not assume any responsibility or express any opinion with respect to such forecasts or the assumptions on which they are based. 
  
 Lazard’s Assessment is necessarily based on the economic, monetary, market and other conditions as in effect on, and the information made available to Lazard as of
the date of the Assessment. The Assessment was prepared in a changing regulatory and competitive context, in continuous evolution. Subsequent changes in the structural aspects of the telecommunications sector, laws and regulations could affect the
conclusions expressed by Lazard. 
  
 The following is a brief summary of the
methods used and the most relevant financial analyses undertaken by Lazard with respect to the Assessment of the exchange ratio for the Proposed Merger, delivered on December 7, 2004. It should be noted that such summary is not intended to be an
exhaustive representation of the analyses undertaken by Lazard, nor are the analyses relating to the value of assets intended to represent current or future market values or future performance of the stock market. 
  
 With respect to the analyses carried out to evaluate the exchange ratio for the Proposed
Merger, Lazard focused on the relative valuations of Telecom Italia and TIM, and did not express any opinion regarding the absolute value of their securities, but gave priority to the homogeneity and compatibility of the criteria applied. Lazard
carried out its analyses considering the two companies as separate entities and did not take into consideration any strategic, operational or financial synergies, and similarly control premia and minority discounts were not taken into consideration.
Moreover, the valuations which were effected assumed that the increase in indebtedness following the Public Offer would not result in a credit downgrading by rating agencies, and consequently the value of the securities would not be penalized.

  
 Lazard applied the most commonly used valuation methodologies: 
  

	 	–	As principal valuation methodology, the market value or market price method (“Market Price Valuation”), analysing Telecom Italia and TIM market prices over different time
frames. In the present case, market prices were considered particularly significant, considering the high capitalization and liquidity of Telecom Italia and TIM; 

  

	 	–	As control valuation methodology, the Sum of the Parts methodology (“SOP”), determining the value of Telecom Italia and TIM by applying the Discounted Cash Flows
methodology to the different business units and subsidiaries of Telecom Italia and TIM. 

  
 The value of the capital of Telecom Italia and TIM was determined by applying the aforementioned valuation methodologies with homogeneous criteria and were adjusted to account for the expected dividend distribution
during 2005 (which was assumed to be equal to the distribution of 2004). The assumption regarding the dividend distribution is based on a time frame that anticipates that the exchange of the Proposed Merger would occur following the dividend
distribution. 
  
 Market Price Valuation Method 
  
 The Market Price Valuation Method estimated the value of the capital on the basis of the
stock exchange quotations of Telecom Italia and TIM, over a meaningful time frame, taking November 16, 2004 as the last trading day, as a means to offset any effect the announcement of the Proposed Merger would have on the analysis. In fact, after
that date, above-average trading volumes were clearly recorded. 
  

 2 

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 TRANSLATION FROM THE ORIGINAL DOCUMENT ISSUED IN ITALIAN. THE ORIGINAL DOCUMENT IN ITALIAN PREVAILS ON ANY
TRANSLATION 
  
 On the basis of market data as of November 16, 2004 (the day
before there was market rumour of the Proposed Merger), it was considered that: 
  

	 	a)	both companies participating in the merger have a high market capitalization and a significant and broadly diffused free-float; 

  

	 	b)	high volumes of TIM stocks are traded on a daily basis (on average, approximately 1% of the free-floating stock); 

  

	 	c)	both Telecom Italia and TIM represent a significant share of the aggregate capitalization of S&P/MIB. As of November 16, 2004, according to figures provided by Borsa Italiana
S.p.A.: 

  

	 	•	TIM represented 7.4% of Mibtel and 6.6% of the S&P MIB Index; and 

  

	 	•	Telecom Italia represented 5.3% of Mibtel and 8.9% of the S&P MIB Index; 

  

	 	d)	the free float of TIM and Telecom Italia proves to be significantly divided between institutional investors, Italian and international, and Italian retail investors.

  
 In order to mitigate short-term fluctuations that typically
characterize the financial markets, Lazard proceeded to extend the analysis of the weighted average market prices over sufficiently broad time periods. 
  
 The results of such analyses are set forth as follows: 
  

													
	 Market Prices
 (Ordinary
shares)

	  	Market Value
Not Adjusted for
Dividend Distr.

	  	 Exchange
Ratio
 (X)*

	  	Market Value
Adjusted for
Dividend Distr.

	  	Exchange
Ratio
(X)*

	  	Telecom
Italia (€)

	  	TIM (€)

	  	  	Telecom
Italia (€)

	  	TIM (€)

	  
	 Weighted Averages
	  	 	  	 	  	 	  	 	  	 	  	 
	 16-Nov-2004
	  	2.82	  	4.81	  	1.71	  	2.71	  	4.55	  	1.68
	 1-month average
	  	2.70	  	4.68	  	1.73	  	2.59	  	4.42	  	1.71
	 2-month average
	  	2.63	  	4.56	  	1.73	  	2.52	  	4.30	  	1.70
	 3-month average
	  	2.58	  	4.50	  	1.74	  	2.48	  	4.25	  	1.71
	 6-month average
	  	2.55	  	4.51	  	1.77	  	2.45	  	4.25	  	1.74
	 12-month average
	  	2.54	  	4.52	  	1.78	  	2.44	  	4.27	  	1.75

  

													
	 Market Prices
 (Savings
shares)

	  	 Market Value
 Not Adjusted for
Dividend Distr.

	  	Exchange
Ratio
(X)*

	  	Market Value
Adjusted for
Dividend Distr.

	  	 Exchange
Ratio
 (X)*

	  	Telecom
Italia (€)

	  	TIM (€)

	  	  	Telecom
Italia (€)

	  	TIM (€)

	  
	 Weighted Averages
	  	 	  	 	  	 	  	 	  	 	  	 
	 16-Nov-2004
	  	2.05	  	4.78	  	2.33	  	1.94	  	4.51	  	2.33
	 1-month average
	  	2.01	  	4.62	  	2.30	  	1.89	  	4.35	  	2.30
	 2-month average
	  	1.95	  	4.53	  	2.32	  	1.84	  	4.26	  	2.32
	 3-month average
	  	1.92	  	4.48	  	2.34	  	1.80	  	4.22	  	2.34
	 6-month average
	  	1.86	  	4.45	  	2.39	  	1.75	  	4.18	  	2.39
	 12-month average
	  	1.84	  	4.45	  	2.42	  	1.72	  	4.18	  	2.43

	(*)	possible differences are due to rounding 

 Source: Datastream

  
 Sum of the Parts Methodology 
  
 On the basis of the SOP Methodology, the value of Telecom Italia and TIM was determined as
the sum of the values of their different business units and subsidiaries, taking into account the complexity of the business structure and the number of business areas. The Discounted Cash Flow methodology was mainly used to evaluate the single
business units and subsidiaries. Such sum was duly adjusted to take into account the financial position of, and minority interests in, each of the companies involved in the Proposed Merger, which in the present case was with reference to the data
provided by Telecom Italian and TIM as of December 31, 2004. 
  

 3 

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 TRANSLATION FROM THE ORIGINAL DOCUMENT ISSUED IN ITALIAN. THE ORIGINAL DOCUMENT IN ITALIAN PREVAILS ON ANY
TRANSLATION 
  
 The Discounted Cash Flow (“DCF”) methodology was
applied to the main activities of Telecom Italia and TIM, namely, fixed and mobile telecommunication services, and for major international subsidiaries. 
  
 The other activities were valued with principal reference to their market value, if available and appropriate, or, for smaller or unconsolidated activities, their book
value, or estimates of financial analysts published in research reports. 
  
 The
DCF method was applied using the cash flows from operations for the principal activities resulting from the economic and financial plans 2004-2007 updated by management of Telecom Italia and TIM and disclosed to the market in March 2004, which were
then projected until 2011. The growth rates used by Lazard for the projections for the period 2008-2011 and for the calculation of the Terminal Value (which was calculated using a perpetual growth rate of the discounted cash flows) assume growth
forecasts in line with relevant market benchmarks. 
  
 The assumptions relating to
the Weighted Average Cost of Capital (“WACC”) were developed based on a target capital structure of the activity under evaluation and on relevant market benchmarks. 
  
 With reference to the valuation of the main activities of Telecom Italia and TIM, the DCF methodology was based on the following assumptions
for the most significant business units: 
  

	 	–	for fixed-line telecommunications services, a 2% CAGR of 2008-2011 revenues and a mean EBITA margin of 31% were used for financial forecasts beyond the time frames of the business
plan; for the DCF valuation, a WACC in the range of 7.0%-8.0% and a growth rate of the Terminal Value between 0.25%-0.75% were applied; 

  

	 	–	for mobile telecommunications services, for the purposes of the financial forecasts which extend beyond the time frames of the business plan and for the DCF valuation, Lazard
applied: 

  

	 	•	with respect to TIM S.p.A., a 3% CAGR of 2008-2011 revenues and a mean EBITA margin equal to 40%, a WACC in the range of 8.0%-9.0% and a growth rate of the Terminal Value between
1.25%-1.75%; 

  

	 	•	with respect to TIM International, a 3% CAGR of 2008-2011 revenues and a mean EBITA margin equal to 18.5%, a WACC in the range of 11.5%-12.5% and a growth rate of the Terminal Value
between 1.75%-2.25%. 

  
 In order to allocate the equity value
between the savings and ordinary shares of Telecom Italia and TIM when applying the control valuation methodology, the mean discount percentages of the savings shares relative to the ordinary shares were averaged at the 1, 2, 3, 6 and 12 months
preceding the announcement of the Proposed Merger. It is in fact a generally accepted principle that other methods to allocate the equity value between ordinary and savings shares lead to the introduction of discretionary elements into the
valuation, which are not supported by objective elements. 
  
 With respect to TIM,
based on the evidence of the average historical discount of ordinary shares relative to savings shares, a discount equal to 0% was assumed with respect to the value of ordinary shares.  
  
 The values obtained in accordance with the foregoing were adjusted to take into account the
forecasted dividend distribution for fiscal year 2004.  
  
 Lazard also
compared the results of the SOP method, before adjustments due to the distribution of dividends forecasted for April 2005, with the recommendations of financial analysts on the target price of Telecom Italia and TIM securities over the period
following the announcement of third quarter 2004 results.  
  
 The
following chart highlights the range of values for ordinary shares of Telecom Italia and TIM identified with the SOP methodology: 
  

									
	SUM OF THE PARTS METHOD
			
	 Euro

	  	 Share Values
 Not Adjusted for Dividends

	  	Share Values
Adjusted for Dividends

	 	  	Telecom Italia

	  	TIM

	  	Telecom Italia

	  	TIM

	 Value of Ordinary shares
	  	2.97-3.28	  	5.26-5.50	  	2.86-3.17	  	5.00-5.25
	 Value of Savings shares
	  	2.18-2.41	  	5.26-5.50	  	2.06-2.29	  	4.99-5.24

  

 4 

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 TRANSLATION FROM THE ORIGINAL DOCUMENT ISSUED IN ITALIAN. THE ORIGINAL DOCUMENT IN ITALIAN PREVAILS ON ANY
TRANSLATION 
  
 Determination of the Exchange Ratio 
  
 Lazard compared the results deriving from the application of the SOP valuation method for
TIM and Telecom Italia described above, obtaining the range of exchange ratios for the Proposed Merger indicated in the following table. 
  
 Moreover, Lazard compared the range of the exchange ratios obtained with such valuation method with the exchange ratios derived from the historical prices of the ordinary
shares of the two companies, as reflected by the stock market over determined time frames preceding the market rumours of the Proposed Merger. 
  
 The results obtained by applying the SOP method confirm the relative values reflected by the Market Price Valuation method. 
  

					
	 METHOD
 (ORDINARY SHARES)

	  	 EXCHANGE RATIO
 NOT ADJUSTED
FOR DIVIDENDS
(X)

	  	 EXCHANGE RATIO
ADJUSTED
 FOR DIVIDENDS
 (X)

	 Market Price Valuation Method
	  	 	  	 
	 - November 16, 2004
	  	1.71	  	1.68
	 Weighted Averages:
	  	 	  	 
	 - 1-month average
	  	1.73	  	1.71
	 - 2-month average
	  	1.73	  	1.70
	 - 3-month average
	  	1.74	  	1.71
	 - 6-month average
	  	1.77	  	1.74
	 - 12-month average
	  	1.78	  	1.75
	 Sum of the Parts Method
	  	1.68-1.77	  	1.65-1.75
			
	 METHOD
 (SAVINGS SHARES)

	  	 EXCHANGE RATIO
 NOT ADJUSTED
FOR DIVIDENDS
(X)

	  	 EXCHANGE RATIO
 ADJUSTED FOR
 DIVIDENDS
(X)

	 Market Price Valuation Method
	  	 	  	 
	 - November 16, 2004
	  	2.33	  	2.33
	 Weighted Averages:
	  	 	  	 
	 - 1-month average
	  	2.30	  	2.30
	 - 2-month average
	  	2.32	  	2.32
	 - 3-month average
	  	2.34	  	2.34
	 - 6-month average
	  	2.39	  	2.39
	 - 12-month average
	  	2.42	  	2.43
	 Sum of the Parts Method
	  	2.29-2.41	  	2.29-2.41

  
 As described above, Lazard prepared
the Assessment by applying and comparing different financial methodologies, solely in order to provide the Board of Directors of TIM with an opinion as the fairness, from a financial point of view, of the exchange ratio for the shareholders of both
ordinary and savings shares of TIM, other than Telecom Italia. 
  
 The summary of
such valuations is not a complete description of the valuations and analyses undertaken by Lazard. The preparation of a fairness opinion is a complex process that cannot be entirely described by partial analyses or summary descriptions but must be
considered in its entirety. The selection of single, partial aspects, without the full understanding of the entire scope of the Assessment, could be misleading and provide an uneven and incomplete perspective of the processes involved in the
Assessment. 
  
 The analyses made, which are necessarily based on estimates of
future performance, are not necessarily indicative of actual future performance, which could be more or less favourable than those suggested in these analyses. Because such analyses derive from a series of assumptions relating to the performance of
the sector, general business climate, macro-economic, financial, market and other issues, they are inherently subject to uncertainty, as many of such factors are not within the control of TIM, Telecom Italia or their respective advisors.
Consequently, none of Lazard, TIM, Telecom Italia or any other persons assumes any responsibility in the event that future results prove significantly different from the forecasts. In addition, the analyses and the estimates relating to the value of
the business or the securities are not aimed at providing recommendations as to the price at which the securities should be listed or traded on the market. 
  

 5 

Table of Contents

 TRANSLATION FROM THE ORIGINAL DOCUMENT ISSUED IN ITALIAN. THE ORIGINAL DOCUMENT IN ITALIAN PREVAILS ON ANY
TRANSLATION 
  
 Lazard’s Assessment and the financial valuations are not
the only factors considered by the Board of Directors of TIM in approving the resolution concerning the Proposed Merger and, therefore, must not be viewed as determinative of the decision of the Board of Directors or by the management of TIM.

  
 Lazard was appointed by TIM to act as financial advisor for the Proposed
Merger. This appointment was formalized with the mandate dated December 6, 2004. In accordance with such mandate, Lazard received, as of the date of the announcement of the Proposed Merger (December 7, 2004) a fee of Euro 5,0 million. Furthermore,
TIM agreed to pay Lazard an additional fee of up to Euro 20,0 million upon completion of the Proposed Merger, and reimburse all expenses incurred, including fees and other compensations for fiscal and legal advisors. 
  
 Lazard has provided in the past and is currently providing financial advisory services to
Telecom Italia, Pirelli & C. S.p.A, Pirelli & C. Real Estate S.p.A., Camfin S.p.A., for which it has received and/or will receive customary fees. Lazard may in the future provide financial advisory services to TIM, Telecom Italia, Pirelli
& C. S.p.A.. In addition, certain companies affiliated with Lazard may trade shares and other securities of TIM and Telecom Italia for their own account and for the accounts of their customers. 
  
 Lazard is an internationally recognized investment banking firm and is continually engaged in
the valuation of businesses and their securities, in connection with mergers and acquisitions, capital increases, secondary distributions of listed or non-listed securities, private placements, real estate and corporate valuations, and others.
Lazard was chosen by the Board of Directors of TIM to carry out the role of financial advisor because of its expertise and market reputation. 
  

 6 

Table of Contents

 ANNEX XIII (a) 
  
 Strictly Private and Confidential 
  
 7th
December 2004 
  
 Board of Directors 
 Telecom Italia Mobile S.p.A. 
 Via Cavalli n. 6 
 10100 Turin 
 Italy 
  
 Dear Sirs: 
  
 You have informed us that Telecom Italia Mobile S.p.A. (the “Company”) is considering a potential merger (the “Merger”)
with Telecom Italia S.p.A. (“Telecom Italia”), to be effected by incorporation of the Company into Telecom Italia, whereby the shareholders of the Company will receive newly issued ordinary and savings shares of Telecom Italia, in exchange
for each of the ordinary and savings shares, respectively, of the Company they own. 
  
 This letter is delivered pursuant to, and subject to the terms of, our engagement letter with the Company dated 7th December 2004. In the context of the Merger, you have asked us to advise you with respect to the potential exchange ratios, from a financial point of view, for (i) the newly issued ordinary shares of Telecom Italia for each existing
ordinary share of the Company (the “Ordinary Exchange Ratio”), and (ii) the newly issued Telecom Italia savings shares for each existing savings share of the Company (the “Savings Exchange Ratio” and together with the Ordinary
Exchange Ratio, the “Exchange Ratios”), respectively. 
  
 We also
understand that prior to the Merger, Telecom Italia may propose to launch voluntary cash tender offers on (i) all of the savings shares of the Company it does not already own at a price per savings share yet to be determined (the “Savings
Tender Offer”) and (ii) 67% of the ordinary shares of the Company it does not already own at a price per ordinary share yet to be determined (the “Ordinary Tender Offer” and together with the Savings Tender Offer, the “Tender
Offers”). We understand further that the Savings Tender Offer and the Ordinary Tender Offer will be subject, amongst other things, to a minimum acceptance level of at least 2/3 of the shares being tendered for (the “Minimum Acceptance
Conditions”), and that Telecom Italia will be, at its own discretion, able to waive the Minimum Acceptance Conditions. In this context, we understand that the Board of Directors of the Company and of Telecom Italia will definitively approve the
Merger and call their respective extraordinary general meetings to vote on the Merger, following completion or expiration of the Tender Offers. Therefore, it is possible that should the Tender Offers not be successfully completed, then Telecom
Italia may decide not to proceed with the Merger. We are currently not rendering you an opinion in respect of the Tender Offers and you have not asked us to do so. 
  
 We understand further, that following the Tender Offers and the Merger, the credit ratings of Telecom Italia are expected to remain
unchanged. 
  
 In arriving at our opinion, we have reviewed certain publicly
available business and financial information relating to the Company and Telecom Italia. We have also reviewed certain other information, including financial forecasts, provided to us by the Company and Telecom Italia. 
  
 We have also considered certain financial and stock market data of the Company and of Telecom
Italia, and we have also compared that data with similar data for other publicly held companies in businesses similar to those of the Company and Telecom Italia. We have assumed that prior to the Merger becoming effective, the Company and Telecom
Italia will distribute ordinary and savings dividends per share in line with what was paid in 2004 and have reflected this in our analyses. We also considered such other information, financial studies, analyses and investigations and financial,
economic and market criteria which we deemed relevant. 
  
 In connection with our
review, we have not assumed any responsibility for independent verification of any of the foregoing information and have relied on its being complete and accurate in all material respects. With respect to the financial forecasts, we have assumed
that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the Company’s and Telecom Italia’s management as to the future financial performance of the Company and Telecom Italia. In
particular, we have not conducted any due diligence on the Company and/or Telecom Italia, nor have we had the opportunity to meet with the Company’s and Telecom Italia’s management to discuss the business and prospects of the Company and
Telecom Italia. 

Table of Contents

 Board of Directors 
 of
Telecom Italia Mobile S.p.A. 
 7th December 2004 
  
 In addition, we have not made an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company or Telecom Italia, nor have we been furnished with any such evaluations or appraisals. Our advice is necessarily based upon financial, economic, market and
other conditions as they exist and can be evaluated on the date hereof. We are not expressing any opinion as to what the value of the Telecom Italia Ordinary Shares and Telecom Italia Savings Shares actually will be when issued to the Company’s
ordinary and savings shareholders respectively, pursuant to the Merger or the prices at which such Telecom Italia Ordinary Shares and Telecom Italia Savings Shares will trade subsequent to the Merger. We were not requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the Company and our advice does not reflect any consideration of the merits of the Merger versus other alternative transactions that could have been pursued. We have not been
requested to advise as to, and our advice does not in any manner address, the Company’s underlying business decision to effect the Merger. 
  
 We are acting as financial advisor to the Company in connection with the Merger and the Tender Offers and will receive a fee for our services, a substantial part of which
is contingent upon the consummation of the Merger. 
  
 In the past we have
performed certain investment banking services for the Company and Telecom Italia and have received customary fees for such services. 
  
 In the ordinary course of our business, Credit Suisse First Boston and its affiliates may actively trade the debt and equity securities of both the Company and Telecom
Italia for their own accounts and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. 
  
 It is understood that this letter is for the information of the Board of Directors of the Company only in connection with its consideration of the Merger, does not
constitute a recommendation to any shareholder as to how such shareholder should vote on the proposed Merger or whether or not such shareholder should tender shares pursuant to the Tender Offers and is not to be quoted or referred to, in whole or in
part, in any registration statement, prospectus or proxy statement, or in any other document used in connection with the offering or sale of securities, nor shall this letter be used for any other purposes, without Credit Suisse First Boston’s
prior written consent. 
  
 CSFB is an internationally recognized investment
banking firm and is actively engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. 
  
 Based upon
and subject to the foregoing, it is our opinion that it would be appropriate from a financial point of view, as of the date hereof, for the Ordinary Exchange Ratio to fall within the range of 1.69 to 1.75 and for the Savings Exchange Ratio to fall
within the range of 2.30 to 2.39. 
  
 Very truly yours, 
  
 CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED 
  

					
	By:	  	  

	  	  

  

 2 

Table of Contents

 ANNEX XIII (b) 
  
 Strictly Private and Confidential 
  
 23rd January 2005 
  
 Board of Directors 
 Telecom Italia Mobile S.p.A. 
 Via Cavalli n. 6 
 10100 Turin 
 Italy 
  
 Dear Sirs: 
  
 Credit Suisse First Boston (Europe) Limited (“CSFB” or “we”), delivered to Telecom Italia Mobile S.p.A. (the “Company” or “you”)
an opinion letter dated 7th December 2004 (the “Opinion Letter”) indicating that, in the context of the
potential merger between the Company and Telecom Italia to be effected by incorporation of the Company into Telecom Italia, subject to the terms of the Opinion Letter, it was our opinion that it would be appropriate from a financial point of view as
of 7th December 2004, for the Ordinary Exchange Ratio to fall within the range of 1.69 to 1.75 and for the Savings
Exchange Ratio to fall within the range of 2.30 to 2.39. The Opinion Letter was provided at your request and pursuant to, and subject to the terms of, our engagement letter with the Company dated 7th December 2004 (the “Engagement Letter”). In addition, this letter is provided pursuant to, and subject to the terms of the Engagement Letter.

  
 Defined terms used in this letter shall have the same meaning attributed to
them in the Opinion Letter except to the extent expressly stated otherwise herein. 
  
 On 7th December 2004, the Board of Directors of the Company and the Board of Directors of Telecom Italia
approved a plan for the integration of the Company and Telecom Italia involving, among other things, (i) voluntary cash tender offers by Telecom Italia for all of the savings shares of the Company that it did not already own and 67% of the ordinary
shares of the Company that it did not already own and (ii) the merger of the Company and Telecom Italia, based on an Ordinary Exchange Ratio of 1.73 and a Savings Exchange Ratio of 2.36. 
  
 The Ordinary Tender Offer and the Savings Tender Offer opened for acceptance on 3rd January 2005 and closed on 21st January 2005. 
  
 On 22nd December 2004, we delivered you an opinion as of that date as to the fairness from a financial point of view to the ordinary and savings shareholders
of the Company other than Telecom Italia of the consideration to be received by them pursuant to the Tender Offers, as defined in our opinion letter dated 22nd December 2004. 
  
 On
21st January 2005, the Company and Telecom Italia informed us that since 7th December 2004, no event had occurred that had impacted or could impact materially any of the documents, information, data, forecasts or assumptions
referred to in the Opinion Letter and/or the financial and economic situation, business, assets, liabilities and prospects of the Company and Telecom Italia. 
  
 In arriving at the opinion set out in this letter, we have also considered the results of the Tender Offers. 
  
 It is understood that this letter is for the information of the Board of Directors of the Company only in connection with its consideration
of the Merger and is not to be quoted or referred to, in whole or in part, in any registration statement, prospectus or proxy statement, or in any other document used in connection with the offering or sale of securities, nor shall this letter be
used for any other purposes, without CSFB’s prior written consent except that the Company may disclose both this letter and the Opinion Letter to the extent that it is required to do so by law. 
  
 CSFB is an internationally recognized investment banking firm and is actively engaged in the
valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate
and other purposes. 
  
 In the ordinary course of our business, CSFB and its
affiliates may actively trade the debt and equity securities of both the Company and Telecom Italia for their own accounts and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities.

  
 Based upon and subject to the foregoing and to all of the qualifications,
considerations and assumptions set out in the Opinion Letter, we hereby confirm that as of the date hereof, we are not aware of any event that has occurred that would lead us to change the opinion that we provided in the Opinion Letter. 

 
 Very truly yours, 
  
 CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED 
  

			
	 By:
                                        
         
	  	 

Table of Contents

 ANNEX XIII (c) 
  
 Summary description of the analyses carried out by Credit Suisse First Boston (Europe) Limited, as Telecom Italia Mobile S.p.A.’s
financial advisor, with reference to its Valuation Opinion. 
  
 Telecom Italia
Mobile S.p.A. (“TIM”) retained Credit Suisse First Boston (Europe) Limited (“CSFB”) to act as its financial advisor in connection with the merger (the “Merger”) with Telecom Italia S.p.A. (“TI”) including for
the purposes of rendering an opinion to the board of directors of TIM regarding the appropriateness from a financial point of view of a range of exchange ratios to be used in connection with the Merger. 
  
 CSFB is an internationally recognized investment banking firm and is actively engaged in the
valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate
and other purposes. 
  
 On December 7, 2004, CSFB delivered a written opinion (the
“Opinion”) to the board of directors of TIM reporting, as at the date of the Opinion, based on the procedures followed, and subject to the qualifications, considerations and assumptions set out in the Opinion, that it believed that it
would be appropriate from a financial point of view for the potential exchange ratios to be used in connection with (a) the newly issued ordinary shares of TI issued for each existing ordinary share of TIM (the “Ordinary Exchange Ratio”),
and (b) the newly issued savings shares of TI issued for each existing savings share of TIM (the “Savings Exchange Ratio” and together with the Ordinary Exchange Ratio, the “Exchange Ratios”) to fall within the following ranges:

  

	–	1.69 – 1.75 TI for the Ordinary Exchange Ratio; 

  

	–	2.30 – 2.39 TI for the Savings Exchange Ratio. 

  
 On January 23, 2005, CSFB confirmed to the board of directors of TIM in writing that, subject to the qualifications, considerations and assumptions set out in the
Opinion, it was not aware of any event that had occurred that would lead CSFB to change the opinion that it provided in the Opinion (the “Confirmation Letter” and together with the Opinion, the “Opinions”). In providing the
Confirmation Letter, CSFB took into account also the outcome of the partial tender offers launched by TI for TIM saving and ordinary shares, that closed on January 21, 2005. 
  
 CSFB’s Opinions have been directed only to the board of directors of TIM for its information and in connection with its consideration
of the Merger pursuant to the terms of CSFB’s engagement letter with TIM dated December 7, 2004. CSFB does not accept any duty of care to, and will not have any liability or responsibility to, any third party other than the board of directors
of TIM in connection with the Opinions or the summary set out in this documentation. The Opinions are not directed to and do not constitute any recommendation to any shareholder as to how such shareholder should vote on the proposed Merger. The
Opinions do not constitute a recommendation to the Board of Directors of TIM as to how it should vote on the proposed Merger. The Opinions do not reflect any consideration of the merits of the Merger versus other alternative transactions that could
have been pursued and CSFB has not been requested to advise as to, and the Opinions do not in any manner address, TIM’s underlying business decision to effect the Merger. CSFB was not requested to, and did not, solicit third party indications
of interest in acquiring all or any part of TIM. 
  
 This summary is provided for
information purposes only and does not constitute a recommendation to any shareholder of TIM as to how they should vote with respect to the Merger if the Merger is presented at the EGM for approval. 
  
 The full text of CSFB’s December 7, 2004 Opinion, which sets forth the assumptions
made, procedures followed, matters considered, documentation utilised and limitations on the review undertaken by CSFB in connection with the Opinion, as well as the full text of CSFB’s January 23, 2005 Confirmation Letter, are attached as
Annex XIII (a) and (b) and are incorporated by reference into this document. You are urged to read the Opinions carefully and in their entirety. The Opinions have been prepared in the English language only. In case of any inconsistencies, the
original document in English prevails over the Italian translation. 
  
 In
performing its reviews and analyses for rendering the Opinions, CSFB, among other things: 
  

	–	reviewed the documentation that sets out the terms of the proposed Merger and related transactions; 

  

	–	reviewed the financial information and other information that was publicly available or made available to CSFB by TIM, including the internal financial analyses, the budgets and the
forecasts for TIM and for TI prepared by TIM and TI management; 

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	–	held limited discussions with members of the senior management of TIM and TI; 

  

	–	reviewed the historical market price and the historical market price and trading volume trend of TIM and TI securities; 

  

	–	reviewed publicly available information on companies involved in activities generally deemed similar to TI and TIM activities; 

  

	–	reviewed publicly available equity analyst research reports; and 

  

	–	conducted other financial studies, analyses and investigations as it deemed appropriate. 

  
 In the course of its review and analysis and in rendering the Opinions, CSFB relied upon the accuracy and completeness of all financial,
legal, fiscal and accounting, and other information reviewed by it and did not assume any responsibility for independent verification of such information. With respect to the financial and operating forecasts provided by TIM and by TI, CSFB assumed
that those forecasts had been reasonably prepared on bases reflecting the best estimates and judgments available of the respective managements of TIM and TI as to the future financial and operating performance of the aforementioned companies, at the
date they were prepared. In addition, CSFB does not assume any responsibility, or provide any opinion on the aforementioned forecasts or on the assumptions underlying such forecasts. 
  
 CSFB did not prepare any independent evaluation or appraisal of the assets or liabilities of, nor did CSFB conduct a physical inspection of
any of the assets of, TIM or TI or any of their subsidiaries. With respect to the projections provided to CSFB, CSFB notes that projecting future results is inherently subject to substantial uncertainty. Although those projections constituted only
one of many items that CSFB considered in rendering its Opinions, changes to the projections could affect CSFB’s conclusions. CSFB’s Opinions were based on financial, economic, market and other conditions existing at the date of its
Opinions, including market prices of TIM’s and TI’s securities. Such conditions are generally beyond TIM’s or TI’s control and are subject to rapid and unpredictable changes, which could affect the conclusions that CSFB
expressed. 
  
 The following is a brief summary of the most relevant financial
analyses performed by CSFB in connection with rendering its Opinion dated December 7, 2004. The summary is not a complete description of the analyses performed by CSFB. The preparation of an opinion is a complex process and is not necessarily
susceptible to partial analysis or a summary description. The order of the analyses described and the results of those analyses do not necessarily represent the relative importance or weight attributed to the analyses by CSFB. Selecting portions of
this summary without considering the analyses as a whole could result in an incomplete view of the processes underlying CSFB’s analyses and Opinions. The analyses performed by CSFB are not necessarily indicative of actual values or actual
future results that may be significantly more or less favourable than those suggested by the analyses. Additionally, the analyses relating to the value of the businesses do not purport to be prices realisable in a transaction nor to reflect actual
nor future market valuations or market price trends. 
  
 CSFB expressed no opinion
as to the prices at which the ordinary shares or savings shares of TI will trade following the completion of the Merger, or as to the price at which the ordinary shares and savings shares of TIM and TI will trade prior to the completion of the
Merger. 
  
 CSFB did not use the values resulting from its analyses for any
purpose other than that for analysing the Exchange Ratios and those values should not be used for any other purpose. In accordance with customary investment banking practice, CSFB applied generally accepted valuation methods in preparing its
Opinion. In particular, in analysing the Exchange Ratios, CSFB focused on the relative valuations of TIM and TI, giving priority to the consistency and comparability of the criteria adopted, rather than to the absolute value of the aforementioned
companies. CSFB carried out its analyses considering the two companies as separate entities and therefore ignored any strategic, operational or financial synergies that may result from the Merger, as well as any control premiums and minority
discounts. In addition, as indicated by TIM and TI, CSFB carried out its analyses assuming that the increase in TI’s net debt due to the partial tender offers launched by TI for TIM’s ordinary and saving shares would not lead to any
downgrading by the rating agencies of the credit rating of TI and the value of the shares would not be affected. 
  
 For the purpose of the valuation analyses undertaken in connection with the Opinions, CSFB utilised the following valuation methodologies: 
  

	–	as the principal methodology, the “Market Price Valuation Method”, which considered TIM and TI market prices observed over different time periods. In this case, the market
prices were deemed to be relevant, considering the high level of capitalisation and liquidity of TIM and TI; 

  

 2 

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	–	as additional methodologies: 

  

	 	•	the “Sum of the Parts Method”, as a consequence of both TIM and TI’s business activities being in different operational, industrial and strategic contexts and their
different importance and relevance in relation to TIM and TI as a whole. CSFB did not use TIM share price in order to assess the value of TI’s stake in TIM as the use of a market-based method would not have been consistent with the analysis
conducted for TIM; 

  

	 	•	the “Method of Target Prices of Equity Research Analysts”, due to the extensive coverage of TIM and TI by equity analysts. 

  
 Market Price Valuation Method 
  
 The Market Price Valuation Method has assessed the equity value on the basis of the share
prices of TIM and TI in a period sufficiently broad, prior to the beginning of rumours on a possible re-organisation regarding TIM and TI. CSFB has identified such date in the 16th of November 2004, as the last trading day for TIM and TI securities not affected by market rumours. All the price analyses have been performed considering the
period prior to this date. 
  
 On the basis of the market data as of
16th November 2004 it was considered that: 
  

	–	both companies participating in the merger have a high market capitalization and a significant and broadly diffused float; 

  

	–	high volumes of TIM and TI shares are traded daily (on average approximately 1% of the company share capital is traded); 

  

	–	the free float of TIM and TI is significantly divided among Italian retail investors and Italian and foreign institutional investors, none of which has a position such to influence
the course of the securities for prolonged periods of time; 

  

	–	TIM and TI’s capitalization represents a considerable portion of the total capitalization of S&PMIB and Mibtel: 

  

	 	•	TIM represents about 6.6% of S&PMIB and about 7.4% of Mibtel; 

  

	 	•	TI represents about the 8.9% of S&PMIB and about 5.3% of Mibtel. 

  
 In order to mitigate the short-term fluctuations that typically characterize the financial markets, CSFB proceeded to extend the market price analysis to the volume
weighted average share prices over a sufficiently broad time period, adjusting the value of the ordinary and saving shares of TIM and TI by the dividend relating to the 2004 fiscal year. CSFB, following the indications provided by TIM and TI, has
assumed that the closing of the Merger will happen after the distribution of the aforementioned dividend. In this regard, a dividend per share equal to the one accrued in the 2003 fiscal year, and distributed by TIM and TI in 2004, has been assumed.

  
 From the analyses of the historical share price trends, the averages at 1, 2,
3, 6, 12 months were selected; these, as illustrated in the following table, have resulted to fall within a defined valuation range. 
  

							
	 Market Prices

	  	Stock Market
Values
Adjusted for
Dividend

	  	 Ratio
 (X)*

	(ordinary shares)	  	TI (€)	  	TIM (€)	  	 
	 Weighted Averages
	  	 	  	 	  	 
	 16/11/2004
	  	2.71	  	4.55	  	1.68
	 1 month average
	  	2.59	  	4.42	  	1.71
	 2 month average
	  	2.52	  	4.30	  	1.70
	 3 month average
	  	2.48	  	4.25	  	1.71
	 6 month average
	  	2.45	  	4.25	  	1.74
	 12 month average
	  	2.44	  	4.27	  	1.75

	 	

	 	Source:	Datastream 

	 	*	Possible differences attributable to rounding 

  

 3 

Table of Contents

							
	 Market Prices

	  	Stock Market
Values
Adjusted for
Dividend

	  	 Ratio
 (X)*

	(saving shares)	  	TI (€)	  	TIM (€)	  	 
	 Weighted Averages
	  	 	  	 	  	 
	 16/11/2004
	  	1.94	  	4.51	  	2.33
	 1 month average
	  	1.89	  	4.35	  	2.30
	 2 month average
	  	1.84	  	4.26	  	2.32
	 3 month average
	  	1.80	  	4.22	  	2.34
	 6 month average
	  	1.75	  	4.18	  	2.39
	 12 month average
	  	1.72	  	4.18	  	2.43

	 	

	 	Source:	Datastream 

	 	*	Possible differences attributable to rounding 

  
 The application of the Market Price Valuation Method resulted in a range of 1.69 – 1.75 for the Ordinary Exchange Ratio and 2.30 – 2.39 for the Savings Exchange
Ratio. 
  
 In addition, CSFB has analysed the exchange ratios deriving from
the application of the Market Price Valuation Method also disregarding any distribution of the dividend before the Merger and has presented the results for information purposes to the Board of Directors of TIM. Such results are generally consistent
with the ones mentioned above, obtained by adjusting the market prices for the distribution of the dividend. 
  
 Sum of the Parts Method 
  
 On the basis
of the Sum of the Parts Method, the value of TIM and TI is determined as the sum of the values of the different business lines and investments of each company, considered as economic entities valuable separately. Such sum is adjusted to take into
account the net financial position of, and the minorities in, each of the companies participating in the Merger. 
  
 TIM 
  
 The discounted cash flows (“DCF”) methodology has been applied, separately to the Italian and international activities. 
  
 In applying the DCF methodology, it was made reference to cash flows generated by the main activities as reported in the update, for the
period 2004 – 2007, of the economic-financial plans approved and communicated to the market in March 2004, prepared by the management in accordance with the strategic, operating and financial targets of TIM. These plans have been extended until
2011, assuming an evolution generally in line with the relevant market benchmarks. 
  
 The DCF methodology was applied by discounting the cash flows from operations, gross of any financial nature component (Free Cash Flow o “FCF”), that the company would be able to generate in the future, discounted at a rate
representing the weighted average cost of capital, net of the net financial position and minorities’ interests, which in this case were taken into consideration with reference to the data estimated as of 31st December 2004. 
  
 The DCF methodology was applied with the logic of determining the fundamental value to the financial investor and reflects the following assumptions and methodologies:

  

	–	the weighted average cost of capital (Weighted Average Cost of Capital or “WACC”) is calculated on the basis of the target capital structure and with reference to the
relevant market benchmarks; the WACC applied to the single business units is included in the range of 7.5% - 13.5%; 

  

	–	the sales growth rates and the margins used to extrapolate financial projections beyond the time horizon of TIM’s business plan (2007-2011) reflect growth perspectives in line
with relevant market benchmark; in particular, during the 2007 – 2011 period, with regard to the Italian activities, a 2.9% CAGR for revenues and an EBITDA margin of about 53% have been assumed; with respect to the international activities, a
4.2% CAGR for revenues and an EBITDA margin of about 37% have been assumed. 

  

	–	 to assess the terminal value, CSFB proceeded to capitalize the normalised operating cash flow (or the present value of the cash flow from operations expected for
the period beyond the explicit projection time horizon); 

  

 4 

Table of Contents

	 	 
for this purpose CSFB selected perpetual growth rates for the different business lines, also on the basis of market benchmarks, within a range of 1.0% -
4.0%, depending on the activities’ nature. 

  
 The
following table shows the minimum and maximum values for each TIM ordinary and saving share resulting from the Sum of the Parts Method. Such values have been adjusted to take into account the distribution of the dividend accrued in the 2004 fiscal
year, as it was done in the Market Price Valuation Method. CSFB, following the indications provided by TIM and TI, has assumed the closing of the Merger will happen after the distribution of the mentioned dividend. The value for each TIM saving
share has been assessed assuming a 0% discount between TIM ordinary and saving share, in line with the average historical discount. 
  

					
	 	  	Minimum

	  	Maximum

	 Values for TIM’s ordinary shares (Euro)
	  	5.01	  	6.56
	 Values for TIM’s saving shares (Euro)
	  	4.99	  	6.54

  
 TI 
  
 The DCF methodology has been mainly applied to the main activities such as the Italian and
international wireline activities, the Italian and international TIM’s activities, the IT market division, Olivetti – Tecnost, eliminations and corporate. TI Media and other minor stakes have been valued at market, at a price prior to the
Merger announcement, also in the light of their limited weight on the total value. 
  
 In applying the DCF methodology, it was made reference to cash flows generated by the main activities as reported in the update, for the period 2004 – 2007, of the economic-financial plans approved and communicated to the market in
March 2004, prepared by the management in accordance with the strategic, operational and financial targets of TI. These plans have been extrapolated until 2011, assuming an evolution generally in line with the relevant market benchmarks. 

 
 The DCF methodology was applied by discounting the cash flows from operations, gross of
any financial nature component (FCF), that the company would be able to generate in the future, discounted at a rate representing the weighted average cost of capital, net of the net financial position and minorities’ interests, which in this
case were taken into consideration with reference to the data estimated as of 31st December 2004. 
  
 The DCF methodology was applied with the logic of determining the fundamental value to the
financial investor and reflects the following assumptions and methodologies: 
  

	–	the WACC is calculated on the basis of the target capital structure and with reference to the relevant market benchmarks; the WACC applied to the single business units is included
in the range of 7.0% - 13.5%; 

  

	–	the sales growth rates and the margins used to extrapolate financial projections beyond the time horizon of TI’s business plan reflect growth perspectives in line with relevant
market benchmark; in particular, during the 2007 – 2011 period, with regard to Italian wireline activities, a 0.7% CAGR for revenues and an EBITDA margin of about 49% have been assumed; in relation to international wire line activities, a 4.2%
CAGR for revenues and an EBITDA margin of about 38% have been assumed; 

  

	–	to assess the terminal value, CSFB proceeded to capitalize the normalized operating cash flow (or the present value of the cash flow from operations expected for the period beyond
the explicit projection time horizon); for this purpose CSFB selected perpetual growth rates for the different business lines, also on the basis of market benchmarks, within a range of -0.5% - 4.0%. 

  
 The following table shows the minimum and maximum values for each TIM ordinary and saving
share resulting from the Sum of the Parts Method. Such values have been adjusted to take into account the distribution of the dividend relating to the 2004 fiscal year. CSFB, following the indications provided by TIM and TI, has assumed the closing
of the Merger will happen after the distribution of the mentioned dividend. The value for each TIM saving share has been assessed assuming a 27% discount between TIM ordinary and saving share, in line with the average historical discount.

  

					
	 	  	Minimum

	  	Maximum

	 Values for TI ordinary share (Euro)
	  	2.82	  	4.14
	 Values for TI saving share (Euro)
	  	2.02	  	2.98

  

 5 

Table of Contents

 Summary of Results 
  
 The application of the Sum of the Parts Method resulted in a range of exchange ratios, calculated by dividing the minimum and maximum values
resulting for TI share with the minimum and maximum values resulting for TIM share, as follows: 
  

					
	 	  	Minimum

	  	Maximum

	 Ordinary Exchange Ratio (TI ordinary shares for each TIM ordinary share)
	  	1.58	  	1.78
	 Savings Exchange Ratio (TI saving shares for each TIM saving share)
	  	2.19	  	2.48

  
 The results obtained by applying the
Sum of the Parts Method substantially confirm the relative values resulting from the Market Price Valuation Method. 
  
 In addition, CSFB has analysed the exchange ratios deriving from the application of the Sum of the Parts Method also disregarding any distribution of the dividend before
the Merger and has presented the results for information purposes to the Board of Directors of TIM. Such results are generally consistent with the ones mentioned above, obtained by adjusting the value per share for the distribution of the dividend.

  
 Method of Target Prices of Equity Research Analysts 
  
 Considering the extensive coverage of TIM and TI’s stocks by equity analysts, CSFB has
applied the Method of Target Prices of Equity Research Analysts, taking into account the target prices published after the announcement of the third quarter 2004 results. 
  

													
	 TIM

	  	 TI

	  	 Exchange Ratio
(Adjusted for
Dividend
Distribution)

	 Broker

	  	 Publication
Date

	  	 Target
Price (€)

	  	 Broker

	  	 Publication
Date

	  	 Target
Price (€)

	  
	 Deutsche Bank
	  	22/11/2004	  	5.40	  	Citigroup	  	02/12/2004	  	3.40	  	 
	 Citigroup
	  	19/11/2004	  	4.50	  	UBM	  	29/11/2004	  	3.20	  	 
	 Morgan Stanley
	  	17/11/2004	  	5.45	  	Deutsche Bank	  	30/11/2004	  	3.30	  	 
	 Centrosim
	  	16/11/2004	  	5.25	  	Centrosim	  	25/11/2004	  	3.20	  	 
	 HSBC
	  	10/11/2004	  	4.00	  	 Exane BNP Paribas
	  	24/11/2004	  	2.75	  	 
	 Santander
	  	10/11/2004	  	5.55	  	JP Morgan	  	19/11/2004	  	2.92	  	 
	 Banca Leonardo
	  	09/11/2004	  	5.90	  	 Credit Suisse First Boston
	  	18/11/2004	  	2.94	  	 
	 Oddo Securities
	  	09/11/2004	  	4.50	  	Morgan Stanley	  	17/11/2004	  	3.50	  	 
	 JP Morgan
	  	09/11/2004	  	5.50	  	SG	  	11/11/2004	  	2.70	  	 
	 UBM
	  	09/11/2004	  	5.40	  	HSBC	  	11/11/2004	  	3.00	  	 
	 Lehman Brothers
	  	09/11/2004	  	5.50	  	ABN Amro	  	11/11/2004	  	3.00	  	 
	 Credit Suisse First Boston
	  	09/11/2004	  	4.70	  	 Bernstein Research
	  	10/11/2004	  	3.25	  	 
	 UBS
	  	09/11/2004	  	5.10	  	Oddo Securities	  	10/11/2004	  	3.00	  	 
	 SG
	  	09/11/2004	  	4.50	  	DKW	  	10/11/2004	  	3.00	  	 
	 Exane BNP Paribas
	  	08/11/2004	  	4.40	  	Lehman Brothers	  	10/11/2004	  	3.00	  	 
	 DKW
	  	08/11/2004	  	6.00	  	Bear Stearns	  	09/11/2004	  	3.30	  	 
	 	  	 	  	 	  	UBS	  	09/11/2004	  	3.00	  	 
							
	 Average
	  	 	  	5.10	  	 	  	 	  	3.09	  	1.63x
	 Max
	  	 	  	6.00	  	 	  	 	  	3.50	  	1.69x
	 Min
	  	 	  	4.00	  	 	  	 	  	2.70	  	1.44x

  
 The application of the Method of
Target Prices of Equity Research Analysts resulted in a range for the Ordinary Exchange Ratio of 1.44 – 1.69, calculated by dividing the minimum and maximum values resulting for TI share with the minimum and maximum values resulting for TIM
share, taking into account the expected distribution by TIM and TI of the dividend relating to the 2004 fiscal year. The results obtained with the Sum of the Parts Method confirm the ratios calculated with Market Price Valuation Method. Equity
research analysts usually do not cover the saving shares, therefore and there were not enough data points to conduct the analysis for the Savings Exchange Ratio. 
  

 6 

Table of Contents

 In addition, CSFB has analysed the exchange ratios deriving from the application of the Method of Target Prices of Equity
Research Analysts also disregarding any distribution of the dividend before the Merger and has presented the results for information purposes to the Board of Directors of TIM. Such results are generally consistent with the ones mentioned above,
obtained by adjusting the target prices for the distribution of the dividend. 
  
 CSFB is acting as financial advisor to TIM with respect to the Merger, for which a fee of Euro 3.0 million is payable upon the announcement of the Merger. TIM has agreed to pay to CSFB an additional fee of Euro 7.0 million at completion of
the Merger as well as the reimbursement of reasonable expenses incurred up to a maximum of Euro 20,000 and the reimbursement of reasonable fees of counsel and other professional advisers up to a maximum of Euro 55,000. 
  
 In addition, CSFB has participated in the TIM tender offers’ debt facilities for a total
amount of Euro 350 million and has been paid a participation fee of Euro 612,500. 
  
 In the past, CSFB has performed certain investment banking services for TIM and TI and have received customary fees for such services. 
  
 In the ordinary course of its business, CSFB and its affiliates may actively trade the debt and equity securities of both TIM and TI for their own accounts and for the
accounts of customers and, accordingly, may at any time hold a long or short position in such securities. 
  

 7 

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 ANNEX XIV (a) 
  
 TIM S.p.A. 
 Via Cavalli n. 6 
 10100 Torino 
 Italia 
  
 7 December, 2004 
  
 The present document constitutes a translation of the Fairness Opinion in Italian rendered by Merrill Lynch to the Board of Directors of TIM S.p.A. on December 7, 2004. Such translation is for convenience purposes
only and the valid and binding version is the Italian one. In case of a disagreement or discrepancy between the translation and the original Italian version of this document, the original Italian version will prevail. 
  
 To the Members of the Board of Directors: 
  
 following our appointment by TIM S.p.A. (“TIM” or “the Company”) on 4
December, 2004, Merrill Lynch International, Milan Branch (“Merrill Lynch”) is pleased to present to the Board of Directors of the Company the conclusions from its valuation analyses which were prepared in order to assist the Board of
Directors of the Company in its determination of the potential exchange ratio to be applied to ordinary and savings shares in the context of the envisaged merger with Telecom Italia S.p.A. (“Telecom Italia”) (the “Merger”).

  
 Based on the information received from the Company, the transaction will
envisage a merger by incorporation of TIM in Telecom Italia, to be effected through the cancellation of the ordinary and savings shares of TIM and a contemporaneous capital increase of Telecom Italia through the issuance of ordinary and savings
shares to respective TIM shareholders. The Merger will be completed following the spin-off of a company fully owned by TIM as a going concern regarding the Italian mobile telephone assets, and following the launch by Telecom Italia of a voluntary
partial public tender offer on a maximum of two thirds of the free float of TIM, on terms that will be communicated to the Board of Directors of TIM following an announcement from Telecom Italia, which is expected to take place today. 
  

	I.	Scope of the Mandate 

  
 Any valuations provided by Merrill Lynch are of a consultative and independent nature and are neither binding nor mandatory, it being in any event the
responsibility of the Boards of Directors of the companies involved to establish the terms and conditions of the transaction. Moreover, the fairness of the exchange ratio will be specifically addressed in the opinion rendered by an auditing firm
acting as independent expert as required by art. 2501 sexies of the Italian Civil Code. This opinion is intended to assist the Board of Directors of the Company by providing data, information and other useful elements through the indication
of a range for the exchange ratio between ordinary and savings shares of TIM and ordinary and savings shares of Telecom Italia from the perspective of a comparative valuation. Therefore, the following analyses do not in any way constitute, and can
not be interpreted as an estimate of the absolute values of the TIM and Telecom Italia shares or of the Telecom Italia shares post-merger, nor can they be considered an opinion or the equivalent of an opinion under art. 2501 sexies of the
Italian Civil Code. Moreover, the analyses performed by Merrill Lynch do not constitute a valuation of the price at which TIM or Telecom Italia shares can be and/or could be actually sold or exchanged and of the value and/or price that can be
considered higher or lower than the one resulting or otherwise implied by our analyses. Therefore, considering the different objectives and purposes, the valuations could differ, also in respect of the methods and valuation criteria utilised, from
the ones that will have to be performed pursuant to art. 2501 sexies of the Italian Civil Code which will constitute (also in relation to possible modifications) the sole reference document for TIM shareholders in order to assess the fairness
of the exchange ratio between TIM and Telecom Italia shares. 
  
 Subject to the limitations set out above and the conditions set out hereinafter, this opinion has been prepared for the exclusive use of the Board of Directors of the Company and must be read in connection with any potential clarifications
which we might provide in the context of the oral presentation to the Board of Directors of TIM on 7 December 2004 (clarifications that, if reproduced in written documents, can not be assessed or considered on their own but must be taken only as
supporting elements of this opinion). Therefore no other person is, with the exception of the members of the Board, and in such case subject to the limitations set out above, authorised to rely upon the present document and its contents. 

 
 We would like to point out that our analyses do not address any aspect of
the Merger other than the one described above. Therefore, in presenting its analyses Merrill Lynch does not express any opinion as to the industrial and financial motivations or merits underlying the decision to proceed with and/or effect the Merger
or alternative transactions, or whether the Merger is in the best interests of the shareholders of the Company. Moreover, our analyses, given their objectives and scope, are not addressed to TIM or Telecom Italia shareholders and they do not
constitute a recommendation to any shareholder as to how such shareholder should vote on the proposed Merger. 

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 Merrill Lynch did not provide legal or tax assistance in relation to the Merger, neither has it assumed
any obligation to conduct any physical inspection of the tangible or intangible assets or liabilities (including derivative instruments, warranties, commitments or other off-balance sheet items) of TIM, Telecom Italia or their affiliates. In
preparing its opinion, Merrill Lynch has reviewed the documentation described in Section III - “Information Used” – without performing any due diligence or verification of the information contained in the documentation. In preparing
our opinion, we have assumed and relied on the accuracy and completeness of all information supplied or otherwise made available to us, discussed with or reviewed by or for us, or publicly available. With respect to the financial forecast
information furnished to or discussed with us by TIM and Telecom Italia, we have assumed that it has been reasonably prepared and reflects the best currently available estimates and judgment of the management of TIM and Telecom Italia as to the
expected future financial performance of TIM and Telecom Italia. Merrill Lynch does not assume any responsibility in relation to those estimates and projections or in relation to the sources based on which the same estimates or forecasts have been
prepared. Merrill Lynch has acted on the assumption that they have been reasonably prepared and reflect the best currently available estimates as to the expected future financial performance of TIM, Telecom Italia and their affiliates, without
performing any independent verification or appraisal. Therefore, Merrill Lynch does not assume any responsibility in relation to the truthfulness, completeness and accuracy of the information utilised for the preparation of this opinion. 

 
 Given the time lapse between the reference date of our analyses and the
effective date of the Merger, Merrill Lynch asks that you take note of the fact that our analyses, as outlined further on the following pages, are necessarily based upon market, economic, regulatory and other conditions as they exist and can be
evaluated on, and on the information made available to us as of the date of this letter. Accordingly therefore Merrill Lynch does not assume any responsibility as to any potential incompleteness of or defects in the analyses or their conclusions,
Merrill Lynch having furthermore acted upon the additional assumption that at the date of effectiveness of the Merger, no events, facts or omissions occurred that had or could have affected the balance sheet, the economic, financial, regulatory
conditions or the profitability of the companies involved in the Merger, or their financial outlook and forecasts and economic and market conditions. 
  
 Our opinion is necessarily based upon market, economic, regulatory and other conditions as they exist and can be evaluated on, and on the information made
available to us as of, the date of this letter, and, in case of changes in the reference markets and sectors, could differ significantly in the future. 
  
 The conclusions set out in this document are based on all of the indications and valuations set out herein and therefore no single part of the letter can
be considered or in any way utilised separately from the document as a whole. In the event of a possible publication of this letter, this letter must be published in its entirety and after having obtained Merrill Lynch’s prior written consent,
it being understood that the contents might be made public if required by applicable laws or pursuant to a request by Consob. 
  
 The Company acknowledges that Merrill Lynch has in the past acted as and in the future could act as financial advisor to the direct and indirect
shareholders of the Company and Telecom Italia. 
  

	II.	Assumptions used in the analyses 

  
 The analyses performed must also be interpreted in light of the following assumptions: 
  

	 	•	 	The valuations refer to today’s date, assuming balance sheet estimates by TIM and Telecom Italia at 31 December, 2004; 

  

	 	•	 	We did not take into account extraordinary or unpredictable events; in particular we did not take into account the financial and accounting effects linked to the potential exercise
of the withdrawal rights (“diritto di recesso”) granted to savings shareholders of TIM, as communicated to us by the Company; 

  

	 	•	 	We did not take into account positive and/or negative effects that could arise from the Merger for the companies involved; 

  

	 	•	 	Based on the information made available to us from TIM and Telecom Italia we have assumed that the terms and economic and financial effects of the tender offer do not modify the
proposed exchange ratio range; we have further assumed that the current credit rating of Telecom Italia Group will remain unchanged and that there will be no adverse accounting and fiscal effects for the companies involved. 

 

 2 

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	III.	Information used 

  
 In preparing its opinion, Merrill Lynch has used information, historical financial data and forecasts provided by TIM and Telecom Italia and in
particular: 
  

	 	•	 	The “Reporting TI Group” document containing historical information and forecasts for the years 2005-2007, including macroeconomic assumptions, updated to 3
December 2004, and the Group ownership structure at the reference date; 

  

	 	•	 	The “Project Sunrise” presentation dated December 2004 and provided by Telecom Italia to the rating agencies Standard & Poor’s and Moody’s, which
includes, among others, several scenarios in relation to the overall structure of the transaction, and considerations in relation to the financial structure of the Group following the completion of the transaction; 

  

	 	•	 	Considerations, estimates and assumptions with reference to medium to long-term economic and financial trends of the companies being valued, provided to us during a limited number
of discussions held with some members of the TIM and Telecom Italia management responsible for the planning and control of the fixed line and mobile activities in Italy and of the main international affiliates of the Group, in relation to, among
others, growth, profitability and cash flow generation of the companies; 

  

	 	•	 	Information provided by TIM and Telecom Italia on the assets and liabilities of the companies, in relation to, among others, the deferred tax asset, stock option plans, number of
treasury shares held by the companies and the convertible bond issued by Telecom Italia. 

  
 Merrill Lynch has assumed and relied on the accuracy and completeness of all information supplied or otherwise made available to us, discussed with or
reviewed by or for us, or publicly available, without having independently verified such information. With respect to the financial forecast information furnished by TIM and Telecom Italia, Merrill Lynch has assumed that it has been reasonably
prepared and reflects the best currently available estimates and judgment of the management of TIM and Telecom Italia as to the expected future financial performance of TIM, Telecom Italia and their affiliates. 
  
 Merrill Lynch has used information regarding market prices, publicly traded
companies comparable to TIM and Telecom Italia and information in relation to general economic trends, markets, monetary conditions and tax regulations, also with reference to countries in which the international affiliates of TIM e Telecom Italia
operate. 
  

	IV.	Valuation criteria  

  
 In light of the proposed transaction, the analyses do not intend to evaluate the absolute values of the companies, but aim at obtaining values that are
comparable when determining the exchange ratio, through the adoption of homogeneous and consistent criteria in order to safeguard the interests of the shareholders of the companies involved, with particular reference to the minority shareholders.

  
 In order to determine the equity value of TIM and Telecom
Italia, we have used the following valuation approaches: 
  

	 	•	 	Market prices: this approach is significant considering, among others, that: the shares of the two companies are listed and highly liquid, the market capitalisations of TIM and
Telecom Italia are a significant component of the stock exchange and reference indices (9.3% and 6.5% of MIB 30 index, respectively, at 22 November 2004), both companies are widely covered by research analysts, the shareholder base of the companies
includes highly sophisticated international institutional investors and investors specialised in the telecommunication sectors, valuation parameters for comparison with comparable operators in other countries are readily available in the market. In
this specific case we believe that prices have to be observed on various time frames, also in light of share price movements occurring immediately prior to the announcement of the transaction and possibly linked to the uncertainty caused by the
increasing speculation and hypotheses published by analysts and observers of the companies involved in relation to the transaction; 

  

	 	•	 	 Sum of the parts method: this approach determines the value of the equity as a sum of the values of each asset individually evaluated, adjusted to take into account
the net financial position and other potential assets or liabilities of the companies. With regard to the valuation of the single asset, we have mainly used the Discounted Cash Flows (“DCF”) methodology, applied to the main assets of TIM
and Telecom Italia, namely the Italian mobile and fixed line operations and the main international affiliates; for the remaining assets we made reference to valuation methodologies based on the market price, where available and deemed appropriate
or, for minor activities or non-consolidated assets, the book value. 

  

 3 

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With regard to the balance sheet of the companies, we used the estimates provided by TIM and Telecom Italia at 31 December 2004, as indicated above. It is to
be noted that, in the context of this approach, TIM valuation is an important element to determine Telecom Italia valuation the latter being the owner of a 56% stake in TIM ordinary shares. Finally, with particular reference to the DCF methodology,
it is to be noted that the use of forecast data that are uncertain and limited to projections for the years 2005-2007, combined with the use of numerous assumptions for the calculation of the terminal value, a significant component of the valuation,
constitute important elements in the difficulty of preparing the valuation. 

  
 As a supporting methodology Merrill Lynch has also analysed brokers’ target prices for TIM and Telecom Italia, and trading multiples of comparable publicly traded companies. 
  

	V.	Valuation of the Equity and Determination of the Exchange Ratio 

  
 The results of our analyses aimed at determining the equity value of TIM and Telecom Italia are summarised in the following paragraphs. 
  
 The following table shows the official price on 3 December 2004 (last price
before the announcement of the transaction), the averages, weighted for the traded volumes, of the ordinary and savings shares of TIM and Telecom Italia over the period of one week, one, three, six and twelve months, and the resulting exchange
ratios: 
  

													
	 	  	Ordinary Shares

	  	Savings Shares

	 	  	TI
Price (€)

	  	TIM
Price (€)

	  	Exch.
Ratio

	  	TI
Price (€)

	  	TIM
Price (€)

	  	Exch.
Ratio

	 Market Price: weighted averages
	  	 	  	 	  	 	  	 	  	 	  	 
	 3 December 2004
	  	2.97	  	5.19	  	1.75	  	2.18	  	5.37	  	2.46
	 1 week average
	  	2.95	  	5.13	  	1.74	  	2.13	  	5.32	  	2.49
	 1 month average
	  	2.88	  	4.93	  	1.71	  	2.09	  	5.09	  	2.44
	 3 month average
	  	2.72	  	4.67	  	1.72	  	1.99	  	4.86	  	2.44
	 6 month average
	  	2.63	  	4.59	  	1.75	  	1.91	  	4.75	  	2.48
	 12 month average
	  	2.58	  	4.58	  	1.77	  	1.87	  	4.64	  	2.48

  
 A similar analysis has
been performed for the period prior to 19 November 2004, the day when traded volumes were extraordinarily high when compared to average daily volumes typically traded for the companies’ shares; this date has been taken as the date when the
rumours of a potential company restructuring began influencing the companies’ share prices: 
  

													
	 	  	Ordinary Shares

	  	Savings Shares

	 	  	TI
Price (€)

	  	TIM
Price (€)

	  	Exch.
Ratio

	  	TIM
Price (€)

	  	TI
Price (€)

	  	Exch.
Ratio

	 Market Price: weighted averages
	  	 	  	 	  	 	  	 	  	 	  	 
	 18 November 2004
	  	2.90	  	4.89	  	1.69	  	2.12	  	4.86	  	2.29
	 1 week average
	  	2.85	  	4.84	  	1.70	  	2.08	  	4.80	  	2.32
	 1 month average
	  	2.73	  	4.70	  	1.72	  	2.02	  	4.66	  	2.30
	 3 month average
	  	2.61	  	4.53	  	1.73	  	1.93	  	4.51	  	2.34
	 6 month average
	  	2.56	  	4.51	  	1.76	  	1.87	  	4.47	  	2.39
	 12 month average
	  	2.55	  	4.53	  	1.78	  	1.84	  	4.46	  	2.42

  
 As far as the sum of
the parts methodology is concerned, in order to calculate the equity value per share, beside the assumptions described above, we also took into account the following elements: 
  

	 	•	 	Net financial position: we have utilised the estimates at 31 December 2004 prepared by the companies, i.e. Euro 194 million (net cash) for TIM, and negative for Euro 29,927 million
for Telecom Italia (net debt); 

  

	 	•	 	 Savings shares: in order to allocate the value between the different classes of shares, we observed the price differences over time frames sufficiently long (see
table below). With particular reference to TIM savings shares, we have observed discounts in the range of 0.3% - 1.7% in the three, six and twelve months, even if immediately prior to the announcement of the transaction savings shares traded at a
premium (since 19 November). In summary, also considering the limited market value and traded volumes of such category of shares compared to ordinary shares, and in light of the fact that, typically, 

  

 4 

Table of Contents

	 	 
such shares trade at a discount compared to ordinary shares, we have assumed no discount or premium, treating such shares in line with the ordinaries. With
reference to Telecom Italia savings shares, we took as reference point the average discount in the six months prior to announcement of the transaction, equal to 27.0%; 

  

							
	 	  	            TI            

	 	 	            TIM            

	 
	 Savings discount to Ordinary
	  	 	 	 	 	 
	 3 December 2004
	  	26.5	%	 	(3.4	)%
	 1 week average
	  	27.9	%	 	(4.0	)%
	 1 month average
	  	27.3	%	 	(1.7	)%
	 3 month average
	  	26.2	%	 	0.3	%
	 6 month average
	  	27.0	%	 	1.4	%
	 12 month average
	  	28.1	%	 	1.7	%

  

	 	•	 	stock options: we took into account the shares underlying the options exercisable at 31 December 2004, with a strike price lower than the current market price. In particular,
we took into account 29.5 million shares for TIM and 119.6 million shares for Telecom Italia; 

  

	 	•	 	convertible bonds: we took into account the shares underlying the “Telecom Italia 1.5% 2001-2010” convertible bond (1,126.4 million shares); 

  

	 	•	 	deferred tax asset: we took into account the tax savings for Telecom Italia and TIM arising mainly from write downs of some equity stakes effected in the past, as indicated by the
companies; 

  

	 	•	 	Telecom Italia stake in TIM: we took into account 4,734 million TIM shares held by Telecom Italia S.p.A. and “Telecom Italia Finance”; 

  

	 	•	 	treasury shares: those shares have been deducted from the total number of shares; 

  

	 	•	 	expected dividends: since the dividend payment is expected to occur later than six months from the date of the fairness opinion and in light of the uncertainty of the related
amount, we have not adjusted the values for the dividend. 

  
 The sum of the parts methodology leads to the following results: 
  

									
	 	  	Ordinary Shares

	  	Savings Shares

	 TIM Equity value
	  	Min	  	Max	  	Min	  	Max
	 Value per share (Euro)
	  	4.92	  	6.47	  	4.92	  	6.47
	 Telecom Italia Equity value
	  	Min	  	Max	  	Min	  	Max
	 Value per share (Euro)
	  	2.77	  	3.94	  	2.02	  	2.87
	 Exchange Ratio
	  	1.78	  	1.64	  	2.44	  	2.25

  

	VI.	Conclusions 

  
 The analyses performed and described above indicate an exchange ratio, understood as the number of new Telecom Italia shares to be issued in exchange for
each TIM share of the same category, in the following ranges: 
  

			
	 Ordinary shares:
	  	1.69 – 1.78
	 Savings shares:
	  	2.29 – 2.44

  
 Merrill Lynch
International – Milan Branch 
  

  
 Maurizio Tamagnini 
  
 Managing Director of Investment Banking 
  

 5 

Table of Contents

 ANEX XIV (b) 
  
 TIM S.p.A. 
 Via Cavalli n. 6 
 10100 Torino 
 Italia 
  
 23 January 2005 
  
 The present document constitutes a translation of the letter in Italian rendered by Merrill Lynch to the Board of Directors of TIM S.p.A. on
January 23, 2005. Such translation is for convenience purposes only and the only valid and binding version is the Italian one. In case of a disagreement or discrepancy between the translation and the original Italian version of this document, the
original Italian version will prevail. 
  
 To the Members of the Board of
Directors: 
  
 On 7 December, 2004, we rendered a fairness opinion (the
“Fairness Opinion”) to the Board of Directors of TIM S.p.A. (“TIM”) as to the fairness, from a financial point of view, of the exchange ratio for the ordinary and savings shares of TIM in the context of the merger between TIM and
Telecom Italia S.p.A. (“Telecom Italia”). 
  
 As per your request, we
have subsequently acknowledged the final results of the tender offer launched by Telecom Italia on a certain number of ordinary shares and on all the savings shares of TIM. We have also looked at the evolution of market, economic and regulatory
conditions as from the date of the fairness opinion and received confirmation by the managements of TIM and Telecom Italia of the absence of any events which might have changed the current and future economic and financial situation of TIM and
Telecom Italia, as existing and presented to us in the period when we performed our valuation analyses. 
  
 Based on the above, with this letter, which is to be considered an integral part of the Fairness Opinion, we confirm the conclusions of our valuation analyses already expressed at the time of the Board of Directors
meeting of 7 December 2004, and in particular we confirm our opinion expressed in relation to the fairness, from a financial point of view, as to the exchange ratio terms proposed by the Board of Directors. 
  
 Merrill Lynch International – Milan Branch 
  

  
 Maurizio Tamagnini 
  
 Managing Director of Investment Banking 

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 ANNEX XIV (c) 
  
 Description of the Analyses Conducted by Merrill Lynch as Financial Adviser of TIM with respect its own Fairness Opinion 

 
 The present document constitutes a translation of the Description of the Analyses
produced by Merrill Lynch in Italian in relation to the analysis performed for the Fairness Opinion rendered by Merrill Lynch to the Board of Directors of TIM S.p.A. on December 7, 2004. Such translation is for convenience purposes only and the
valid and binding version is the Italian one. In case of any disagreement or discrepancy between the translation and the original Italian version of this document, the original Italian version will prevail. 
  
 On 7 December, 2004, Merrill Lynch International – Milan Branch rendered a fairness
opinion (the “Opinion”) to the Board of Directors of TIM S.p.A. (“TIM” or “the Company”) as to the fairness, from a financial point of view, of the exchange ratio for the ordinary and savings shares of TIM in the
context of the merger (“the Merger”) between TIM and Telecom Italia S.p.A. (“Telecom Italia”). 
  
 Subsequently, with a letter dated 23 January 2005 (the “Confirmation Letter”), to be considered as an integral part of the Opinion, Merrill Lynch has confirmed,
for that date, the conclusions outlined in the Opinion on the basis of and subject to the premises and qualifications described in the Opinion and Confirmation Letter. In the Confirmation Letter, as requested by the Company, we have taken into
account, inter alia, the final results of the tender offer launched by Telecom Italia on a certain number of ordinary shares and on all the savings shares of TIM. 
  
 Any valuations provided by Merrill Lynch are of a consultative and independent nature and are neither binding nor mandatory, it being in any
event the responsibility of the Boards of Directors of the companies involved to establish the terms and conditions of the transaction. Moreover, the fairness of the exchange ratio will be specifically addressed in the opinion rendered by an
auditing firm acting as independent expert as required by art. 2501 sexies of the Italian Civil Code. This opinion is intended to assist the Board of Directors of the Company by providing data, information and other useful elements through
the indication of a range for the exchange ratio between ordinary and savings shares of TIM and ordinary and savings shares of Telecom Italia from the perspective of a comparative valuation. Therefore, the following analyses do not in any way
constitute, and can not be interpreted as an estimate of the absolute values of the TIM and Telecom Italia shares or of the Telecom Italia shares post-merger, nor can they be considered an opinion or the equivalent of an opinion under art. 2501
sexies of the Italian Civil Code. Moreover, the analyses performed by Merrill Lynch do not constitute a valuation of the price at which TIM or Telecom Italia shares can be and/or could be actually sold or exchanged and of the value and/or
price that can be considered higher or lower than the one resulting or otherwise implied by our analyses. 
  
 Subject to the limitations set out above and the conditions set out hereinafter, this opinion has been prepared for the exclusive use of the Board of Directors of the Company and must be read in connection with any
potential clarifications which we might be provided in the context of the oral presentation to the Board of Directors of TIM on 7 December 2004 (clarifications that, if reproduced in written documents, can not be assessed or considered on their own
but must be taken only as supporting elements of this opinion). Therefore no other person is, with the exception of the members of the Board, and in such case subject to the limitations set out above, authorised to rely upon the present document and
its contents. 
  
 We would like to point out that our analyses do not address any
aspect of the Merger other than the one described above. Therefore, in presenting its analyses Merrill Lynch does not express any opinion as to the industrial and financial motivations or merits underlying the decision to proceed with and/or effect
the Merger or alternative transactions, or whether the Merger is in the best interests of the shareholders of the Company. Moreover, our analyses, given their objectives and scope, are not addressed to TIM or Telecom Italia shareholders and they do
not constitute a recommendation to any shareholder as to how such shareholder should vote on the proposed Merger. 
  
 The full text of the Opinion rendered on 7 December 2004 outlining the assumptions, the information and the documents reviewed and the limitations on the analyses
performed by Merrill Lynch in relation to the Opinion, as well as the full text of the Confirmation Letter dated 23 January 2005, are herein included as Appendix XIV (a) and Appendix XIV (b) and constitute an integral part of this document.
Addresses of this document are invited to review the Opinion and Confirmation Letter with attention and in their entirety. 
  
 Merrill Lynch did not provide legal or tax assistance in relation to the Merger, neither has it assumed any obligation to conduct any physical inspection of the tangible
or intangible assets or liabilities (including derivative instruments, warranties, commitments or other off-balance sheet items) of TIM, Telecom Italia or their affiliates. In preparing its Opinion, Merrill Lynch has reviewed the documentation
described below without 

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performing any due diligence or verification of the information contained in the documentation. In preparing our opinion, we have assumed and relied on the
accuracy and completeness of all information supplied or otherwise made available to us, discussed with or reviewed by or for us, or publicly available. With respect to the financial forecast information furnished to or discussed with us by TIM and
Telecom Italia, we have assumed that it has been reasonably prepared and reflects the best currently available estimates and judgment of the management of TIM and Telecom Italia as to the expected future financial performance of TIM and Telecom
Italia. Merrill Lynch does not assume any responsibility in relation to those estimates and projections or in relation to the sources based on which the same estimates or forecasts have been prepared. Merrill Lynch has acted on the assumption that
they have been reasonably prepared and reflect the best currently available estimates as to the expected future financial performance of TIM, Telecom Italia and their affiliates, without performing any independent verification or appraisal.
Therefore, Merrill Lynch does not assume any responsibility in relation to the truthfulness, completeness and accuracy of the information utilised for the preparation of this opinion. 
  
 Given the time lapse between the reference date of our analyses and the effective date of the Merger, Merrill Lynch asks that you take note
of the fact that our analyses, as outlined further on the following pages, are necessarily based upon market, economic, regulatory and other conditions as they exist and can be evaluated on, and on the information made available to us as of the date
of this letter. Accordingly therefore Merrill Lynch does not assume any responsibility as to any potential incompleteness of or defects in the analyses or their conclusions, Merrill Lynch having furthermore acted upon the additional assumption that
at the date of effectiveness of the Merger, no events, facts or omissions occurred that had or could have affected the balance sheet, the economic, financial, regulatory conditions or the profitability of the companies involved in the Merger, or
their financial outlook and forecasts and economic and market conditions. 
  
 Our
opinion is necessarily based upon market, economic, regulatory and other conditions as they exist and can be evaluated on, and on the information made available to us as of, the date of this letter, and, in case of changes in the reference markets
and sectors, could differ significantly in the future. 
  
 In preparing its
Opinion, Merrill Lynch has used information, historical financial data and forecasts provided by TIM and Telecom Italia and in particular: 
  

	 	•	 	The “Reporting TI Group” document containing historical information and forecasts for the years 2005-2007, including macroeconomic assumptions, updated to 3
December 2004, and the Group ownership structure at the reference date; 

  

	 	•	 	The “Project Sunrise” presentation dated December 2004 and provided by Telecom Italia to the rating agencies Standard & Poor’s and Moody’s, which
includes, among others, several scenarios in relation to the overall structure of the transaction, and considerations in relation to the financial structure of the Group following the completion of the transaction; 

  

	 	•	 	Considerations, estimates and assumptions with reference to medium to long-term economic and financial trends of the companies being valued, provided to us during a limited number
of discussions held with some members of the TIM and Telecom Italia management responsible for the planning and control of the fixed line and mobile activities in Italy and of the main international affiliates of the Group, in relation to, among
others, growth, profitability and cash flow generation of the companies; 

  

	 	•	 	Information provided by TIM and Telecom Italia on the assets and liabilities of the companies, in relation to, among others, the deferred tax asset, stock option plans, number of
treasury shares held by the companies and the convertible bond issued by Telecom Italia. 

  
 Merrill Lynch has assumed and relied on the accuracy and completeness of all information supplied or otherwise made available to us, discussed with or reviewed by or for us, or publicly available, without having
independently verified such information. With respect to the financial forecast information furnished by TIM and Telecom Italia, Merrill Lynch has assumed that it has been reasonably prepared and reflects the best currently available estimates and
judgment of the management of TIM and Telecom Italia as to the expected future financial performance of TIM, Telecom Italia and their affiliates. 
  
 Merrill Lynch has used information regarding market prices, publicly traded companies comparable to TIM and Telecom Italia and information in relation to general economic
trends, markets, monetary conditions and tax regulations, also with reference to countries in which the international affiliates of TIM e Telecom Italia operate. 
  
 In light of the proposed transaction, the analyses do not intend to evaluate the absolute values of the companies, but aim at obtaining
values that are comparable when determining the exchange ratio, through the adoption of 

  

 2 

Table of Contents

 
homogeneous and consistent criteria in order to safeguard the interests of the shareholders of the companies involved, with particular reference to the
minority shareholders. 
  
 In order to determine the equity value of TIM and
Telecom Italia, we have utilised two main valuation methodologies: sum of the parts and market prices. 
  
 As a supporting methodology Merrill Lynch has also analysed brokers’ target prices for TIM and Telecom Italia, and trading multiples of comparable publicly traded companies. 
  
 The sum of the parts approach determines the value of the equity as a sum of the values of
each asset individually evaluated, adjusted to take into account the net financial position and other potential assets or liabilities of the companies. 
  
 The sum of the parts methodology leads to the following results: 
  

									
	 	  	Ordinary Shares

	  	Savings Shares

	 TIM Equity value
	  	    Min	  	Max	  	Min	  	Max
	 Value per share (Euro)
	  	4.92	  	6.47	  	4.92	  	6.47
	 Telecom Italia Equity value
	  	Min	  	Max	  	Min	  	Max
	 Value per share (Euro)
	  	2.77	  	3.94	  	2.02	  	2.87
	 Exchange Ratio
	  	1.78	  	1.64	  	2.44	  	2.25

  
 Sum of the parts of TIM.
Merrill Lynch has utilised the discounted cash flow methodology (“DCF”) for the main operations, such as, for example, TIM SpA, TIM Hellas, Maxitel, TIM Brasil and others. For minor or non-consolidated assets, we have utilised the book
value. 
  
 In performing the DCF analysis we have used, among others: 

 

	 	•	 	unlevered free cash flows for the main operations, as per TIM management forecasts for 2004 – 2007; 

  

	 	•	 	discount rates based on WACC of the single asset individually valued, ranging from 8.50% to 9.50% for the main European and North American operations, and from 12.75% to 14.75% for
the main South American operations; 

  

	 	•	 	terminal value calculated with the perpetuity method, utilising rates based on the growth prospects of single asset individually valued, ranging from 1.50% to 2.75% for the main
European and North American operations, and from 3.50% and 5.50% for the main South American operations. 

  
 In order to calculate the equity value per share, beside the assumptions described above, we also took into account the following elements: 
  

	 	•	 	Net financial position: we have utilised the estimates at 31 December 2004 prepared by the Company, i.e. Euro 194 million (net cash); 

  

	 	•	 	Savings shares: in order to allocate the value between the different classes of shares, we observed the price differences over time frames sufficiently long. With particular
reference to TIM savings shares, we have observed discounts in the range of 0.3% - 1.7% in the three, six and twelve months, even if immediately prior to the announcement of the transaction savings shares traded at a premium (since 19 November). In
summary, also considering the limited market value and traded volumes of such category of shares compared to ordinary shares, and in light of the fact that, typically, such shares trade at a discount compared to ordinary shares, we have assumed no
discount or premium, treating such shares in line with the ordinaries. 

  

				
	 	  	TIM

	 
	 Savings discount to Ordinary
	  	 	 
	 3 December 2004
	  	(3.4	)%
	 1 week average
	  	(4.0	)%
	 1 month average
	  	(1.7	)%
	 3 month average
	  	0.3	%
	 6 month average
	  	1.4	%
	 12 month average
	  	1.7	%

  

 3 

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	 	•	 	Stock options: we took into account the shares underlying the options exercisable at 31 December 2004, with a strike price lower than the current market price. In particular, we
took into account 29.5 million shares for TIM; 

  

	 	•	 	Deferred tax asset: we took into account the tax savings for TIM arising mainly from write downs of some equity stakes effected in the past, as indicated by the Company;

  

	 	•	 	Treasury shares: those shares have been deducted from the total number of shares; 

  

	 	•	 	Expected dividends: since the dividend payment is expected to occur later than six months from the date of the Opinion and in light of the uncertainty of the related amount, we have
not adjusted the values for the dividend. 

  
 Sum of the parts of
Telecom Italia. Merrill Lynch has utilised the discounted cash flow methodology for the operations denominated “Wireline” and for some consolidated assets. As far as Telecom Italia Media is concerned, we have utilised the market value,
while for the stake in TIM, market value has not been utilised to be consistent with the valuation methodology utilised for TIM, according to the principle of a relative and comparable valuation. For minor or non-consolidated assets, we have
utilised the book value. 
  
 In performing the DCF analysis we have used, among
others: 
  

	 	•	 	unlevered free cash flows for the main operations, as per TI management forecasts for 2004 – 2007; 

  

	 	•	 	discount rates based on WACC of the single asset individually valued, ranging from 8.25% to 9.25% for the “Wireline” operations, and from 9.75% to 15.75% for the main
South American operations; 

  

	 	•	 	terminal value calculated with the perpetuity method, utilising rates based on the growth prospects of single asset individually valued, ranging from 0.50% to 1.50% for the
“Wireline” operations, and from 1.50% to 2.50% for the main South American operations. 

  
 In order to calculate the equity value per share, beside the assumptions described above, we also took into account the following elements: 
  

	 	•	 	Net financial position: we have utilised the estimates at 31 December 2004 prepared by Telecom Italia, negative for Euro 29,927 million (net debt); 

  

	 	•	 	Savings shares: with reference to Telecom Italia savings shares, we took as reference point the average discount in the six months prior to announcement of the transaction, equal to
27.0%; 

  

				
	 	  	TI

	 
	 Savings discount to Ordinary
	  	 	 
	 3 December 2004
	  	26.5	%
	 1 week average
	  	27.9	%
	 1 month average
	  	27.3	%
	 3 month average
	  	26.2	%
	 6 month average
	  	27.0	%
	 12 month average
	  	28.1	%

  

	 	•	 	stock options: we took into account the shares underlying the options exercisable at 31 December 2004, with a strike price lower than the current market price. In particular, we
took into account 119.6 million shares for Telecom Italia; 

  

	 	•	 	convertible bonds: we took into account the shares underlying the “Telecom Italia 1.5% 2001-2010” convertible bond (1,126.4 million shares); 

  

	 	•	 	deferred tax asset: we took into account the tax savings for Telecom Italia arising mainly from write downs of some equity stakes effected in the past, as indicated by the company;

  

	 	•	 	Telecom Italia stake in TIM: we took into account 4,734 million TIM shares held by Telecom Italia S.p.A. and “Telecom Italia Finance”; 

  

	 	•	 	treasury shares: those shares have been deducted from the total number of shares; 

  

	 	•	 	expected dividends: also for Telecom Italia we have not adjusted the values for the dividend. 

  

 4 

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 The following table shows the official price on 3 December 2004 (last price before the announcement of the transaction),
the averages, weighted for the traded volumes, of the ordinary and savings shares of TIM and Telecom Italia over the period of one week, one, three, six and twelve months, and the resulting exchange ratios: 
  

													
	 	 	Ordinary Shares

	 	Savings Shares

	 	 	TI Price

	 	TIM Price

	 	Exch. Ratio

	 	TI Price

	 	TIM Price

	 	Exch. Ratio

	 	 	(Euro)	 	(Euro)	 	 	 	(Euro)	 	(Euro)	 	 
	 Market Price: weighted averages
	 	 	 	 	 	 	 	 	 	 	 	 
	 3 December 2004
	 	2.97	 	5.19	 	1.75	 	2.18	 	5.37	 	2.46
	 1 week average
	 	2.95	 	5.13	 	1.74	 	2.13	 	5.32	 	2.49
	 1 month average
	 	2.88	 	4.93	 	1.71	 	2.09	 	5.09	 	2.44
	 3 month average
	 	2.72	 	4.67	 	1.72	 	1.99	 	4.86	 	2.44
	 6 month average
	 	2.63	 	4.59	 	1.75	 	1.91	 	4.75	 	2.48
	 12 month average
	 	2.58	 	4.58	 	1.77	 	1.87	 	4.64	 	2.48

  
 A similar analysis has been performed
for the period prior to 19 November 2004, the day when traded volumes were extraordinarily high when compared to average daily volumes typically traded for the companies’ shares; this date has been taken as the date when the rumours of a
potential company restructuring began influencing the companies’ share prices: 
  

													
	 	  	Ordinary Shares

	  	Savings Shares

	 	  	TI Price

	  	TIM Price

	  	TI Price

	  	TIM Price

	  	TI Price

	  	TIM Price

	 	  	(Euro)	  	(Euro)	  	 	  	(Euro)	  	(Euro)	  	 
	 Market Price: weighted averages
	  	 	  	 	  	 	  	 	  	 	  	 
	 3 December 2004
	  	2.90	  	4.89	  	1.69	  	2.12	  	4.86	  	2.29
	 1 week average
	  	2.85	  	4.84	  	1.70	  	2.08	  	4.80	  	2.32
	 1 month average
	  	2.73	  	4.70	  	1.72	  	2.02	  	4.66	  	2.30
	 3 month average
	  	2.61	  	4.53	  	1.73	  	1.93	  	4.51	  	2.34
	 6 month average
	  	2.56	  	4.51	  	1.76	  	1.87	  	4.47	  	2.39
	 12 month average
	  	2.55	  	4.53	  	1.78	  	1.84	  	4.46	  	2.42

  
 Our analyses have been prepared in
order to assist the Board of Directors of TIM as to the fairness, from a financial point of view, for the ordinary and savings shareholders of TIM, with the exception of Telecom Italia, of the exchange ratios in the context of the Merger. The
analyses do not aim at evaluating the fair absolute value of the shares or the price at which the shares or assets could be actually sold. 
  
 The Opinion and the Confirmation Letter of Merrill Lynch and the financial analyses are only one of a number of elements considered by the Board of Directors of TIM for
the approval of the resolution regarding the Merger, and therefore must not be deemed as decisive for the decision of the Board of Directors. 
  
 Merrill Lynch has been appointed by the Board of Directors of TIM, on the basis of the recommendations of its independent members forming the Committee for Internal
Control and Corporate Governance, to act as advisor in the context of the overall transaction. In this context, Merrill Lynch has rendered an opinion as to the fairness, from a financial point of view, for the ordinary and savings shareholders of
TIM, with the exception of Telecom Italia, of the exchange ratios in the context of the Merger, and a fairness opinion as to the fairness, from a financial point of view, of the price offered by Telecom Italia in relation to the tender offer
launched, in the context of the Merger, over the two thirds of the ordinary free float and on all savings shares of TIM. 
  
 For the services rendered, Merrill Lynch has accrued a Euro 14.0 million fee, of which Euro 4.2 million accrued following the delivery of the opinion in relation to the
exchange ratios, and Euro 9.8 million accrued following the delivery of the opinion in relation to the tender offer. Moreover, TIM has agreed to reimburse Merrill Lynch for the reasonable expenses sustained in relation to its services, including
potential fees payable to external lawyers, up to Euro 100 thousand, and will indemnify Merrill Lynch from potential liabilities that could arise in relation to the mandate or other aspects in relation to the mandate. 
  
 Merrill Lynch is part of a financial services group (the “Group”) which includes,
among other businesses, equity and debt securities trading for both clients and as principal, securities offerings, fund management, financing services and financial advisory services. Therefore, in the ordinary course of its activities, one or more
companies of the Group could be engaged in transactions regarding financial instruments of TIM and/or Telecom Italia and/or other companies involved in the Merger. 
  

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 ANNEX XV (a) 
             STUDIO CASO’ 
 dottori commercialisti associati 
  
  

			
	 	  	 To the Board of Directors
 of Telecom Italia Mobile SpA
 Via Giannone 4
 Torino

  
 OPINION

  
 REQUESTED BY THE BOARD OF DIRECTORS OF 

 
 TELECOM ITALIA MOBILE S.P.A. 
  
 IN ORDER TO ESTABLISH THE EXCHANGE RATIO OF 
  
 THE SHARES WITH REGARD TO THE MERGER OF 
  
 TELECOM ITALIA MOBILE S.P.A. 
  
 INTO 
  
 TELECOM ITALIA S.P.A. 
  

 This document has been translated into the English language solely for the convenience of international readers. To all
intents and purposes the only text in the Italian language is valid. 
  

 1 

Table of Contents

             STUDIO
CASO’ 
 dottori commercialisti associati 

 This document has been translated into the English language solely for the convenience of international readers. To all intents and purposes the only text in the Italian
language is valid. 
  
 1)    Introduction 
  
 The Board of Directors of Telecom Italia Mobile S.p.A. has asked our Firm (“Assignment”), in the person of Angelo Caso to issue its professional opinion (“Opinion”) on determining the shares exchange ratio should a
merger of Telecom Italia Mobile S.p.a. into its controlling company Telecom Italia S.p.A. occur. 
  
 The “Assignment” excludes the survey of legal, fiscal and accounting aspects of the said deal, as well as the assessment of the economic and strategic drivers of the expected business integration.

  
 The financial and economic data, as well as any other information used to
prepare this “Opinion” have been provided to us by Telecom Italia Mobile S.p.A. These data and information have not been verified by us, therefore the sole responsibility of the truthfulness, accuracy and completeness of such data and
information is that of the Company. 
  
 With reference to such data and
information, in the drawing up of this “Opinion” we have relied on the assumption that the Company has not suppressed any event or situation that could, even potentially, affect the said data and information, and on the additional
assumption of the completeness and truthfulness of all the data and information. 
  
 This “Opinion” has been prepared for the members of the Board of Directors of Telecom Italia Mobile S.p.A. only, to support their assessments and decisions regarding the expected merger and cannot be used for different purposes,
neither entirely nor partially, nor exhibited to third parties without our written consent, except when required by Law. 
  
 2)    Our engagement and purpose of the assignment 
  
 The “Assignment” has been conferred to us by an engagement letter and this “Opinion” refers only to such letter.

  
 According to the scope of the “Assignment”, the “Opinion”
requested has the only purpose to provide the Board of Directors of Telecom Italia Mobile S.p.A. with elements and references in order to identify the exchange ratio between the ordinary shares of Telecom Italia Mobile S.p.A. and the ordinary shares
of Telecom Italia S.p.A., and of the savings shares of Telecom Italia Mobile S.p.A. and the savings shares of Telecom Italia S.p.A. 
  
 The Board of Directors of Telecom Italia Mobile S.p.A. informed us that Telecom Italia S.p.A., when proposing to their shareholders the merger with Telecom Italia Mobile
S.p.A., will examine the possibility to launch a Tender Offer (Offerta Pubblica di Acquisto – OPA) on a significant amount of the outstanding shares of Telecom Italia Mobile S.p.A. The Board of Directors of Telecom Italia Mobile S.p.A. will
consider this proposal in detail. 
  
 The conclusions expressed in this
“Opinion” did not take into consideration the possibility that the OPA may be carried out prior to the above described merger. 
  
 The evaluation of the two Companies, parties to the merger, was carried out with the sole purpose to determine relative and comparable values in order to identify the
exchange ratio of the shares. 
  
 As a consequence, the Companies assessed value
is not relevant outside the context of this document and does not constitute in any way an assessment of the absolute value of the shares of the merging companies Telecom Italia S.p.A. and Telecom Italia Mobile S.p.A., nor of the other companies
belonging to the Group. 
  
 All the assessments and comments included in this
“Opinion” are made within the context and for the purposes of this “Opinion” and cannot be used out of the context of this “Opinion” or for different purposes. 
  
 This “Opinion” applies to the economic and market conditions, general and specific,
currently existing; any development that should occur after the date of this “Opinion” will not imply for our Firm any obligation to update this “Opinion”. 
  

 2 

Table of Contents

             STUDIO
CASO’ 
 dottori commercialisti associati 

 This document has been translated into the English language solely for the convenience of international readers. To all intents and purposes the only text in the Italian
language is valid. 
  
 3)    Reference
Material 
  
 In order to carry out the “Assignment” we
have received from Telecom Italia Mobile S.p.A. the following documentation: 
  

	 	•	 	Annual Separate Financial Statements and Consolidated Financial Statements of Telecom Italia S.p.A. as of 31 December 2003; 

  

	 	•	 	Annual Separate Financial Statements and Consolidated Financial Statements of Telecom Italia Mobile S.p.A. as of 31 December 2003; 

  

	 	•	 	Half-year Report as of 30 June 2004 of Telecom Italia S.p.A 

  

	 	•	 	Half-year Report as of 30 June 2004 of Telecom Italia Mobile S.p.A. 

  

	 	•	 	Quarterly Report as of 30 September 2004 of Telecom Italia S.p.A. 

  

	 	•	 	Quarterly Report as of 30 September 2004 of Telecom Italia Mobile S.p.A. 

  

	 	•	 	Industrial Plan for the period 2005-2007 of Telecom Italia S.p.A.; 

  

	 	•	 	Industrial Plan for the period 2005-2007 of Telecom Italia Mobile S.p.A.; 

  

	 	•	 	Consolidated Cash-flow statement of Telecom Italia S.p.A. for the period 2005-2007; 

  

	 	•	 	Statement of cash-flow by business unit for the period 2005-2007; 

  

	 	•	 	Corporate By-laws of Telecom Italia S.p.A. and Telecom Italia Mobile S.p.A. 

  
 Moreover we have obtained public domain information such as: 
  

	 	•	 	Valuations and reports on the companies carried out by financial analysts; 

  

	 	•	 	Studies and evaluations of competitors and the markets where the companies operate; 

  

	 	•	 	Performance of the share price of Telecom Italia S.p.A., Telecom Italia Mobile S.p.A., and other companies of the Group. 

  
 4)    The valuation criteria applied to establish the
exchange ratio  
  
 To establish the exchange ratio between the
shares of the merging companies, we have valued the shares by adopting techniques generally accepted in similar deals. 
  
 In order to establish relative values between the two companies, and enable us to assess the fair ratio between the value of the shares rather than the absolute value of
each of the two companies, we applied valuation criteria that are comparable and homogenous. 
  
 The evaluation of companies involved in deals of share exchange has to be carried out on a stand alone basis before the merger thus leaving aside any effect that could arise from the merger, such as synergies of
operative, financial or strategic kind that could possibly arise from the business combination. 
  
 In order to establish the exchange ratio, we referred to historic share market quotations, considering different time spans and calculation systems. 
  
 The use of this method seems to be satisfactory in this case, given that both companies are listed on the same regulated market, a
significant share of their Stock Capital is outstanding on such market, and that the shares under consideration are not illiquid and subject to not transient daily exchanges. 
  
 In this case the market value (Stock Exchange quotation), properly identified using different calculation systems, shows features
undoubtedly homogenous, but also objective, as it is free from bias and neutral. 
  
 The above results were confirmed by the application of the “Sum of Parts” approach (dealing with Groups), under which we valued the main business units using when appropriate the Unlevered Discounted Cash Flow method. 

  

 3 

Table of Contents

             STUDIO
CASO’ 
 dottori commercialisti associati 

 This document has been translated into the English language solely for the convenience of international readers. To all intents and purposes the only text in the Italian
language is valid. 
  
 5)    The exchange
ratio 
  
 In order to establish the value range within which is
comprised the fair exchange ratio of the shares of Telecom Italia Mobile with the shares of Telecom Italia S.p.A. , applying the method of the Market Price Exchange Ratios, we have made an analysis of the relative prices of the shares of Telecom
Italia S.p.A. and of Telecom Italia Mobile S.p.A. in different periods of time to 3 December 2004, last day of the Exchange trading of the shares. 
  
 To this end we have taken into consideration the official prices weighted by the trading volumes as they were recorded by the Italian Stock Exchange (source: Datastream),
as of 3 December 2004 and for the following time periods, ending on 3 December 2004: 
  

	 	•	 	1 month 

  

	 	•	 	3 months 

  

	 	•	 	6 months 

  

	 	•	 	12 months 

  
 The exchange ratios obtained: 
  

					
	 Period

	 	 Ordinary shares
 “Telecom Italia Sp.A.” for
ordinary share “Telecom
 Italia Mobile
S.p.A”

	 	 Savings shares
 “Telecom Italia S.p.A.” for
 saving share “Telecom Italia
Mobile
S.p.A”

	 3 december 2004
	 	1,75	 	2,46
	 One month to 3 December 2004
	 	1,71	 	2,44
	 Three months to 3 December 2004
	 	1,72	 	2,44
	 Six months to 3 December 2004
	 	1,75	 	2,48
	 Twelve months to 3 December 2004
	 	1,77	 	2,48

  
 However, the analysis carried out has
showed that the market prices in the days of the shares quotation, before the suspension requested by the Group, result (both in exchange volumes and in the share value) affected by market rumours - related to the reorganization of the whole Group
to which the two companies belong - starting from 16 November 2004. Hence, the average of the market prices we have considered has, as final date, the 16 November 2004. 
  
 The exchange ratios thus obtained are the following: 
  

					
	 Period

	 	 Ordinary shares
 “Telecom Italia Sp.A.” for
ordinary share “Telecom
 Italia Mobile
S.p.A”

	 	 Savings shares
 “Telecom Italia S.p.A.” for
 saving share “Telecom Italia
Mobile
S.p.A”

	 16 November 2004
	 	1,71	 	2,33
	 One month to 16 November 2004
	 	1,73	 	2,30
	 Three months to 16 November 2004
	 	1,74	 	2,34
	 Six months to 16 November 2004
	 	1,77	 	2,39
	 Twelve months to 16 November 2004
	 	1,78	 	2,42

  
 By applying the approach “Sum of
Parts” we have assessed the value of the individual business units of the Group (evaluated as separated economic entities), net of the relative net financial position as of 31 December 2004. 
  
 The main business units have been evaluated with the method of the unlevered discounted cash
flow. 
  
 The minor business units have been evaluated making reference to the
Stock Exchange capitalization, if listed, or to market multiples or to carrying values, if not listed. 
  

 4 

Table of Contents

             STUDIO
CASO’ 
 dottori commercialisti associati 

 This document has been translated into the English language solely for the convenience of international readers. To all intents and purposes the only text in the Italian
language is valid. 
  
 The exchange ratios obtained by applying the “Sum of
Parts” approach confirm the value range highlighted by the analysis of the Market prices. 
  
 * * * 
  
 On the basis of the analysis carried
out and summarized above, the exchange ratio that will be chosen by the Board of Directors of Telecom Italia Mobile S.p.A. will be fair, if falling within the following range: 
  

			
	 Ordinary shares “Telecom Italia Sp.A.” for one ordinary share
“Telecom Italia Mobile S.p.A”
	  	1,71 – 1,78
		
	 Savings shares “Telecom Italia Sp.A.” for one savings share
“Telecom Italia Mobile S.p.A”
	  	2,30 – 2,42

  
 Milano, 7 December 2004 
  

 5 

Table of Contents

 ANNEX XV (b) 
             STUDIO CASO’ 
 dottori commercialisti associati 
  
 To the Board of Directors of 
 Telecom Italia Mobile S.p.A. 
 Via Giannone 4 
 Torino 
  
 Milano, 22 January 2005 
  
 Opinion in order to establish the exchange ratio of the shares with regard to the merger of Telecom Italia Mobile SPA into Telecom Italia SPA. 
  
 With reference to our Opinion issued on 7 December 2004, you asked us, on 21 January 2005, to confirm the conclusions there expressed.

  
 To this purpose you informed us that from 7 December 2004 to 21 January 2005
it did not occur and it is not to your knowledge any event that has affected or could affect the data and information that you provided to us up to 6 December and that are indicated in our Opinion. Particularly you have stated that no change
occurred “in the economic and financial position, in the business, in assets and liabilities or in the prospects of Telecom Italia SpA, of Telecom Italia Mobile SpA and of the other Group Companies” (as at 21 january 2005).

  
 Having taken due note of the preceding, we point out, preliminarly, that the
Opinion issued on 7 December 2004 has been drawn up by us without taking into consideration any possible effect arising from the Tender Offer (Offerta Pubblica di Acquisto – OPA) subsequently launched by Telecom Italia SpA on the shares of
Telecom Italia Mobile SpA (as specifically indicated in the mentioned Opinion). 
  
 It is clear that the confirmation you are asking us with regard to the conclusions we expressed in our Opinion of 7 December 2004, is connected to the effect of the OPA (otherwise in consideration of what you communicated on 21 January
2005 and on that assumption, we would have no reason to change our Opinion). 
  
 For this reason we have asked you to let us know the actual results of the OPA which ended on 21 January 2005 and, to this end, you asked us to refer to the press release of 21 January 2005 issued by Telecom Italia SpA that communicated
what follows (preliminary results). 
  

	 	1.	The number of the ordinary shares of Telecom Italia Mobile SpA offered to Telecom Italia SpA at the price of 5.60 each was 2,639,179,970. 

  

	 	2.	The number of the savings shares of Telecom Italia Mobile SpA offered to Telecom Italia SpA at the price of 5.60 each was 8,454,877. 

  
 Therefore the following documents complete the list of the material used by us and mentioned
in our Opinion dated 7 December 2004; 
  

	 	1.	The offering document issued by Telecom Italia S.p.A. according to D. Lgs. 58/1998; 

  

	 	2.	The press release of Telecom Italia SpA dated 21 January 2005. 

  
 * * * 
  
 Preparing this confirmation, besides the information mentioned under 1 and 2 above, we have taken into consideration the following occurrences pointed out in the mentioned offering document: 
  

	 	•	 	Telecom Italia has contracted a loan, for the carrying out of the deal, for a total amount of 12 billions, on the terms of par. G.2 of the offering document;

  

	 	•	 	The rating Agencies have not changed the rating given to Telecom Italia SpA shares; 

  

	 	•	 	The net financial position as at 31 December 2004 of the Telecom Italia SpA Group, which amounts to about 30 billions, would increase, as a result of the execution of the deal, to
about 44 billions. 

  
 This confirmation is therefore based on all
the data and all the occurrences mentioned above, as well as on the fact that, up to date, what you have stated with your communication of 21 January 2005, and above recalled, is still true. 
  

 This document has been translated into the
English language solely for the convenience of international readers. To all intents and purposes the only text in the Italian language is valid. 

Table of Contents

             STUDIO CASO’ 
 dottori commercialisti associati 

 This document has been translated into the English language solely for the convenience of international readers. To all intents and purposes the only text in the Italian language is valid. 
  
 In case that any data, occurrences or statements above mentioned should change in a material
way, this confirmation could need to be modified. 
  
 * * *

  
 That said, we point out that in our Opinion of 7 December 2004 we defined
a range of values that could be assigned to the exchange ratio between the shares of Telecom Italia SpA and the shares of Telecom Italia Mobile SpA, applying an approach, detailed in our opinion, based on the historic market prices of those shares.

  
 The range of values we established was the following: 
  

			
	 Ordinary shares “Telecom Italia Sp.A.” for one ordinary share
“Telecom Italia Mobile S.p.A”
	  	1.71 –1.78
	 Savings shares “Telecom Italia Sp.A.” for one savings share
“Telecom Italia Mobile S.p.A”
	  	2.30 –2.42

  
 It is our opinion that the above
approach and the way it has been applied does not need to be modified as a consequence of the OPA as realized and described above, and of the other related data and occurrences shown above. 
  
 In particular it is our opinion that, in applying the evaluation approach based on market
prices, no event occurred that could involve the need to modify the reference date we used as final date for our calculations (i.e. the “ante rumours” date identified as the 16 November 2004), as explained in our Opinion of 7
December 2004. 
  
 What above because the market prices of the period from 16
November to 3 December 2004 are affected by the market expectations consequent to rumours and the prices after 16 November 2004 are affected by the Group communications related to the deal in progress. Therefore, we deem that the market prices
subsequent to 16 November 2004 cannot be used to carry out a proper application of the approach based on those prices. 
  
 Again with reference to our Opinion of 7 December 2004, we point out that we verified the exchange ratio by applying the Sum of Parts approach, net of the net financial
position as at 31 December 2004 as then stated by you. 
  
 In carrying out the Sum
of Parts procedure, the valuation of the main business units had been made with the unlevered discounted cash flow method, whereas the minor business units had been evaluated with reference to market prices (if listed) or to market multiples and to
carrying amounts (if not listed); the all as better detailed in the mentioned Opinion dated 7 December 2004. 
  
 Following the OPA, as realized and communicated, and taking also into account the other data and occurrences communicated and highlighted above, we deemed to have to reperform the verification (particularly taking in
due consideration the investment made by Telecom Italia SpA in ordinary and saving shares of Telecom Italia Mobile SpA and the related borrowing). 
  
 The results we obtained in this way confirm that the exchange ratio between the shares of the two Companies parties to the merger falls within the range of values
identified with the method based on the market prices and quoted above. 
  
 * * * 
  
 In the light of what explained above, as per your
request, we confirm the conclusions we reached in our Opinion of 7 December 2004, on the assumptions pointed out in that Opinion and on the assumptions pointed out in this confirmation letter. 
  
 Kind regards, 
  

 2 

Table of Contents

 ANNEX XV (c) 
  
 Descriptive memo of the procedures adopted by Studio Casò to draw up the 
 Opinion in order to establish the exchange ratio of the shares with regard to the 
 merger of Telecom Italia Mobile SpA into Telecom Italia SpA 
  
 This memo requested by Telecom Italia Mobile SpA to be enclosed to the “Documento Informativo” regarding the merger through incorporation of Telecom Italia
Mobile SpA into Telecom Italia SpA, has been drawn up by Studio Casò on 5 March 2005. 
  
 This memo only makes reference to the Opinion dated 7 December 2004 regarding the establishment of the exchange ratio of shares within the scope of the said merger and to the confirmation letter dated 22 January 2005,
documents delivered by Studio Casò to the Board of Directors of Telecom Italia Mobile SpA in the accomplishment of the assignment entrusted by this Company on 5 December 2005 (Opinion) and to the request of the same Company dated 21 January
2005 (Confirmation Letter). 
  
 The Opinion of 7 December 2005 and the
Confirmation Letter of 22 January 2005 have been delivered to the Board of Directors of Telecom Italia Mobile SpA within the terms and the limits indicated in said documents; this memo doesn’t modify in any way those terms and limits.

  
 This memo is not an autonomous and independent document and has no validity
unless read together with the above mentioned documents; this memo doesn’t assume to be alternative and/or supplemental and/or modificative of the above said documents delivered to the Board of Directors of Telecom Italia Mobile SpA.

  
 This memo has to be read together with the Opinion of 7 December 2004
and with the Letter of confirmation of 22 January 2005; an unconnected reading can imply the non perfect understanding of the approaches and methods adopted by Studio Casò and of the conclusions reached by Studio Casò. 

 
 The assignment conferred to Studio Casò specifically excluded: 
  

	 	a)	the survey of legal, fiscal and accounting aspects of the said deal, as well as the assessment of the economic and strategic drivers of the expected business integration;

  

	 	b)	any verification of the financial and economic data, of the prospective data and of any information provided by Telecom Italia Mobile SpA; the Company conferring the assignment was
the sole responsible both of the truthfulness and of the accuracy and completeness of the said data and information. 

  
 The conclusions reached by Studio Casò have relied on the assumption that the Company has not suppressed any event or situation that could, even potentially,
affect the said data and information, and on the additional assumption of the completeness and truthfulness of all the data and information. 
  
 The Opinion delivered on 7 December 2004 has been drawn up disregarding any possible effect arising from the Tender Offer (Offerta Pubblica di Acquisto - OPA)
subsequently launched by Telecom Italia SpA on the shares of Telecom Italia Mobile SpA. 
  
 These effects have, conversely, been taken into consideration in drawing up the confirmation letter dated 22 January 2005. 
  
 The data and information used are the following: 
  
 Opinion of 7 December 2004: 
  

	 	•	 	Annual Separate Financial Statements and Consolidated Financial Statements of Telecom Italia S.p.A. as of 31 December 2003; 

  

	 	•	 	Annual Separate Financial Statements and Consolidated Financial Statements of Telecom Italia Mobile S.p.A. as of 31 December 2003; 

  

	 	•	 	Half-year Report as of 30 June 2004 of Telecom Italia S.p.A 

  

	 	•	 	Half-year Report as of 30 June 2004 of Telecom Italia Mobile S.p.A. 

  

	 	•	 	Quarterly Report as of 30 September 2004 of Telecom Italia S.p.A. 

  

 This document has been translated into the English language solely for the convenience of international readers. To all intents
and purposes the only text in the Italian language is valid. 
  

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	 	•	 	Quarterly Report as of 30 September 2004 of Telecom Italia Mobile S.p.A. 

  

	 	•	 	Industrial Plan for the period 2005-2007 of Telecom Italia S.p.A.; 

  

	 	•	 	Industrial Plan for the period 2005-2007 of Telecom Italia Mobile S.p.A.; 

  

	 	•	 	Consolidated Cash-flow statement of Telecom Italia S.p.A. for the period 2005-2007; 

  

	 	•	 	Statement of cash-flow by business unit for the period 2005-2007; 

  

	 	•	 	Corporate By-laws of Telecom Italia S.p.A. and Telecom Italia Mobile S.p.A. 

  

	 	•	 	Valuations and reports on the companies carried out by financial analysts; 

  

	 	•	 	Studies and evaluations of competing companies and the markets where the companies operate; 

  

	 	•	 	Performance of the share price of Telecom Italia S.p.A., Telecom Italia Mobile S.p.A. and other companies of the Group. 

  
 Confirmation letter of 22 January 2005, besides the above: 
  

	 	•	 	The offering document issued by Telecom Italia S.p.A. according to D. Lgs. 58/1998; 

  

	 	•	 	The press release of Telecom Italia SpA dated 21 January 2005. 

  
 * * * 
  
 General methodological choices. 
  

	 	1.	The evaluations have been carried out taking into account the operative autonomy of the companies (stand alone) before the merger and thus leaving aside any effect that could arise
from the merger, as synergies of operative, financial or strategic kind that could possibly arise from the business combination. 

  

	 	2.	Given the purposes of the assignment, in order to establish relative values able to state the fair ratio between the value of the shares of the two companies, we applied homogenous
valuation criteria. 

  

	 	3.	Making the choice among different methods (used in doctrine and in procedure) we have identified as the most suitable in the case in point the method based on Stock Exchange
quotations given that both the companies were (and are) listed on the same regulated market, that a significant share of their stock capital was (and is) outstanding on such market and that the shares were (and are) not illiquid and subject to non
transient daily exchanges. 

  
 The different
time-frames (spans) used and the different systems adopted to calculate the averages have allowed us to identify a range of values to give to the exchange ratio between the two companies. 
  

	 	4.	The results obtained, to the sole purpose of verifying the values indicated by the Stock Exchange quotations, have been compared with the results obtained with the Sum of
Parts approach (results constituted, in this last case, by a precise value). 

  

	 	5.	In drawing up the confirmation letter of 22 January 2005 we have deemed that no event had occurred that could involve the need to adopt a method different from the one based on
market prices to establish the range of values to be attributed to the exchange of the shares of the two Companies. 

  
 It was, conversely, necessary, again to the sole purpose of verifying the values indicated by the market, to compare over again these results with the
ones resulting from the approach of the Sum of Parts. This because the evaluation of the two merging Companies has been made taking into account the outcome of the OPA launched by Telecom Italia SpA on the shares of Telecom Italia Mobile SpA.

  
 Applying the method based on market prices. 
  
 We have made an analysis of the prices of the shares of Telecom Italia S.p.A. and of Telecom
Italia Mobile S.p.A. in different periods of time to 3 December 2004, last day of the Exchange trading of the shares before the suspension requested by the Companies. In particular, we have taken into consideration the official prices 
  

 This document has been translated into the
English language solely for the convenience of international readers. To all intents and purposes the only text in the Italian language is valid. 
  

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weighed by the trading volumes as they were recorded on the Telematic Capital Market of Milano operated by Borsa Italiana SpA (source: Datastream), for the
following periods: 
  
 3 December 2004 (precise date) 

1 month to 3 December 2004 
 3 months to 3
December 2004 
 6 months to 3 December 2004 
 12 months to 3 December 2004. 
  
 The analysis
showed that the marked prices after 16 November 2004 are affected by the market expectations subsequent to rumours related to the reorganization of the Group Telecom Italia. 
  
 Therefore, the reference date taken as final date for the calculations has been 16 November 2004 and the time periods considered have been
the following: 
  
 16 November 2004 (precise date) 
 1 month to 16 November 2004 
 3 months to 16
November 2004 
 6 months to 16 November 2004 
 12 months to 16 November 2004. 
  
 As to the
confirmation letter of 22 January 2005, the date taken as final date for the calculations has not been modified because the prices after 3 December 2004 have been affected by the news concerning the extraordinary transactions resolved by the boards
of directors of Telecom Italia SpA and of Telecom Italia Mobile SpA. 
  
 Applying the Sum of Parts. 
  
 The “Sum of Parts” has
been used as a method to confirm the results obtained with the evaluation based on the market prices. It consists of the separate evaluation of the individual business making up the Group to be evaluated and of the subsequent sum of the values thus
obtained. 
  
 The evaluation of the individual business units has been made
considering these units as separate economic entities, net of the relative net financial position as of 31 December 2004, taking into account the interest share of the Group being evaluated. 
  
 The procedure has been applied both to the Group Telecom Italia SpA and to the Group Telecom
Italia Mobile spA. 
  
 By applying it the main business units have been evaluated
with the method of the unlevered discounted cash flow. 
  
 The evaluation of the
other activities, considered their limited importance within the total evaluation of the Group, has been made making reference to the average stock exchange capitalization, if connected to listed companies and to market multiples or carrying values
if connected to not listed companies. 
  
 The main choices we have made by
applying the Unlevered Discounted Cash Flow method have been the following. 
  

	 	•	 	We made reference to the analytic forecasts of the cash flows ensuing from the operating management and contained in the Plan prepared by the Companies without any revision nor
further projection in regard to the time period indicated by the Companies (2005/2007) 

  

	 	•	 	These cash flows have been considered net of the fiscal charge to be calculated on the operating earning (EBIT). 

  

	 	•	 	Besides the period of analytical forecast, it has been assumed a steady-state growth rate of the net operating cash flow of the year 2007. To establish the growth rates we have
considered long term growth rates lined up with market benchmarks. 

  

	 	•	 	The rate used to discount the cash flows has been established as “weighted average cost of capital “Wacc”, computed assuming a target financial structure.

  

	 	•	 	We have made reference to the net financial position foreseen at 31 December 2004 (this also as prepared and indicated by the Companies). 

  

 This document has been translated into the
English language solely for the convenience of international readers. To all intents and purposes the only text in the Italian language is valid. 
  

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 Conclusions represented in the Opinion of 7 December 2004 and confirmed in the Letter of 22 January 2005

  
 The exchange ratio between the shares of Telecom Italia SpA and Telecom
Italia Mobile SpA has been deemed fair if falling within the following range 
  

			
	 Ordinary shares
	  	1,71 – 1,78
	 Savings shares
	  	2,30 – 2,42

  
 The range has been established with
the market prices method. However, it has been pointed out, as additional information, that by applying the Sum of Parts procedure, as briefly described above, we have obtained an exchange ratio which value falls within the said range. 

 
 * * * 
  
 The assignment to Studio Caso has been conferred on 5 December 2004 by the Board of Directors of Telecom Italia Mobile SpA following
appointment of the Audit Committee of the Company. 
  
 Studio Caso, in the person
of Dott. Angelo Caso, has been asked to draw up a professional opinion, of a technical nature, concerning the fairness of the exchange ratio of the shares between the two Companies parties to the merger. 
  
 Thus, it doesn’t deal neither with an advice and assistance activity on behalf of the
Company nor with an activity meaning to complete the decision making process of Telecom Italia Mobile SpA. 
  
 Neither it dealt with the drawing up of a “survey report” nor a “estimate” according to Stock Exchange Regulation. 
  
 With reference to the assignment conferred to Studio Caso it was agreed an all-inclusive fee (expenses included) amounting to €
2.000.000,00 (two millions), plus Welfare Fund and VAT. 
  
 No further
remuneration connected to the successful outcome of the operations of the two Companies has been foreseen in favour of Studio Caso given the neutral and independent contents of the requested Opinion. 
  
 Studio Caso has not supplied nor supplies other services in favour of the two Companies
parties to the merger. 
  

 This
document has been translated into the English language solely for the convenience of international readers. To all intents and purposes the only text in the Italian language is valid. 
  

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 ANNEX XVI 
  

 
 Telecom Italia S.p.A. 
  
 PRO-FORMA CONSOLIDATED FINANCIAL INFORMATION 
 as of and for the year ended December 31, 2004 
  
 INDEPENDENT AUDITORS’ REPORT ON EXAMINATION 
 OF PRO-FORMA CONSOLIDATED FINANCIAL INFORMATION 
 (Translation from the original Italian text) 

Table of Contents

 INDEPENDENT AUDITORS’ REPORT ON EXAMINATION 
 OF PRO-FORMA CONSOLIDATED FINANCIAL INFORMATION 
 (Translation from the original Italian
text) 
  
 To the Board of Directors of 
 Telecom Italia S.p.A. 
  

	1.	We examined the financial information consisting of pro-forma consolidated balance sheet and consolidated income statement (the “Pro-forma Consolidated Financial
Information”), accompanied by the explanatory notes, of the Telecom Italia Group as of and for the year ended December 31, 2004. 

  

	  	Such Pro-forma Consolidated Financial Information derive from the historical data of the consolidated financial statements of Telecom Italia S.p.A. as of and for the year ended
December 31, 2004 and from the pro-forma adjustments applied to such data and examined by us. The consolidated financial statements as of and for the year ended December 31, 2004 have been audited by us and we have issued our auditors’ report
on March 16, 2005. 

  

	  	The Pro-forma Consolidated Financial Information have been prepared on the basis of the assumptions described in the explanatory notes to reflect the effects of the merger by
incorporation of Telecom Italia Mobile S.p.A. into Telecom Italia S.p.A., detailed in the Plan for the Merger adopted by the Boards of Directors of Telecom Italia Mobile S.p.A. and Telecom Italia S.p.A. on January 23, 2005. 

 

	2.	The Pro-forma Consolidated Financial Information, accompanied by the explanatory notes, as of and for the year ended December 31, 2004, have been prepared as required by article 70
of Consob Rule n.11971/99, and subsequent changes, in application of Law Decree n. 58/98 concerning the regulations governing listed companies. 

  

	  	The scope of the preparation of the Pro-forma Consolidated Financial Information is to present, in accordance with valuation criteria consistent with the historical financial data
and with the applicable regulations, the effects of the above mentioned merger transaction on the consolidated economic trend and on the consolidated balance sheet of the Telecom Italia Group, as if such transaction virtually occurred on December
31, 2004 and, with respect to the economic effects only, at the beginning of the year 2004. However, it should be noted that if the merger transaction had actually occurred on such dates, the results that are presented therein would not be
necessarily obtained. 

  

	  	The directors of Telecom Italia S.p.A. are responsible for the preparation of the Pro-forma Consolidated Financial Information. Our responsibility is to express an opinion on the
reasonableness of the assumptions adopted by the directors for the preparation of the Pro-forma Consolidated Financial Information and on the correctness of the methodology utilized in preparing such data. In addition, it is our responsibility to
express an opinion on the correctness of the valuation criteria and of the accounting principles applied. 

  

	3.	Our examination has been made in accordance with the criteria recommended by Consob in its Recommendation n. DEM/1061609 of August 9, 2001 for the examination of the pro-forma data
and applying the procedures we deemed necessary in the circumstances with respect to the engagement received. 

  

	4.	In our opinion, the assumptions adopted by Telecom Italia S.p.A. for the preparation of the financial information of the pro-forma consolidated balance sheet and consolidated income
statement of the Telecom Italia Group as of and for the year ended December 31, 2004, accompanied by the explanatory notes to reflect the merger of Telecom Italia Mobile S.p.A. into Telecom Italia S.p.A., described under paragraph 1 above, are
reasonable and the methodology utilized for the preparation of the above mentioned financial information has been properly applied for the information purposes described above. In addition, we believe that the valuation criteria and the accounting
principles have been properly applied for the preparation of such data. 

  
 Milan, March 23, 2005 
  
 Reconta Ernst & Young S.p.A.

 Signed by: Felice Persico, Partner 
  

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 ANNEX XVII 
  

Shareholders’ agreements published pursuant to Article 122 of Legislative decree n. 98/1998 
  
  

Table of Contents

 Shareholders’ agreement between Pirelli & C. SpA (succeeded to Pirelli SpA*) and Edizione Holding SpA

  

			
	 -        August 7, 2001 - signing
	  	pg.   3
	 -        September 14, 2001 - first act of amendment
	  	pg. 15
	 -        February 13, 2002 - second act of amendment
	  	pg. 17

  
 Shareholders’ agreement
between Pirelli & C. SpA, (succeeded to Pirelli SpA*) Intesa SpA and Unicredito Italiano SpA 
  

			
	 -        September 14, 2001 - signing
	  	pg. 20
	 -        September 26, 2001 - first act of amendment
	  	pg. 37
	 -        October 24, 2001 - second act of amendment
	  	pg. 42
	 -        December 16, 2003 - third act of amendment
	  	pg. 45

  
 Shareholders’ agreement
between Pirelli & C. SpA, (succeeded to Pirelli SpA*) Edizione Finance, Edizione Holding, Intesa SpA and Unicredito Italiano SpA 
  

			
	 -        February 21, 2003 - signing
	  	pg. 51
	 -        January 23, 2004 - first act of amendment
	  	pg. 94
	 -        January 28, 2005 - second act of amendment
	  	pg. 99

  

 (*) As of august 4, 2003, following the consummation of the merger by incorporation of Pirelli SpA into Pirelli & C. SpA. 
  

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 AGREEMENT BETWEEN PARTNERS 
  
 Between PIRELLI S.p.A. (joint-stock company, based in Milan, viale Sarca 222, having 1,042,775,333.08 Euros in stock capital, inscribed in
the Milan Registry of Businesses, fiscal code and value-added tax number 0086890151, in the person of Chairman of the Board of Directors Dr. Marco Tronchetti Provera, who was granted the necessary powers through a resolution by the Board of
Directors on July 28, 2001 (hereafter referred to as “Pirelli”) 
  
 - as one party - 
  
 and EDIZIONE HOLDING S.P.A., based in
Treviso, Calmaggiore 23, with 90,692,800,000 lire in stock capital, inscribed in the Treviso Registry of Businesses under number 13945, fiscal code and value-added tax number 00778430264, in the person of Managing Director Dr. Gianni Mion, who was
granted the necessary powers through a resolution of the Board of Directors on July 27, 2001 (hereafter referred to as “Edizione”) 
  
 - as the other party - 
  
 whereas 
  
 (a)    on the date of July 30, 2001, Pirelli and Edizione signed an offer to acquire, directly or through a subsidiary company to be named by the execution date as provided for therein, Olivetti
Stock and Olivetti Warrants (as defined in paragraphs 1.01 and 1.23, respectively), from BELL S.A. (Spanish abbreviation for “company”) 
  
 (b)    the offer by Pirelli and Edizione was accepted on the same date by BELL S.A. and the Contract (as defined in paragraph 1.04) was then drawn up;

  
 (c)    the Parties (as defined in paragraph 1.15) intend
to designate a common assignee company to proceed with the acquisition of Olivetti Stock and Olivetti Warrants; 
  
 (d)    to achieve the objectives indicated in the preceding premise, the Parties constituted the Company (as defined in paragraph 1.18) on the date of
August 3, 2001, and Edizione shall have 20% (twenty percent) participation in it and Pirelli shall have 80% (eighty percent) participation; 
  
 (e)    in executing separate agreements between the Parties and BELL S.A. and G.P.P. INTERNATIONAL S.A., on the date of July 30, 2001, Pirelli
acquired, acting also on behalf of Edizione, through a wholly subsidiary company, Kallithea S.p.A. (formerly S.r.l.) (limited-responsibility partnership), the Remaining Olivetti Stock (as defined in paragraph 1.16), which on the same date paid the
Price (as defined in paragraph 1.16), using the liquidity made available to it by Pirelli through Financing (as defined in paragraph 1.08); 
  
 (f)    the Parties intend to ensure that the Remaining Olivetti Stock are transferred to the Company as soon as possible and in any case no later than
August 30, 2001, against payment augmented by financial obligations related to the Financing, to be made on August 30, 2001, of the value as of that date; 
  
 (g)    Pirelli owns Pirelli Participations and Edizione owns Edizione Participations (as defined in paragraphs 1.13 and 1.14, respectively), which
both Parties intend to transfer and cause to be transferred to the Company for the respective unitary prices of 2,1734 (check original) and 2,172 Euros (representing their respective average prices); 
  
 (h)    upon completion of the preceding transactions, especially once the
conditions contained in the Contract are fulfilled, the Company shall be the owner of the Participations (as defined in paragraph 1.12); 
  
 (i)    Pirelli and Edizione intend to invoke the same conditions relative to the agreements made between them on the date of July 30, 2001, with
respect to their reciprocal relationships as partners in the Company; 
  

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 all these premises being stated, 
 and being an integral part of the agreement, the following is stipulated and agreed upon: 
  
 ARTICLE I 
 Definitions

  
 In addition to the terms defined in other clauses of the Agreement (as
defined in paragraph 1.06), for the purposes of the same, each of the terms listed below shall have the stated meaning: 
  
 1.01    “Olivetti Stock”: 1,552,662,120 ordinary shares of Olivetti S.p.A., which is the subject of the Contract. 
  
 1.02    “Company Stock”: 20% of the Company’s capital
stock. 
  
 1.03    “Conditions”: conditions for
suspension of the transfer of Olivetti Stock and Olivetti Warrants (as defined in paragraph 1.23) with regard to obtaining the Authorizations as provided for and required by the Contract.  
  
 1.04    “Contract”: the offer dated July 30, 2001, made by
Pirelli and Edizione to BELL S.A., accepted on the same date with regard to the contract of sale of Olivetti Stock and Olivetti Warrants. 
  
 1.05    “Strategic Subsidiaries”: companies controlled by the Olivetti Group (as defined in paragraph 1.10 below), non quoted and operating
in these sectors: infrastructures and services including the Internet, advertising collections, telephone annuities, television. 
  
 1.06    “Agreement”: this agreement between Partners stipulated on this date between Pirelli and Edizione. 
  
 1.07    “Execution Date”: the second Business Day (as defined
in paragraph 1.09) preceding (stet) the execution date of the Contract. 
  
 1.08    “Financing”: the interest-bearing financing granted by Pirelli to Kallithea S.p.A. on July 30, 2001, with interest tied to the Euribor rate at 0.25% per month on an annualized basis. 
  
 1.09    “Business Day”: every calendar day, except for
Saturdays, Sundays and days when banks are closed for normal business in the Milan market. 
  
 1.10    “Olivetti Group”: the companies of Olivetti S.p.A., Telecom Italia S.p.A., Telecom Italia Mobile S.p.A. and Seat-Pagine Gialle S.p.A.. 
  
 1.11    “Olivetti”: the company Olivetti S.p.A., based in
Ivrea, Via Jervis, no. 77. 
  
 1.12    “Participation”: Participation Pirelli, Participation Edizione, Olivetti Stock, Olivetti Warrants and the Remaining Olivetti Stock. 
  
 1.13    “Participation Edizione”: the 134,322,250 ordinary Olivetti Stock belonging to Edizione. 

 
 1.14    “Participations Pirelli”: the 130,980,000 ordinary
Olivetti Stock owned by Pirelli. 
  
 1.15    “Party”/“Parties”: Edizione and Pirelli, together or separately. 
  
 1.16    “Price”: the sum of 4.175 (four point one seven five) Euros for each Olivetti share. 
  
 1.17    “Seat”: the company Seat-Pagine Gialle S.p.A., based in
Turin, Via A. Saffi no. 18. 
  
 1.18    “Company”:
the limited-responsibility company that the Parties constituted on August 3, 2001, and which will be turned into a stock company by August 30, 2001, for the acquisition of the Participations. 
  
 1.19    “Statute”: the company statute that the Parties shall
adopt by August 30, 2001, a copy of which is attached here under number 1.19. 
  
 1.20    “Telecom Italia”: the company Telecom Italia S.p.A., based in Turin, Via Bertola no. 34. 
  
 1.21    “TIM”: the company Telecom Italia Mobile S.p.A., based in Turin, Via Bertola no. 34. 
  
 1.22    “Remaining Olivetti Stock”: 147,337,880 ordinary
Olivetti Stock already acquired by Kallithea S.p.A. 
  
 1.23    “Olivetti Warrants”: 68,409,125 Olivetti warrants for 2001-2002, which are the subject of the Contract. 
  

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 ARTICLE II 
 Capitalization of the Company 
  
 The
Parties hereby agree, by August 30, 2001 to adopt the text of the Corporate By-laws and to endow the Company with the means sufficient to enable the Company to acquire additional Olivetti Stock, the Pirelli Participation and the Edizione
Participation, in an amount not less than 5,200,000,000 Euros, participating in Edizione, in the amount of no less than 20% (twenty percent), and in Pirelli, in the amount of no less than 80% (eighty percent). 
  
 ARTICLE III 
 Designation of Third Parties 
  
 (a)    The rights and obligations of the Parties deriving from this Agreement shall be understood to be assumed by the Parties unto themselves and/or
by the person to be named by these parties by the Execution Date, in accordance and in observance with the terms established in Articles 1401 et sig. of the Civil Code and in accordance with the following conditions: 
  

	 	(i)	the designation may be made to only one person; 

  

	 	(ii)	the person named must be a company controlled by the nominating Party or must have 100% control over the nominating Party; 

  
 (b)    The nomination of the third party as established above and the
respective acceptance thereof (when necessary) may occur through simple written statements, even arriving separately, as long as they are delivered to the other Party by the Execution Date, without any other restrictions in terms of the form (or any
other nature), with a tacit understanding that the terms and stipulations of Article 1403 of the Civil Code are hereby waived; 
  
 (c)    each Party shall remain fully responsible for the person designated in accordance with the aforementioned stipulations; 
  
 (d)    to all effects of Article III herein, Edizione shall name its own
100% controlled company Edizione Finance International S.A.. 
  
 ARTICLE IV 
 Corporate Governance Bodies of the Company 
  
 4.01    Composition of the Board of Directors. For the entire term
of the present Agreement, the Parties hereby agree to do everything in their power, within the limits permitted by law so that: 
  

	 	(i)	The Board of Directors of the Companies is composed of 10 (ten) members; 

  

	 	(ii)	2 (two) Board Members out of 10 (ten) are named by Edizione; 

  

	 	(iii)	in the event that a Executive Committee is name, 1 (one) of its members shall be elected from the 2 (two) board members named by Edizione; 

  

	 	(iv)	The Vice-President of the Board of Directors is named by Edizione from the 2 (two) board members named by Edizione; this person shall have the powers of vice-legal representative of
the company. 

  
 4.02    Transfer of
Duties. In the event that, for any reason whatsoever, including death, termination of the work agreement, or revocation on the part of the assembly of shareholders, one of the members of the board of directors named in accordance with the
stipulations established herein should cease to perform the duties inherent in the position of board member, the Parties hereby agree to do everything in their power so that, within the limits established by law, the board member to replace the
outgoing one should be named by the Assembly of shareholders of the company (and before that meeting during the preparatory meeting of the Board of Directors of company), in the person named by the Party who had named the person to be replaced.

  
 4.03    The Board of Auditors. For the entire term
of this Agreement, the Parties hereby agree to do everything in their power so that, in the limits established by law, one actual board member and one alternate board member shall be named by Edizione. 
  
 4.04    Confidential Material. Pirelli hereby agrees to do
everything in its power, within the limits of law, so that no decision should be made by the Board of Directors of the Company without the favorable vote of at least one 

  

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of the board members named by Edizione (if present) in application of section 4.01 on the following points of business: 
  

	–	an indication of the vote to be made by the Ordinary and Extraordinary Assemblies of Olivetti; 

  

	–	the purchase, sale, or arrangement in any manner of shares with a total value greater than 100,000,000 Euros per transaction; 

  

	–	decisions relating to the relations between the holdings of the Company and the holdings of third parties and the methods, terms, and conditions for sources of external financing;

  

	–	proposals for decisions to be placed before the Extraordinary Assembly of shareholders of the Company. 

  
 ARTICLE V 
 The Entrance of New Partners 
  
 5.01    Pledges Made by the Parties. Waiving the stipulations of the Corporate By-laws, in particular in reference to the clauses relating to the Right of Pre-Emption and the Right of Co-sale, the Parties hereby
agree that Pirelli, possibly in the period between the date in which the Company shall be constituted and the Execution Date, but even subsequent to that date, shall have the right to transfer shares of the Company to one or more parties up to the
total of 20% (twenty percent) of the corporate capital of the Company, as longer as the buyers found by Pirelli for those purposes have received prior approval by Edizione, it remaining understood that this approval cannot be denied without valid
reasons and motives if these companies are, in fact, financial partners, and in the event of entrance into the share capital of Unicredito S.p.A. and/or Banca Intesa BCI S.p.A., which is under discussion, Edizione gives it assent from this moment
forward. 
  
 5.02    Formalities. (a) For the purposes
of the application of section 5.01 of this Agreement, Pirelli shall send Edizione a communication in the form established in section 14.02, including an indication of the number of shares reserved for sale to parties in accordance with section 5.01
above. 
  
 (b)    within a period of 5 (five) business days
from the receipt of the aforementioned communication, Edizione must give its consent, where necessary in relation to the aforementioned matters, with a communication sent to Pirelli in the form established in section 14.02. It is hereby understood
that in the event that Edizione fails to provide a communication within the aforementioned period, Pirelli may sell the shares in the Company to the third parties that it has found and communicated, as if Edizione had granted its consent, with the
limit of 20% (twenty percent) of the corporate capital discussed in section 5.01 above remaining in effect in any case. 
  
 ARTICLE VI 
 Opa on Olivetti
Shares 
  
 For the entire term of this Agreement, the Parties hereby agree
that, in the event that third parties should make a public offer of purchase with the intention of acquiring the Olivetti shares, in accordance with Legislative Decree 58/98, Edizione hereby agrees, from this time forward, when so requested by
Pirelli through communication sent in the form established in section 14.02, and in accordance with the applicable stipulations of law, not to oppose, and to do everything so that the members of the Board of Directors of the Company do not oppose
the acceptance of the public offer of purchase of the Company. 
  
 ARTICLE VII 
 Corporate Bodies of the Olivetti Group 
  
 7.01    Composition of the Board of Directors of Olivetti. For the
entire term of this Agreement, the Parties hereby agree to do everything in their power, within the limits established by Law, that in the Board of Directors of Olivetti, Telecom, TIM, and Seat (the “Olivetti Companies”):

  

	 	(i)	one fifth of the components of the Board of Directors of the Olivetti Companies (rounded off to the greater number up to two (2) board members), after the specific determination of
the exact number of board members that shall compose the board, whose designation is not reserved by stipulations of law, by-laws, or regulations, to the market or other parties, be named by Edizione. 

  

	 	(ii)	the Vice-President of the Board of Directors of the Olivetti Companies, with the powers of vice-legal representative, be named from among the board members named by Edizione in
accordance with the terms established above. 

  

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	 	(iii)	in the event of the formation of an executive committee, 1 (one) of its members shall be elected from the board member or board members named by Edizione. 

 
 7.02    Composition of the Board of Directors of the Strategic
Controlled Companies. For the entire term of this Agreement, the Parties hereby agree to do everything in their power, within the limits established by Law, that in the Board of Directors of the Strategic Controlled Companies: 
  

	 	(i)	one fifth of the components of the Board of Directors of the Strategic Controlled Companies, after the specific determination of the exact number of board members that shall compose
the board, be named by Edizione. 

  

	 	(ii)	the Vice-President of the Board of Directors of the Strategic Controlled Companies, with the powers of vice-legal representative, be named from among the board members named by
Edizione in accordance with the terms established above. 

  
 7.03    For the entire term of this Agreement and notwithstanding the points established in sections 7.01 and 7.02 above, Edizione hereby agrees not to present opposition to the fact that the members of the Board of
Directors of the Olivetti Companies and the Strategic Controlled Companies not named by Edizione, the Market, or Government Agencies, shall be named by Pirelli. 
  

7.04    Termination of Duties. In the event that, for any reason whatsoever, including death, termination of the work agreement, or
revocation on the part of the assembly of shareholders, one of the members of the board of directors named in accordance with the stipulations established herein should cease to perform the duties inherent in the position of board member, the
Parties hereby agree to do everything in their power so that, within the limits established by law, the board member to replace the outgoing one should be named by the Assembly of shareholders of the company (and before that meeting during the
preparatory meeting of the Board of Directors of company), in the person named by the Party who had named the person to be replaced. 
  
 ARTICLE VIII 
 Decisions Made
By the Board of Directors of the Olivetti Companies 
  
 8.01    Confidential Material. Waiving any stipulation to the contrary in the corporate bylaws, Pirelli hereby agrees to do everything in its power, within the limits of law, so that no decision should be made by
the Board of Directors of the Company without the favorable vote of at least one of the board members named by Edizione (if present) in application of section 7.01 on the following points of business: 
  

	 	(i)	individual investments greater than 250 million Euros; 

  

	 	(ii)	purchase, sale and deeds of disposition for any reason whatsoever of controlling and connecting shareholdings with a unit value of more than 250 million Euros;

  

	 	(iii)	deeds of disposition for any reason whatsoever of firms or branches thereof individually greater than 250 million Euros; 

  

	 	(iv)	proposals to call the Extraordinary Meeting 

  

	 	(v)	Infragroup transactions between the Olivetti group and the Pirelli group for amounts individually greater than 50 million Euros; 

  

	 	(vi)	Transactions with related parties. 

  
 ARTICLE IX 
 Regulations Governing a Deadlock Situation 

 
 9.01    Identification of Deadlock Situations. For the purposes
of Article IX herein, the following may be considered “Deadlock” situations: 
  

	 	(i)	A deadlock situation may occur as a result of a disagreement between the Parties such as to cause reasonable prospects of the inability to pass resolutions at the Extraordinary
Assembly of the Company, or a decision of the Board of Directors of the Company in the matters of business discussed in section 4.04, or a decision of the Board of Directors of the Olivetti Companies cannot be validly made in accordance with the
corporate by-laws of the company or the stipulations of section 4.04 or the situations discussed in section 8.01 of this Agreement; and 

  

	 	(ii)	The situation was the subject of a meeting between the parties in accordance with section 9.02 below. 

  

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 9.02    Obligation of the parties to hold a meeting. 
  
 The Parties hereby agree to hold a meeting in the event that a Deadlock Situation should
arise, as defined in point (i) of section 9.01 above. 
  
 9.03    Procedure: (a) In order to fulfill the obligations assumed in accordance with section 9.02 above, the Parties hereby agree to meet, that is to consult with each other, through teleconference or video
conference within and no later than the third (3rd) day preceding the date established for the meeting of the board of the Company, or the board of Olivetti, or, immediately, as soon as notification has been received, in the event of the urgent
convocation of a meeting of the board of the Company, or the board of Olivetti, in accordance with the applicable legal stipulations. 
  
 (b)    During the meeting discussed in the above section, the Parties will do everything in their power to reach an agreement and/or to identify a
common direction on the matters placed before them for examination, to these effects, and to act in good faith in these matters. 
  
 (c)    The unexcused absence of one of the Parties to the meeting or the abstention from the decisions reached during these meetings shall imply the
acceptance of the decisions reached by the other Party and shall obligate the absent or abstaining Party to accept these decisions. 
  
 9.04    Expression of Will. (a) In the event that during the meetings discussed in sections 9.02 and 9.03 above, the Parties should reach an
agreement in terms of the matters which form the subject of the aforementioned meeting, the Parties shall be obligated to express their will in applicable forums in accordance with the following stipulations: 
  

	 	(i)	by naming a common representative for participation in the extraordinary assembly of the Company and to cast a vote in this assembly, in a manner consistent with the points agreed
upon; 

  

	 	(ii)	ensuring that their own representatives to the Board of Directors of the Company and to the Board of Directors of the Olivetti Companies participate in the board meeting and cast
their vote during this meeting in a manner consistent with the points agreed upon. 

  
 (b)    On the other hand, in the event that the Parties are not able to come to an agreement on the matters which form the subject of the aforementioned meeting, Edizione will be obligated to
abstain from taking part in the meeting of the board and from casting its vote or having its vote cast and/or to abstain from expressing its wishes or taking a stand on the matters which form the subject of the aforementioned meeting, in any meeting
or in any manner, notwithstanding the stipulations established in point (c) below. 
  
 (c)    In the event that the situation discussed in point (b) above should occur, Edizione shall have the right to send Pirelli a “Notice of Deadlock Situation” by telegram or registered letters, in
accordance with the terms of Section 14.02, within 15 (fifteen) days from the conclusion of the meeting discussed in section 9.03. 
  
 (d)    In the event that the Deadlock Situation discussed in section 9.01 should persist, and if the situation discussed in point (b) should occur,
and if Pirelli does not receive the Notice of Deadlock Situation in the term established in point (c) above, Pirelli shall have the right to send Edizione, by telegram or registered letter, and in accordance with the terms established in section
14.02, a Notice of Deadlock Situation to be received by Edizione within 15 (fifteen) days from the conclusion of the term established in point (c) above. 
  
 9.05    Rights of the Parties. (a) In the event that one of the Parties should send the other Party a Notice of Deadlock Situation in the terms
established in points (c) and (d) of section 9.04: 
  

	 	(i)	Edizione shall have the right (which shall be considered to be exercised with the receipt by Pirelli of the Notice of Deadlock Situation, in the terms established in point (c) of
section 9.04 above) to sell to Pirelli, which will have the corresponding obligation of purchasing, all, and not part, of the Company shares at a price determined in accordance with the stipulations established in point (b) below; and

  

	 	(ii)	Pirelli shall have the right (which shall be considered to be exercised with the receipt by Edizione of the Notice of Deadlock Situation, in the terms established in point (d) of
section 9.04 above) to purchase from Edizione, which will have the corresponding obligation of selling, all, and not part, of the Company shares at a price determined in accordance with the stipulations established in point (b) below.

  
 (b)    For the purposes of point (a) above,
the Parties hereby agree that the object of the decision shall be (x) the price of the Company Shares, taking into account the economic value thereof (“The Price of the Company 

  

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Shares”) and (y) a value which is the expression of the pro-quota of the majority premium as if the Company Shares were the expression of
Olivetti control (“Premium”). The Price of the Company Shares and the Premium shall be determined through common agreement between Pirelli and Edizione within 10 business days from the date on which one of the Parties has received
notification from the other party, in accordance with the terms established in point (a), or, if there is no agreement, by two investment banks of international standing, one of which chosen by each of the Parties. In the event of any disagreement
between the two investment banks appointed as stated hereinabove, and if they are unable to fix the price and establish the premium within a period of 30 business days from the date on which they are named, the two banks shall name a third
investment bank [indicated at the time that the two banks are named] of similar international standing which shall have the task of determining, with a binding effect on the Parties within the framework of the figures determined by the two banks,
both the Price and the Premium. In case of disagreement of the two investment banks about the designation of the aforementioned third bank, the Chief of the Court of Milan shall name the bank. The Chief of the Court of Milan shall also be authorized
[in the order and in the terms indicated above] to name the investment bank which one of the Parties has failed to name or to replace it in the event that it no longer performs this function. 
  
 (c)    The figures reached in accordance with point (b) above, and thus
the Price of the Company shares and the Premium determined on this basis, shall be definitively binding for the Parties, in accordance with Articles 1349 and 1473 of the Civil Code, for the buying and selling transactions discussed in point (a)
above. 
  
 (d)    The sales transaction shall be made within
30 (thirty) business days from the receipt of the communication to the Parties of the evaluation discussed in point (b) above, and the price included therein shall be understood as payable in cash at the time of the transfer of the Company Shares
discussed in section 9.06 below. 
  
 9.06    Transfers.
In the event that the Company Shares are to be sold in accordance with section 9.05 (a), the following stipulations shall be applicable: 
  

	 	(i)	the Company shares shall be understood as transferred for regular use on the date established in point (iii) below; 

  

	 	(ii)	the rights of ownership of the Shares sold shall be understood as transferred to the buyer on the date established in point (iii) below; 

  

	 	(iii)	the transfer of the Shares and the payment of the price for them shall take place at the offices of the Company, at 11:00 a.m. on the 5th (fifth) business day subsequent to the date
on which the sale was concluded, in accordance with section 9.04(d) above, respecting, when applicable, any authorizations on the part of the competent authorities having jurisdiction over the Parties in relation to the sale;

  

	 	(iv)	when the transfer and the payment established by point (iii) above have been made, the Company shares shall be free of restrictions or liens or third party rights of any nature.

  

	 	(v)	the expenses, fees, or indirect taxes relating to the sale of the Company Shares shall be paid by the buyer; 

  

	 	(vi)	the taxes relating to capital gains made by the seller shall be paid by the seller; 

  

	 	(vii)	at the same time as the transfer of the Shares and the payment of the respective price, the seller shall make sure that the board members (actual and alternate) named by the Seller
shall retire from their position on the Boards of the Company and of Olivetti. 

  
 ARTICLE X 
 Collateral Purchases 
  
 10.01    Obligations of the Parties. (a) for the entire term of
this Agreement the Parties, unto themselves and through the companies controlled by them or the companies that control them, in accordance with the terms of Article 2359, section one of the Civil Code, may not purchase shares or bonds in Olivetti
and/or Warrants which give them the right to purchase shares or bonds which may be converted into Olivetti shares, issued by Olivetti or Olivetti companies. 
  
 (b)    The Company may not purchase the shares and bonds and the financial instruments indicated in point (a) above in the amount exceeding the opa
threshold of 30% (thirty percent), including the shares actually held either directly or indirectly. 
  

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 ARTICLE XI 
 Penalty for breach of agreement 
  
 In the
event of the non-performance of one or more of the commitments assumed pursuant to the provisions set forth in this Agreement, the breaching Party, without prejudice to any other right of the other Party (including the right to compensation of the
greater damage] shall be required to pay to the other Party as a penalty, at the latter’s simple written request, an amount equal to 10% (ten per cent) of the principal amount invested by the non-breaching Party in the capital of the Company at
that date, less any ordinary and/or special dividends that may have been received. 
  
 ARTICLE XII 
 Term 
  
 12.01    Effective date. The effective date of this Agreement is subject to the execution of the Contract and
shall commence as of the purchase of the Olivetti shares and Olivetti warrants as specified therein. 
  
 12.02    Term. (a) This Agreement shall run for three years as of its effective date and shall be deemed to be tacitly renewed on each expiration date unless notice of withdrawal has been
given by one of the Parties, without prejudice to the provisions of paragraph 12.03 below. 
  
 (b)    Other than in the cases specified by law, the Parties shall have the right to withdraw from this agreement on the expiration date: 
  

	 	(i)	as to Edizione, subject to a notice sent 6 (six) months in advance; 

  

	 	(ii)	as to Pirelli, subject to a notice sent 1 (one) month in advance. 

  
 12.03    Non-renewal. (a) In the event Pirelli gives Edizione by the deadline specified in point (ii) of paragraph 12.02 (b) above and in the
form specified in paragraph 14.02, notice of withdrawal upon expiration of this Agreement, Edizione shall have the right to sell to Pirelli, which shall have the corresponding obligation to buy, all (but not part) of its shares of the Company, on
terms and conditions determined, mutatis mutandis, in accordance with paragraph 9.05 (b) above, (and of the provisions set forth therein) giving notice to Pirelli within 30 (thirty) working days. In that event, however, the purchase shall be
effected against payment of the price specified in art. 9.05 (plus an amount equal to 50% (fifty per cent) of the total of the Price of the Company Shares and the Premium. 
  
 [b]    Payment of the penalty shall be made immediately upon the simple written request of Edizione, to be sent to
Pirelli at the end of 30 (thirty) days following communication given to the Parties of the determination made in application of the procedure specified in paragraph 9.05 (b) above. 
  
 ARTICLE XIII 
 Key event 
  
 a)    Whenever, during the term of this Agreement, following one or several acts inter vivos carried out for any reason, for Edizione, Messrs. Luciano, Gilberto, Carlo and Giuliana Benetton, or their spouses or
direct descendants, stop designating the majority of the board of directors of Edizione, and for Pirelli, Dr. Marco Tronchetti Provera stops, not by his own volition, assuring the strategic-operational management of the Pirelli Group, understood as
Pirelli & C. Sapa and the companies directly and indirectly controlled, a “Key Event” takes place. 
  
 b)    In the presence of the Key Event concerning one party, the other Party will have the right to transfer all (but not part) of its Company shares
to the Party which incurred the Key Event, under terms and conditions determined mutatis mutandis pursuant to the previous paragraph 9.05 (b) (and the provisions mentioned therein) notifying such latter Party within 30 (thirty) Business Days
from the day the other Party declared in writing that it became aware of the Key Event, or received written communication of such circumstance. However, in this case, the purchase and sale will take place against payment of the price referred to in
article 9.05 (b) plus an amount equal to double the amount of the price of the Company Shares and Premium. 
  
 ARTICLE XIV 
 General Provisions 
  
 14.01    Modifications. No modification of this Agreement shall be
valid and binding until it is set forth in a written instrument signed by the Party against which the modification is invoked. 
  

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 14.02    Communications and Notices. Any communication requested or permitted by the
provisions of this Agreement shall be given in writing and shall be deemed to be effectively and validly given upon receipt of same, if made by mail or telegram, or upon acknowledgment of receipt by means of a specific declaration (including by
fax), if made by fax, provided it is addressed as follows: 
  

	 	(i)	if to Edizione, at the following address: 

 Calmaggiore 23 
 Treviso 
 Attenzione di: dott. Gianni Mion 
 Telefax n. 0422-411118 
  

	 	(ii)	if to Pirelli, at the following address: 

 Viale Sarca 222 
 Milano 
 Attenzione di: dott. Carlo Buora 
 Telefax n. 02-64423454 
  
 or to another address
that each of the Parties shall have the right to communicate to the other, subject to the procedures set forth in this paragraph 14.02, on the understanding that the Parties elect domicile for all purposes relative to this Agreement, including for
any legal notices or notices involving the arbitration proceeding referred to in Article XV below, at the addresses indicated above or at any other addresses that may be communicated in the future. 
  
 14.03    Tolerance. Tolerance of any behavior in violation of the
provisions contained in this Agreement does not constitute waiver of the rights arising from the breached provisions nor the right to demand precise compliance with all the terms and conditions specified herein. 
  
 14.04    Headings. The headings of the individual clauses have
been provided only to facilitate reading and therefore are not to be taken into account for the purposes of interpreting this Agreement. 
  
 ARTICLE XV 
 Disputes

  
 15.01    Arbitration. Any dispute arising from
this Agreement or from any executor, amending or supplementing instruments, shall be submitted to the unappealable ruling of an Arbitration Panel consisting of three arbitrators, who shall decide without any procedural formality other than respect
for the principle of cross-examination, but shall apply substantial Italian law. The arbitration shall be customary in nature in accordance with the provisions of the code of civil procedure and shall take place in Milan. 
  
 15.02    Designation of the arbitrators. (a) The Party requesting
the arbitration shall indicate, at least in general outline, the demands constituting the object of the arbitration. 
  
 (b)    The Party that initiates the arbitration procedure must at the same time and under pain of nullification, designate its own arbitrator. The
Party called to arbitration shall have twenty (20) calendar days in which to designate its own arbitrator. The two arbitrators of the Parties shall jointly designate the third arbitrator who shall serve as chairman of the Arbitration Panel. Should
the arbitrators designated as indicated above not come to an agreement on the designation of the third arbitrator within twenty (20) calendar days of the designation of the second arbitrator, said third arbitrator shall be designated by the
Presiding Judge of the Court of Milan, who shall also be called upon if the Party called to arbitration fails to name its own arbitrator by the deadline indicated above. 
  
 15.03    Competent jurisdiction. Without prejudice to what is stipulated above, it is agreed that any legal
proceeding related in any way to this Agreement shall be subject to the exclusive jurisdiction of the Courts of Milan. 
  
 Milan/Treviso August 7, 2001 
  
 Attachments 
 1.19: Bylaws of the Company 
  

			
	EDIZIONE HOLDING S.P.A.	 	PIRELLI S.P.A.

  
  

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 ACT OF AMENDMENT TO THE
SHAREHOLDERS’ AGREEMENT 
  
 Between
PIRELLI S.P.A, with headquarters in Milan, Viale Sarca 222, company capital 1,042,775,333.08 Euros, recorded with the Registry of Companies of Milan, Tax Code and VAT No. 0086890151, in the person of the Chairman of the
Board of Directors, Dr. Marco Tronchetti Provera, in possession of the necessary powers of attorney (hereinafter “Pirelli”) 
  
 - Party of the first part - 
  
 and EDIZIONE HOLDING S.P.A., with headquarters in Treviso, Calmaggiore 23, company capital L. 90,692,800,000, recorded with
the Registry of Companies of Treviso under No. 13945, Tax Code and VAT No. 00778430264, in the person of the Chairman of the Board of Directors, Mr. Gilberto Benetton, in possession of the necessary powers of attorney (hereinafter
“Edizione”) 
  
 - Party of the second part
– 
  
 Given that 
  

	(a)	Pirelli and Edizione signed, on August 7, 2001, a Shareholders’ Agreement (the “Agreement”) concerning, among other things, the discipline of the mutual relationships
as shareholders of the joint company, hereinafter referred to as Olimpia S.p.A.; 

  

	(b)	Edizione Finance International S.A. has been subrogated in the rights and obligations of Edizione under the Agreement pursuant to Article III thereof and, as such, signs the present
Act; 

  

	(c)	without prejudice to any other provision of the Agreement, and with reference to the Definitions contained in Article I thereof, the Parties (as defined therein) agree that it is
appropriate to proceed with the amendment of Article XIII of the Agreement in question; 

  
 given these recitals, 
  
 effective as of the date of this Act of Amendment, the Parties agree that the Agreement must be deemed amended by adopting the language of Article XIII, as reported below, in substitution of that agreed upon on August 7, 2001. 

 
 ARTICLE XIII 
 Key Event 
  
 (a)    A “Key Event” is deemed to have occurred, for the purposes of this Agreement, if, during the original term or extension thereof, as a result of one or more acts inter
vivos under any status, there is a substantial change, as compared to the situation existing today, in the structure of the control of Edizione or Pirelli (including, for these purposes, Pirelli & C Sapa), understood as the exercise by
subjects, other than the current ones, of the decisive power to appoint the majority of the members of the board of directors, with a consequent potential change in strategic addresses. 
  
 (b) Once the Key Event has taken place regarding one Party, the other Party will have the right to transfer all (but not part of) its shares
of the Company to the Party affected by the Key Event, under the terms and conditions determined, mutatis mutandis, pursuant to the previous paragraph 9.05(b) (and the provisions referred to therein), with notice to such latter Party within
30 (thirty) Business Days of the date the other Party has declared in writing that it has become aware of the Key Event, or received written communication of such circumstance. In such case, however, the purchase and sale will take place against
payment of the price referred to in paragraph 9.05(b), plus an amount equal to double the Price of the Company Shares and Premium. 
  
 Milan/Treviso September 14 2001 
  

			
	PIRELLI S.P.A.	  	EDIZIONE HOLDING S.P.A.
		
	 	  	EDIZIONE FINANCE INTERNATIONAL S.A.

  
  

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 SECOND ACT OF AMENDMENT OF
THE SHAREHOLDERS’ AGREEMENT 
  
 Between PIRELLI S.P.A., with headquarters in Milan, viale Sarca 222, Euro capital of 1,043,203,199.48, recorded with the Registry of
Companies of Milan, tax and VAT identification number 00886890151, in the person of the Chairman of the Board of Directors, Dr. Marco Tronchetti Provera, holding the necessary powers of attorney pursuant to the decision of the Board of Directors of
July 28, 2001 (hereinafter “Pirelli”) 
  
 - party of the
first part - 
  
 and EDIZIONE HOLDING S.p.A., with headquarters in Treviso,
Calmaggiore 23, Euro capital of 47,160,256, recorded with the Registry of Companies of Treviso under No. 13945, tax and VAT identification number 00778430264, in the person of the Chairman of the Board of Directors, Mr. Gilberto Benetton, holding
the necessary powers of attorney (hereinafter “Edizione”) 
  
 - party of the second part - 
  
 recitals 
  

	(a)	Pirelli and Edizione signed a Shareholders’ Agreement (the “Agreement”) on August 7, 2001 concerning, among other things, the discipline of the mutual relationships
as shareholders of Olimpia S.p.A.; 

  

	(b)	Edizione Finance International S.A. has been subrogated in the rights and obligations of Edizione under the Agreement pursuant to Article III thereof and, as such, signs this Act
(“Edizione Finance”); 

  

	(c)	On September 14, 2001, Pirelli, Edizione and Edizione Finance decided to amend Article XIII of the Agreement, leaving the rest firm and unchanged by executing an act of amendment
(the “Act of Amendment”); 

  

	(d)	leaving all other provisions of the Agreement firm and unchanged, and with reference to the Definitions contained in Article I thereof, leaving the Act of Amendment firm and
unchanged; by this act (the “Second Act of Amendment”) the Parties intend to amend Article X of the Agreement, to make the clauses under letters (a) and (b) consistent with the actual will of the Parties; 

  
 with these recitals, 
  
 effective as of the date of this Second Act of Amendment, the Parties decide that Article X
of the Agreement, as amended by the Act of Amendment, must be deemed amended by the adoption of the new language indicated below. 
  
 ARTICLE X 
 Collateral
Acquisitions 
  
 10.01    Commitment of the
Parties. For the entire term of this Agreement, be it original or renewed, the Parties, including through their respective subsidiaries and/or parent companies, pursuant to Art. 2359, paragraph one of the Civil Code,, may not acquire or own
common shares, bonds convertible to Olivetti shares and/or warrants, which give the right to purchase shares or bonds convertible to Olivetti shares (the “Bonds”) issued, or to be issued, by Olivetti or by the Olivetti Companies (nor
acquire voting rights in Olivetti common shares under any status). 
  
 10.02    Derogation. In derogation to the provisions set forth in paragraph 10.01 above, each of the Parties, with communication sent to the other Party at the same time, may acquire Bonds, including for the
purpose of derivative financial instruments existing on today’s date or to be issued subsequently (the “Derivatives”). The Party acquiring the Bonds referred to in and governed by this paragraph will be obligated to send timely
periodic written reports to the other Party, monthly, indicating the number, load prices and date of the operation concerning the Bonds. 
  
 10.03    Possible conversion. The Party owning or otherwise receiving the Bonds may exercise the respective conversion right, after
communication is issued to the other Party at least 60 (sixty) days in advance, only to the extent that the amount of the Olivetti shares obtained from the conversion itself (possibly increased by the number of Olivetti shares owned as of the same
date, arising from prior conversions of Bonds), does not exceed, after the conversion, the percentage of the capital of Olivetti corresponding to the difference between 28.74% and 

  

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the percentage of the holding of the Company in the voting capital in Olivetti at the time of the conversion, without prejudice for the right of the Company
to convert the Bonds owned as of the execution date of this Agreement. Said limit may be exceeded with the approval of the other Party—which may not be unreasonably withheld—without prejudice to complying with the applicable floors in
matters of OPA [take-over bid]. 
  
 10.04    Acquisition
right. (a) In the event referred to in paragraph 10.03 above, the other Party will have the right to acquire, and the Party which exercised the conversion right will have the obligation to sell, shares of the same nature and type as those
arising from the exercise of the conversion of the Bonds, to the extent that said shares are divided between the Parties, respecting the original proportions of the Parties’ holdings in the capital of the Company (80 (eighty)% Pirelli - 20
(twenty)% Edizione). 
  
 (b)    The acquisition right must be
exercised, under penalty of lapse, within thirty (30) days from the date on which the Party which exercised the conversion right reported it to the other Party, also indicating the price of the shares calculated by the methods indicated in items (c)
or (d) below, as the case may be, enclosing the respective back-up documentation. 
  
 (c)    The acquisition price will be equal to the average cost incurred (including accrual) for the acquisition of the Bonds converted, plus interest calculated annually at Euribor 12 months, at the value date of each
disbursement, plus 150 base points, from the time of the acquisition of the Bonds to the time of the closing of the purchase and sale of the shares arising from the conversion, after deducting the capital amount, as of the date of each collection,
of the certificates of the other Party’s Bonds collected within the same period of time. The Parties will equally share the costs and charges of the purchase and sale operation. 
  
 (d)    In the event of acquisition of Bonds for Derivatives purposes, the acquisition price of the shares arising from
the conversion of such Bonds will be equal to the algebraic sum of the cash flows paid or collected under the terms of the Derivatives contracts, plus interest calculated annually at the rate indicated in the respective contracts or, in the absence
thereof, at Euribor 12 months, at the value date of each disbursement or collection, plus 150 base points, from the time of the actual payment, or collection, of each cash flows until the time of the purchase and sale of the shares arising from
conversion. The costs and charges of the purchase and sale operation will be equally shared by the Parties. 
  
 10.05    Commitment of the Company. Unless otherwise agreed upon in writing between the Parties, the Company may not acquire Olivetti common shares (or exercise conversion or acquisition or
subscription rights in Olivetti common shares arising from the bonds and warrants outstanding or newly issued) so as to exceed the current OPA floor, currently established at 30% (thirty percent), taking into account for this purpose the effect of
the own shares held directly and indirectly by Olivetti S.p.A., as set forth in the current laws and regulations, including the regulations issued by CONSOB. 
  
 Milan, February 13, 2002 
  

			
	PIRELLI S.p.A.	  	EDIZIONE HOLDING S.p.A.
		
	 	  	EDIZIONE FINANCE INTERNATIONAL S.A.

  

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 Milan, September 14, 2001 
  
 INTESABCI S.p.A. 
 Piazza Paolo Ferrari, 10 
 20121 – MILAN 
  
 UNICREDITO ITALIANO S.P.A. 
 Piazza Cordusio 
 20121 – MILAN 
  
 Dear Sirs, 
  
 we have received your letter dated September 14, 2001, which we transcribe below in its entirety: 
  
 *** 
  
 Milan, September 14, 2001 
  
 PIRELLI S.p.A. 
 Viale Sarca, 222 
 20126 – MILAN 
  
 Dear Sirs, 
  
 Pursuant to our conversations, we propose the following: 
  
 “INSTRUMENT BETWEEN PARTNERS 
  
 Between Pirelli S.p.A., with headquarters in Milan, Viale Sarca 222, company capital 1,043,094,358.28 Euros, recorded with the Register of Companies of Milan, Tax Code and VAT No. 00886890151, in the person of the chairman of the Board of
Directors, Dr. Marco Tronchetti Provera, in possession of the necessary powers of attorney following the decision by the Board of Directors of July 28, 2001 (hereinafter “Pirelli”) 
  
 – Party of the first part – 
  
 and 
  
 UniCredito Italiano S.p.A., with headquarters in Genoa, Via Dante 1, Central Management in Milan, Piazza Cordusio, company capital
2,523,215,059 Euros, recorded with the Register of Companies of Genoa, Tax Code and VAT No. 00348170101, in the person of the Deputy General Director, Dr. Pietro Modiano, in possession of the necessary powers of attorney following the decision by
the Board of Directors of August 3, 2001 (hereinafter “UCI”) 
  
 and
IntesaBCI S.p.A., with headquarters in Milan, Piazza Paolo Ferrari 10, company capital 3,488,995,258.84 Euros, recorded with the Register of Companies of Milan, Tax Code 00799960158, VAT No. 10810700152, in the person of Managing Director Lino
Benassi, in possession of the necessary powers of attorney following the decision by the Board of Directors of September 14, 2001 (hereinafter “BCI”) 
  

– Party of the second part – 
  
 Given that 
  

	(a)	on July 30, 2001, Pirelli and Edizione Holding S.p.A. (hereinafter “Edizione”) signed an offer for the acquisition, directly or through subsidiaries to be designated by
the Execution Date, as indicated herein, by BELL S.A. of Olivetti Shares and Olivetti Warrants (as defined in paragraphs 1.05 and 1.27, respectively); 

  

	(b)	the offer of Pirelli and Edizione was accepted on the same date by BELL S.A. and therefore the Contract (as defined in paragraph 1.06) was drawn up. UCI and BCI (the “New
Partners”) took note of the Contract; 

	

	(c)	in order to proceed with the acquisition of the Olivetti Shares and the Olivetti Warrants, Pirelli and Edizione Finance International S.A. (hereinafter “Edizione Finance”
and together with Pirelli, the “Current Partners”) constituted, on August 3, 2001, the Company (as defined in paragraph 1.22), held 20% (twenty percent) by Edizione Finance, a company controlled by Edizione, and 80% (eighty percent) by
Pirelli; the Company is governed by the bylaws enclosed herewith under A (the “Bylaws”); 

  

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	(d)	on August 7, 2001, Pirelli and Edizione signed an Instrument for the regulation of their mutual relations as partners of the Company. The New Partners took note of the
aforementioned agreement; 

  

	(e)	based on the agreements between the Current Partners, dated August 9, 2001, the Company received a transfer from Kallithea S.p.A. (a subsidiary of Pirelli) of 147,337,880 Olivetti
common shares—equal to approximately 2% of Olivetti’s company capital—as well as from Pirelli Finance (Luxembourg) S.A. (a subsidiary of Pirelli) and from Edizione, for a total of 265,302,250 Olivetti common shares, equal to 3.64% of
Olivetti’s company capital; 

  

	(f)	on August 29, 2001, the Current Partners formally designated the Company as a vehicle for the acquisition of the Olivetti Shares and the Olivetti Warrants; 

 

	(g)	on August 29, 2001, the shareholders’ meeting of the Company decided, among other things, on a capital increase (of 15,000 Euros—represented by 15,000 shares with a par
value of 1 Euro each, assigned to Pirelli in the proportion of 80% (equal to 12,000 shares) and Edizione Finance in the proportion of 20% (equal to 3,000 shares) to 576,936,635 Euros, to take place including in several stages, and with split-up
being permitted, by allocating 576,921,635 Euros in cash and the issue of 576,921,635 new common shares with a par value of 1 Euro each, reserved under option to shareholders in proportion to the number of shares owned, with an issue premium of 9.40
Euros per share; 

  

	(h)	the Current Partners have immediately underwritten and paid part of the capital increase and respective issue premium, for a total of 1,199,985,020 Euros; 

 

	(i)	following such underwriting and payment, 92,306,540 shares will be issued in favor of Pirelli for a par value of 92,306,540 Euros, and 23,076,635 shares in favor of Edizione Finance
with a par value of 23,076,635 Euros; 

  

	(j)	Pirelli has offered to UCI and BCI that each purchase a minority interest in the Company; each of the New Partners wishes to purchase, individually, a holding of 10% of the
company’s capital and therefore to purchase from Pirelli, respectively, 11,539,817 shares and 11,539,817 shares of the Company, including the option rights concerning the capital increase referred to in recital (g) so as to allow for the
underwriting and payment, under the conditions decided upon by the Shareholders’ Meeting referred to in item (g) of the recitals, by each of the New Partners of 38,460,183 shares of the Company with an expenditure of 399,985,903.20 Euros;

  

	(k)	Pirelli and the New Partners intend to agree on the principles of acquisition and underwriting of a capital portion of the Company, as well as the mutual relations as partners of
said Company; 

  

	(l)	Pirelli commits to obtain from Edizione Finance an irrevocable waiver declaration in favor of UCI and BCI concerning all its rights and claims in connection with the acquisition,
respectively, of the Olimpia UCI Holding and of the Olimpia BCI Holding (as defined below), as well as a declaration of awareness, with waiver of any reservation, concerning the commitments made by Pirelli versus the New Partners and the rights and
powers of the latter, acknowledged under this Instrument, in particular with waiver by Edizione Finance, as of now, of the preferred rights on the transfers under the sale and acquisitions rights governed by this Agreement; this declaration will be
given by Pirelli to both New Partners as of the Execution Date. 

  
 Given these recitals, which are an integral and essential part of the Agreement, it is set forth and agreed as follows: 
  
 ARTICLE I 
 Definitions

  
 In addition to the terms defined in other clauses of the Instrument (as
defined in paragraph 1.19), for the purposes thereof, the terms listed below have the meaning specified next to it for each of them: 
  

			
	1.01	  	 “Olimpia Capital Increase”: the capital increase referred to in recital (g) above.

		
	1.02	  	 “Current Partners”: Edizione Finance and Pirelli, jointly.

		
	1.03	  	“Olimpia BCI Shares”: the shares of Olimpia acquired by BCI pursuant to Article II, referred to in recital (j).
		
	1.04	  	“Olimpia UCI Shares”: the shares of Olimpia acquired by UCI pursuant to Art. II, referred to in recital (j).
		
	1.05	  	 “Olivetti Shares”: 1,552,662,120 common shares of Olivetti S.p.A., subject of the Contract.

		
	1.06	  	“Contract”: the offer dated July 30, 2001, from Pirelli and Edizione to BELL S.A., accepted on the same date, concerning the purchase and sale of the Olivetti Shares and the
Olivetti Warrants.

  

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	1.07	  	“Execution Date”: the second Business Day (as defined in paragraph 1.11) prior to the Closing Date of the Contract.
		
	1.08	  	“Signing Date”: date of signing of this Instrument.
		
	1.09	  	“BCI Option Rights”: the Option Rights of Olimpia acquired by BCI pursuant to Art. II.
		
	1.10	  	“UCI Option Rights”: the Option Rights of Olimpia acquired by UCI pursuant to Art. II.
		
	1.11	  	“Business Day”: any calendar day except Saturdays, Sundays and days the banks are closed in the market of Milan for performance of their normal activity.
		
	1.12	  	“IRR” (gross Internal Rate of Return): discount rate on an annual base and under compound capitalization, which makes the value of all incoming cash flows equal to the value of the
outgoing cash flows related to the investment.
		
	1.13	  	“New UCI Shares”: shares arising from the Olimpia capital increase underwritten by UCI pursuant to Article II below.
		
	1.14	  	“New BCI Shares”: shares arising from the Olimpia capital increase underwritten by BCI pursuant to Article II below.
		
	1.15	  	 “Olivetti”: the company Olivetti S.p.A., with headquarters in Ivrea, Via Jervis No. 77.

		
	1.16	  	 “Olimpia UCI Holding”: Olimpia UCI Shares and New Olimpia UCI Shares.

		
	1.17	  	 “Olimpia BCI Holding”: Olimpia BCI Shares and New Olimpia BCI Shares.

		
	1.18	  	 “Party or Parties”: Pirelli, UCI and BCI, jointly or separately.

		
	1.19	  	 “Instrument”: the present Instrument, signed today between Pirelli, UCI and BCI.

		
	1.20	  	“Seat”: the company Seat-Pagine Gialle S.p.A., with headquarters in Milan, Corso di Porta Vigentina No. 33/35.
		
	1.21	  	“Olivetti Companies”: the companies Olivetti S.p.A., Telecom Italia S.p.A., Telecom Italia Mobile S.p.A. and Seat-Pagine Gialle S.p.A.
		
	1.22	  	“Company” or “Olimpia”: the company Olimpia S.p.A., with headquarters in Milan, Via Sarca, 122 (formerly Olimpia S.r.l.), which the Current Partners constituted on August
3, 2001, for the acquisition of the Olivetti Shares and the Olivetti Warrants.
		
	1.23	  	 “Telecom Italia”: the company Telecom Italia S.p.A., with headquarters in Turin, Via Bertola No. 34.

		
	1.24	  	 “TIM”: the company Telecom Italia Mobile S.p.A., with headquarters in Turin, Via Bertola No. 34.

		
	1.25	  	 “Olimpia BCI Securities”: Olimpia BCI Shares and BCI Option Rights.

		
	1.26	  	 “Olimpia UCI Securities”: Olimpia UCI shares and UCI Option Rights.

		
	1.27	  	 “Olivetti Warrants”: 68,409,125 Olivetti 2001-2002 warrants, subject of the Contract.

  
 ARTICLE
II 
 Transfer of Olimpia UCI Securities and Olimpia BCI Securities and Underwriting of 
 the New UCI Shares and the New BCI Shares 
  

	2.00	Without prejudice to the provisions of paragraph 10.1 below concerning the perfecting and complete and regular closing of the Contract as an essential condition of the agreements
referred to in this Instrument, the commitments made by UCI and BCI referred to below are also subject to the condition that, on the Execution Date, the Current Partners, pursuant to the provisions of paragraph 2.03 below, (i) have underwritten and
paid the shares arising from the Olimpia Capital Increase and (ii) have perfected and executed with the Company the “subordinated partner financing.” 

  

	2.01	Without prejudice to the provisions of paragraph 10.1 below, UCI and BCI pledge, not jointly, to purchase from Pirelli, as of the Execution Date, respectively, the UCI Olimpia
Shares and the UCI Option Rights (hereinafter the “Olimpia UCI Securities”) as well as the Olimpia BCI Shares and the BCI Option Rights (hereinafter the “Olimpia BCI Securities”) under the following terms and conditions:

  

	 	2.01.01	Total Price of Olimpia UCI Securities and Olimpia BCI Securities. 

  

	 	(a)	Olimpia UCI Securities will be sold by Pirelli and purchased by UCI at the total price agreed upon, including in an aleatory manner, of 120,014,096.8 Euros (the “Total UCI
Price”). 

  

	 	(b)	The Olimpia BCI Securities will be sold by Pirelli and purchased by BCI at the total price agreed upon, including in an aleatory manner, of 120,014,096.8 Euros (the “Total BCI
Price”). 

  

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	 	2.01.02	Payment Time and Terms. 

  
 On the Execution Date, UCI and BCI will pay to Pirelli, respectively, the Total UCI Price and the Total BCI Price by separate fund credits, valued as of
the Execution Date, to the checking account with Banca Nazionale del Lavoro, No. 28301 ABA 01005 CAB 01600 in the name of “Pirelli S.p.A.” 
  

	 	2.01.03	Transfer of Olimpia UCI Securities and Olimpia BCI Securities. 

  
 The Transfer of the Olimpia UCI Securities and Olimpia BCI Securities will take place, simultaneously on the Execution Date, at the same time with the
payment of the Total UCI Price and the Total BCI Price, without need for any further expression of will between the parties, and will be valid between the parties as of that moment. 
  
 On the same date, at the same time, all acts necessary or appropriate will be carried out pursuant to applicable
law—including tax law—in order to perform the transfer of the Olimpia UCI Securities and the Olimpia BCI Securities, making it valid for third parties as well, including the following actions: 
  

	 	(a)	Pirelli: 

  

	 	(i)	will deliver to UCI and BCI the certificates representing, respectively, the Olimpia UCI Shares and the Olimpia BCI Shares, duly endorsed in favor of UCI and BCI, by appropriate
methods, based on applicable laws in the matter, to transfer to UCI and BCI full title and full availability of the Shares and allow the registration of UCI and BCI in the book of partners of Olimpia, as well as the option warrants representing the
BCI Option Rights and the UCI Option Rights; 

  

	 	(ii)	will sign and exchange and/or cause signature and exchange of all other acts and documents (including tax stamps, whenever necessary) that may be required pursuant to the law;

  

	 	(iii)	will deliver to each of the New Partners an original of the declaration under the signature of Edizione Finance, as referred to in recital (l); 

  

	 	(b)	UCI and BCI, each to the extent applicable: 

  

	 	(i)	will pay to Pirelli, respectively, the Total UCI Price and the Total BCI Price; 

  

	 	(ii)	will sign and exchange all other acts and documents (including tax stamps, whenever necessary) that may be required pursuant to the law; 

  

	 	2.01.04	Expenses and charges. 

  
 All expenses, costs and charges, including those of a fiscal nature, related to the transfer of the Olimpia UCI Holding and of the Olimpia BCI Holding
will be borne half by UCI and BCI, and the other half by Pirelli. 
  

	2.02	Without prejudice to the provisions set forth in paragraph 10.1 below, on the Execution Date, UCI and BCI pledge, non-jointly, to underwrite and pay the Capital Increase of Olimpia,
respectively, (i) with a par value of 38,460,183 Euros, equal to 38,460,183 new Olimpia shares (the “New UCI Shares”) with a total disbursement of 399,985,903.2 Euros, and (ii) with a par value of 38,460,183 Euros, equal to 38,460,183 new
Olimpia shares, with a total disbursement of 399,985,903.2 Euros (the “New BCI Shares”). 

  

	2.03	At the same time with the underwriting of the Capital Increase of Olimpia, (i) each of the New Partners, to the extent applicable, pledges to pay fully the New Olimpia BCI Shares
and the New Olimpia UCI Shares, and (ii) Pirelli and Edizione Finance (whose performance is guaranteed by Pirelli pursuant to Art. 1381 of the Civil Code), to the extent applicable, will waive and refrain from underwriting and paying the residual
portion of the Capital Increase, with a par value of 76,936,635 Euros, equal to 76,936,635 shares, so as to assure that, at the end of the execution of the Capital Increase, Pirelli will hold 60%, Edizione Finance 20%, and each of the New Partners
10% of the new capital of the Company. Pirelli and Edizione Finance will pay to the Company, in the form of “subordinated partners financing” under the same rate conditions as those established for the financing granted by the pool of
banks, an amount equal to 800,141,004 Euros. 

  

	2.04	Pirelli will take steps so that, within 30 (thirty) Business Days of the Execution Date, the Bylaws are amended so as to set forth the qualified quorum of 91% of the capital for the
validity of the decisions to amend or eliminate the list voting clause for the appointment of the directors, as well as to modify the number of the members of the Board of Directors. 

  

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 ARTICLE III 
 Management of the Company 
  

	3.01	Composition of the Board of Directors. 

  

	    	It is understood that, within the limits allowed by law and for the entire term of this Instrument: 

  

	(i)	the Board of Directors of the Company will be made up of 10 (ten) members; 

  

	(ii)	1 (one) director out of 10 (ten) will be appointed at the request and indication of UCI; 

  

	(iii)	1 (one) director out of 10 (ten) will be appointed at the request and indication of BCI; 

  

	(iv)	should an Executive Committee be created, UCI and BCI will have, respectively, the right to request at any time the inclusion of the directors designated by them in said committee.

  

	    	The new Board of Directors, with the composition indicated above, must be appointed by the Execution Date of the Contract. 

  

	    	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
Instrument, if it is extended pursuant to Art. 10.2 (a), 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. 

  

	3.02	Suspension from Office. 

  
 Whenever, for any reason, including death, resignations or revocation by the shareholders’ meeting, one of the directors appointed pursuant to the
preceding provisions is suspended from office, within the limits allowed by law, the replacing director must be appointed by the Company’s Shareholders’ Meeting (and prior to this, by co-optation of the Board of Directors) in the person
indicated by the New Partner which had previously designated the suspended director. 
  
 ARTICLE IV 
 Management of the Olivetti Company 
  

	4.01	Composition of the Board of Directors of the Olivetti Company. 

  
 It is understood that, within the limits allowed by law and for the entire term of this Instrument, in the Board of Directors of Olivetti, Telecom, Seat
and TIM (the “Olivetti Companies”), one director must be appointed at the request and designation of UCI and another director at the request and designation of BCI. 
  
 The new Board of Directors of the Olivetti Companies, with the composition established above, will be appointed as soon as
possible, and in any case within 120 (one hundred twenty) days of the Execution Date of the Contract. It is understood that the power of UCI and BCI to designate, each, a member of the Board of Directors of Olivetti Companies will remain valid even
after the first expiration of this Instrument, if it is extended pursuant to Art. 10.2 (a), 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. 
  

	4.02	Suspension from Office. 

  
 Whenever, for any reason, including death, resignations or revocation by the shareholders’ meeting, one of the directors appointed pursuant to the
preceding provisions is suspended from office, within the limits allowed by law, the replacing director must be appointed by the Company’s Shareholders’ Meeting (and prior to this, by co-optation of the Board of Directors) in the person
indicated by the New Partner which had previously designated the suspended director. 
  
 ARTICLE V 
 Board of Auditors of the Company 
  
 Upon the first renewal, the Parties will consider introducing a principal auditor of the
Company, designated jointly by the New Partners. 
  
  

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 ARTICLE VI 
 Key Issues 
  
 Pursuant to Art. VII below,
the following will 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 own shares, as well as voting in Olivetti’s Extraordinary Shareholders’ Meeting; 

  

	 	–	acquisition, sale and acts of disposal under any status (i) of own 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 operation, above 100,000,000 Euros; 

  

	 	–	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 above 300 million Euros; 

  

	 	–	acquisition, sale and acts of disposal under any status (i) of own 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, above 300 million Euros; 

  

	 	–	acts of disposal under any status of companies or branches thereof, with an individual value above 300 million Euros; 

  

	 	–	proposals to call the Extraordinary Shareholders’ Meeting for resolutions in matters of modification of the corporate purpose, capital operations of any nature, merger,
spin-off, transformation and dissolution; 

  

	 	–	operations between Olivetti, Telecom and Pirelli Group, with an individual value above 50 million Euros; 

  

	 	–	operations with related parties. 

  
 ARTICLE VII 
 Provisions on Deadlock 
  

	7.01	Obligation to Consult. 

  
 Pirelli and the New Partners, the latter jointly between them, pledge to consult each other previously whenever a decision on one of the Key Issues must
be discussed or decided upon. 
  

	7.02	Identification of Deadlock Situations. 

  
 For the purposes of this Article VII, “Deadlock” is defined as a situation of disagreement, expressed in the previous consultation
between Pirelli, on the one hand, and one or both of the New Partners, on the other hand, on a Key Issue that must be discussed by one of the corporate management bodies referred to in item (a) or (b) of Article VI above. 
  

	7.03	Procedure. 

  

	 	(a)	For compliance with the obligation referred to in paragraph 7.02 above, Pirelli and the New Partners, jointly, pledge to meet or to consult each other previously by telephone
conference or video conference by the Business Day preceding the day scheduled for the meeting of the Board or of the shareholders of the Company, or of the Board of Olivetti or Telecom, or, immediately, as soon as the news arrive, in the event of
urgent call (or extraordinary urgency, if applicable) of the meeting of the board of the Company or of Olivetti or Telecom, pursuant to the applicable bylaws provisions. 

  

	 	(b)	In the consultation referred to in this paragraph, Pirelli and the New Partners will take all reasonable steps to reach an agreement and/or identify common grounds for the issues
submitted for their examination, pledging, for this purpose, to act in good faith. 

  

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	 	(c)	The unjustified absence of a single New Partner or both the New Partners in the previous consultation stage implies acceptance of the decisions made by the other subjects and
imposes on the absent subject the obligation of accepting and respecting such decisions. 

  

	7.04	Manifestation of Will. 

  

	 	(a)	Whenever, in the previous consultation referred to in paragraphs 7.02 and 7.03 above, Pirelli and the New Partners reach an agreement concerning the issues under consultation, they
are obligated to manifest their will in the competent venues pursuant to the provisions below: 

  

	 	(i)	by giving a common representative delegation to participate in the Company’s Extraordinary Shareholders’ Meeting and casting the vote in said meeting, in accordance with
the decision reached; 

  

	 	(ii)	causing their own representatives in the Board of Directors of the Company and of Olivetti or Telecom to participate in the meeting of the board, casting the vote in this venue in
accordance with the joint decisions reached in the previous consultation. 

  

	 	(b)	However, in the absence of agreement of the issues under consultation, the New Partners, if both are dissenting will be jointly obligated, or the single dissenting New Partner will
be obligated, to abstain or cause abstention from participating in the shareholders or board meeting and to vote in this venue or cause voting and/or abstain from manifesting its will, in any venue and mode, or from taking a position in the issue
under the previous consultation, without prejudice to the provisions of item (c) below. 

  

	 	(c)	Whenever the situation described in item (b) above occurs, the dissenting New Partners, separately or jointly, will have, or the single dissenting New Partner 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 7.03. 

  

	7.05	Rights of the New Partners. 

  

	 	(a)	Whenever UCI and/or BCI send a Notice of Deadlock pursuant to item (c), paragraph 7.04, the New Partner which sent the Notice of Deadlock will have the right (which is deemed
exercised by Pirelli’s receipt of the Notice of Deadlock, pursuant to item (c), paragraph 7.04 above) to sell to Pirelli, which will have the corresponding obligation to buy from the respective New Partner, respectively, all but not part of the
Olimpia UCI Holding and/or all but not part of the Olimpia BCI Holding 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 Holding and/or
Olimpia UCI Holding, corresponding proportionately to the value of the Company’s economic capital (“Price of the Olimpia UCI Holding” and/or “Price of the Olimpia BCI Holding”), as well as (y) an increase expressing the
proportion of the increase premium, as if the Olimpia BCI Holding and/or Olimpia UCI Holding were the expression of Olivetti’s control, assuming that the latter controls Telecom and the companies controlled by the latter (“Premium”).
The “Price of the Olimpia UCI Holding” and/or “Price of the Olimpia BCI Holding” and the Premium to be proportionately allocated to both the Holdings will be determined by mutual consent between Pirelli and each of the New
Partners within 10 (ten) Business Days of the date Pirelli received from one of the New Partners the notice pursuant to item (a) above or, in the absence of such agreement, from two “investment banks” with international standing, chosen
one by Pirelli (paying the respective costs) and one by the New Partner that sent the Notice of Deadlock (paying the respective costs), with the understanding that if an agreement on the valuation is not reached within 30 (thirty) Business Days of
their appointment, it will be made by a third and additional “investment bank” (the costs of which will be paid half by Pirelli and the other half by the Seller(s)/New Partner(s) of a similar standing, chosen by agreement of those already
appointed at the time the task is assigned by Pirelli and by the New Partner that sent the Notice of Deadlock or, in the absence of agreement, by the Chief Justice of the Court of Milan. The Chief Justice of the Court of Milan (in the order and in
the terms indicated above) will also be asked to appoint the “investment banks” that Pirelli or the New Partner that sent the Notice of Deadlock failed to appoint or replace in the event of subsequent termination of the task. Whenever both
New Partners sent the Notice of Deadlock, the New Partners will be obligated to appoint a single “investment bank” by mutual consent. 

  

	 	(c)	The valuations referred to in item (b) above and therefore the Price of the Olimpia BCI Holding and/or the Price of the Olimpia UCI Holding and the Premium determined on that basis
will be definitively binding for the Parties, pursuant to Articles 1349 and 1473 of the Civil Code for the purchase and sale referred to in item (a) above. 

  

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	 	(d)	It is furthermore agreed, including in an aleatory manner, that the price owed by Pirelli will not be lower than the amounts paid by the New Partner for the acquisition and
underwriting 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”).  

  

	 	(e)	The purchase and sale will be closed within 30 (thirty) Business Days of the Parties’ receipt of the communication concerning the valuation referred to in item (b) above, and
the price referred to in items (b) and (d) above must be paid in cash, at the same time with the transfer of the Olimpia BCI Holding and/or the Olimpia UCI Holding referred to in paragraph 7.06. 

  

	7.06	Transfer. 

  
 If the Olimpia BCI Holding and/or the Olimpia UCI Holding should be purchased and sold pursuant to paragraph 7.05 (a), the following provisions will
apply: 
  

	 	(i)	the Olimpia BCI Holding and/or the Olimpia UCI Holding will be deemed transferred with regular enjoyment as of the date referred to in item (iii) below; 

  

	 	(ii)	the ownership right in the Olimpia BCI Holding and/or the Olimpia UCI Holding purchased and sold will be deemed transferred to the buyer as of the date referred to in item (iii)
below; 

  

	 	(iii)	the transfer of the Olimpia BCI Holding and/or the Olimpia UCI Holding and the payment of the respective price will take place at the headquarters of the Company, at 11:00 a.m. on
the 5th (fifth) Business Day after the date the purchase and sale is deemed closed pursuant to paragraph 7.05 (e),
in compliance, whenever applicable, with the possible authorizations from the competent authorities with jurisdiction over the Parties in connection with the purchase and sale;  

  

	 	(iv)	in the act of transfer and payment referred to in item (iii) above, the Olimpia BCI Holding and/or the Olimpia UCI Holding will be free of prejudicial pledges, liens, encumbrances
or rights of third parties of any nature; including in light of the absence of any managerial role of the New Partners and in an aleatory manner, the purchase and sale will take place without any further and different guarantee and responsibility of
UCI and/or BCI, including the value, situation and activities of the Companies and their affiliates; 

  

	 	(v)	the expenses, charges and indirect taxes levied on the purchase and sale of the Olimpia BCI Holding and/or the Olimpia UCI Holding will be paid by the buyer;

  

	 	(vi)	however, the taxes on any capital gains obtained by the seller will be paid by the latter; 

  

	 	(vii)	at the time of the transfer of the Olimpia BCI Holding and/or the Olimpia UCI Holding and the payment of the respective price, the seller will deliver to the buyer the resignations
of the directors and, whenever possible, of the auditors of the Company and of the Olivetti Companies designated by it. 

  
  
 ARTICLE VIII 
 Collateral Acquisitions 
  

	8.01	Commitment of the Parties. 

  

	 	(a)	UCI and BCI declare that, as of September 13, 2001, including through their respective subsidiaries, pursuant to Art. 2359, first paragraph, c.c., they own Olivetti shares
(including Olivetti’s voting rights held under any status), in an amount not exceeding, respectively, 6,616,827 Olivetti shares in ownership and 46,694,466 Olivetti shares in pledge with voting right, concerning UCI, and 15,129,380 Olivetti
shares in ownership and 13,865,712 Olivetti shares in pledge with voting right, concerning BCI. 

  

	 	(b)	For the entire term of this Instrument, the parties, including through their respective subsidiaries and/or parent companies, pursuant to Art. 2359, first paragraph, c.c., may not
acquire Olivetti shares, bonds convertible to Olivetti shares and/or Warrants giving right to acquire shares or bonds convertible to Olivetti shares, issued by Olivetti or by the Olivetti Companies (including Olivetti’s voting rights held under
any status). It is, however, permitted to UCI and BCI to acquire and hold such securities within said limit, for each of them, of 0.40% of Olivetti’s capital, as of the Execution Date. 

  

	 	(c)	Unless otherwise agreed upon in writing between the Parties, the Company may not purchase shares and bonds and instruments indicated in item (a) above in excess of the threshold set
forth therein, currently established at 30% (thirty percent), while also taking into account the incidence for this purpose of the securities referred to in item (b) above, held by BCI and UCI, as well as own shares held directly and indirectly, as
set forth in the current laws and regulations, including the instructions issued by CONSOB. 

  

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 ARTICLE IX 
 Penalty for Breach 
  
 In the event of
breach of one or several commitments made pursuant to the provisions of this Instrument, 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, which will take care of distribution internally, 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. 
  
 ARTICLE X 
 Term 
  

	10.01	Effective Date. 

  
 The efficacy and validity of this Instrument are subject to complete and regular execution of the Contract and therefore, secondary to obtaining the
necessary authorizations, including in compliance with antitrust regulations, for the acquisition by the Company of the entire holding in Olivetti represented by the Olivetti Shares and Olivetti Warrants as set forth therein. It is, however,
understood that in the event of failure to execute the Contract completely and regularly by January 31, 2002, this Instrument will be deemed cancelled ipso jure, effective ex tunc and, at the simple request of UCI and/or BCI, Pirelli will be
obligated (i) to acquire the entire Olimpia BCI Holding and the entire Olimpia UCI Holding at a price exactly identical to that possibly already paid by UCI and BCI for the acquisition of the Olimpia UCI Shares, Olimpia BCI shares, the new UCI
Shares and the New BCI Shares, as well as (ii) to release UCI and BCI from any commitment possibly already made to the Company. 
  

	10.02	Term. 

  

	 	(a)	This Instrument will have a term of three years from the Execution Date of the Contract 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 paragraph 10.03 below. 

  

	 	(b)	Except in the cases required by law, each of the Parties may opt out of this Instrument before every expiration, with notice sent 6 (six) months in advance.

  

	10.03	Absence of Renewal. 

  

	 	(a)	If, before the first expiration of this Instrument or successive ones, Pirelli should send to the New Partners, jointly or separately, in the terms set forth in paragraph 12.02, the
opt-out notice referred to in item (ii), paragraph 10.02 (b) 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 Holding and Olimpia BCI Holding held by the New Partner which exercised the option right set forth herein, under terms and conditions determined, mutatis mutandis, pursuant to paragraph 7.05 (b) above (and the provisions mentioned
therein), giving notice to Pirelli within 30 (thirty) Business Days. 

  

	 	    	In all events, it is agreed, including in an aleatory manner, that the price owed by Pirelli will not be lower than the amounts paid by the New Partner 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”). The aforementioned price will be paid in cash. 

  

	 	(b)	If, on the first expiration date of this Instrument, both or one of the New Partners should, jointly or separately, send to Pirelli, in the terms set forth in paragraph 12.02, the
opt-out notice referred to in item (i), paragraph 10.02 (b) above, Pirelli will have the right to acquire from both New Partners opting out, or from the single New Partner opting out, which, upon simple request, will have the corresponding
obligation to sell, respectively, all but not part of the Olimpia UCI Holding and Olimpia BCI Holding held by the New Partner which exercised the opt out right set forth herein, under terms and conditions determined, mutatis mutandis, pursuant to
paragraph 7.05 (b) above (and the provisions mentioned therein), less the Premium, giving notice to the New Partner which sent the opt-out notice, within 30 (thirty) Business Days. 

  

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	 	(c)	If both or one of the New Partners should send to Pirelli, in the terms set forth in paragraph 12.02, on the expiration of the first renewal in the following two years, the opt-out
notice referred to in paragraph 10.02 (a) above, and therefore, on the expiration of the fifth year after the effective Date of this Instrument, or on the successive additional expiration dates, both New Partners opting out, jointly or separately,
or the single New Partner 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 Holding and/or all but not part of the
Olimpia BCI Holding held by the New Partner which exercised the opt out right set forth herein, under terms and conditions determined, mutatis mutandis, pursuant to paragraph 7.05 (b) above (and the provisions mentioned therein), giving notice to
the New Partner that sent the opt-out notice, within 30 (thirty) Business Days. In all events, it is agreed, including in an aleatory manner, that the price owed by Pirelli will not be lower than the amounts paid by the New Partner 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”). 

  

	 	(d)	The payment of the amount referred to in item (a), (b) or (c) above must be made (i) immediately, at the simple written request of UCI and/or BCI to be sent to Pirelli at the end of
the term of 30 (thirty) days from the communication sent to the Parties as to the decision made by the procedure referred to in paragraph 7.05 (b) above, and (ii) at the same time with the transfer of the Olimpia UCI Holding and/or the Olimpia BCI
Holding. 

  
 ARTICLE XI 
 Changes in Stockholding 
  

	11.1	For the purposes of this paragraph, “Change of Control” means a substantial modification in the direct and indirect stockholding control of Pirelli, which means the
stoppage of the control of Pirelli & C s.a.p.a. over Pirelli S.p.A., as exercised today. 

  
 If the Change of control occurs, each of the New Partners will have the right to transfer, respectively, all but not part of the Olimpia UCI Holding
and/or all but not part of the Olimpia BCI Holding owned by Pirelli which, upon simple request, will have the obligation to acquire, under terms and conditions determined, mutatis mutandis, pursuant to paragraph 7.05 (b) above (and the provisions
mentioned therein), giving notice to Pirelli within 30 (thirty) Business Days of the date the New Partners, 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 Partner 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”). 
  

	11.2	If Pirelli intends to divest, in any form, part of its holding 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 Partners 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. 

  
 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 Holding and/or all but not part of the Olimpia BCI Holding held by the New Partner that exercised the Option Right set forth herein, under terms and conditions determined, mutatis mutandis, pursuant to paragraph 7.05 (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 Partner for the acquisitions and subscriptions of shares in the Company, less any dividends received
(“Floor”). 
  
 ARTICLE XII

 General Provisions 
  

	12.01	Amendments. 

  
 Any amendment to this Instrument will be valid and binding only if it arises from a written document signed by each of the Parties
concerned. 
  

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	12.02	Communications and Notices. 

  
 Any communication required or allowed by the provisions of this Instrument must be made in writing, and will be deemed efficiently and validly made upon
its receipt, if sent by letter or telegram, or at the time of the acknowledgement of receipt by the appropriate declaration (including by fax), if by fax, provided it is addressed as follows: 
  

	 	(i)	if to UCI, to the following address: 

 Via San Protaso No.
3 
 20121 MILAN 
 Attn.: Dr.
Pietro Modiano 
 Fax No. 02-88622196 
  

	 	(ii)	if to BCI, to the following address: 

 Piazza Paolo Ferrari
No. 11 
 20121 MILAN 
 Attn.:
Managing Director Lino Benassi 
 Fax No. 02-88503086 
  

	 	(iii)	if to Pirelli, to the following address: 

 Viale Sarca No.
222 
 20126 MILAN 
 Attn.: Dr.
Carlo Buora 
 Fax No. 02-64423454 
  
 or to a different address, which each Party has the right to communicate to the other, by the methods set forth in this paragraph 12.02; it is understood
that the aforementioned addresses or different addresses that may be communicated in the future, are also elected by the Parties as their own domicile for al aspects related to this Instrument, including possible legal notices or notices related to
the arbitration proceeding referred to in Article XIII below. 
  

	12.03	Tolerance. 

  
 Any possible tolerance of acts committed in violation of the provisions hereof does not constitute a waiver of the rights arising from the provisions
violated, nor of the right to require exact performance of all terms and conditions hereof. 
  

	12.04	Headings. 

  
 The headings of the individual articles are included for the sole purpose of facilitating their reading and therefore must not be taken into consideration
in any way for the interpretation of this Instrument. 
  

	12.05	Allocation of Option Rights. 

  
 The Parties mutually acknowledge and agree that the compensation for the mutual rights to buy and sell governed by this Instrument was considered in the
framework of the transfer values and prices of the respective holdings, so that, for the allocation of said rights, no further and other compensation is planned or intended. 
  

	12.06	Exercise of Rights and Performance of Obligations. 

  
 It is understood that (i) all rights allocated under this Instrument to UCI and BCI must be deemed enforceable also individually, whenever not otherwise
specified in this Instrument, and the failure to exercise its right by one of the New Partners may not be interpreted as a waiver thereof; (ii) in the event of failure to exercise or waiver by one of the New Partners of the right to designate a
director, this right may be exercised in its stead by the other New Partner, in addition to its own right; (iii) all obligations undertaken by the New Partners in this Instrument are individual and not joint. 
  

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 ARTICLE XIII 
 Disputes 
  

	13.01	Arbitration. 

  
 Any dispute arising from this Instrument, or from possible execution, amendment or expending agreements, will be submitted to the unappealable judgment of
an Arbitration Board made up of five arbitrators, who will decide without procedural formalities, in compliance with the principle of hearing both parties, but will apply Italian substantive law. The arbitration will be formal pursuant to the
provisions of the Code of Civil procedure and will be conducted in Milan. 
  

	13.02	Appointment of the Arbitrators. 

  

	 	(a)	The Party which requests the beginning of the arbitration proceeding must indicate its claims, at least in general lines. 

  

	 	(b)	The Party which begins the arbitration proceeding must designate its own arbitrator at the same time, under penalty of invalidity. Each of the Parties called to arbitration must
designate its own arbitrator within twenty (20) calendar days. The three arbitrators of the parties will designate the fourth and fifth arbitrator by mutual consent, indicating the arbitrator who will fill the position of President of the
Arbitration Board. Whenever the arbitrators appointed as indicated above cannot reach an agreement on the appointment of the fourth and/or fifth arbitrator within twenty (20) calendar days of the appointment of the second arbitrator, he (they) will
be appointed by the Chief Justice of the Court of Milan, who will take the position if the Party(s) called to arbitration fails (fail) to appoint its (their) own arbitrator within the aforementioned term. 

  
 If the dispute concerns only two parties, the Parties calling the
arbitration proceeding must designate its own arbitrator at the same time, under penalty of invalidity. The Party called to arbitration must designate its own arbitrator within twenty (20) calendar days. The arbitrators so appointed will designate
the third arbitrator by mutual consent, to fill the position of President of the Arbitration Board. 
  
 Whenever one of the parties fails to appoint its own arbitrator in a timely fashion, or whenever the two arbitrators appointed fail to designate the
third arbitrator within twenty (20) calendar days of the appointment of the second arbitrator, he will be appointed by the Chief Justice of the Court of Milan. 
  

Whenever the dispute involves more than two parties, the Board will be made up of three arbitrators appointed by the same methods indicated in the
preceding section, in the event that the parties spontaneously regroup into two opposed centers of interest. 
  

	13.02	Court of Jurisdiction. 

  
 Without prejudice to the above, it is agreed that any lawsuit related to this Instrument will be under the exclusive jurisdiction of the Court of
Milan.” 
  
 *** 
  
 If you agree with all of the above, please send us a letter reproducing the content hereof,
signed by you in token of confirmation and agreement. 
  
 Best regards. 
  

			
	 signed UniCredito Italiano S.p.A.
	 	signed IntesaBCI S.p.A.

  
 *** 
  
 We confirm that we agree to the above. 
 Best regards. 
  
 PIRELLI S.P.A. 
  

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 Milan, September 26, 2001 
  
 To: 
 INTESABCI S.p.A. 
 Piazza Paolo Ferrari, 10 
 20121- MILAN 
  
 To: 
 UNICREDITO ITALIANO S.p.A. 
 Piazza Cordusio 
 20121 - MILAN 
  
 Gentlemen: 
  
 We have received your letter dated September 26, 2001, which we transcribe in its entirety below: 
  
 * * * 
  
 Milan, September 26, 2001 
  
 PIRELLI S.p.A. Viale Sarca, 222 20126 - MILAN 
  
 Dear Sirs: 
  
 Pursuant to our discussions, we propose the following: 
  
 INSTRUMENT OF AMENDMENT OF THE SHAREHOLDERS’ AGREEMENT 
  
 Between Pirelli S.p.A., with registered office in Milan, Viale Sarca 222, capital €
1,043,094,358.28, recorded with the Registry of Companies of Milan, Taxpayer Code and VAT ID No. 00886890151, in the person of the Chairman of the Board of Directors, Dr. Marco Tronchetti Provera, holding the necessary powers of attorney pursuant to
the decision of the Board of Directors of July 28, 2001, (hereinafter “Pirelli”) 
  
 - party of the first part 
  
 UniCredito Italiano
S.p.A., with registered office in Genoa, Via Dante 1, Central Address in Milan, Piazza Cordusio, capital € 2,523,215,059, recorded in the Registry of Companies of Genoa, Taxpayer Code and VAT ID No. 00348170101, in the person of the General
Deputy Director Dr. Peter Modiano, holding of the necessary powers of attorney following the decision of the Board of Directors of August 3, 2001 (hereinafter “UCI”) 
  
 and IntesaBCI S.p.A., with registered office in Milan, Piazza Paolo Ferrari 10, capital € 3,488,995,258.84, recorded with the Registry
of Companies of Milan, Taxpayer Code 00799960158, VAT ID No. 10810700152, in the person of Managing Director Lino Benassi, holding the necessary powers of attorney following the decision of the Board of Directors of September 14, 2001 (hereinafter
“BCI”) 
  
 - party of the second part 
  
 whereas 
  

	(a)	Pirelli, UCI and BCI signed on September 14, 2001, a Shareholders’ Agreement (the “Agreement”) for the acquisition by UCI and BCI individually of a holding equal to
10% each of the capital of Olimpia S.p.A. held from Pirelli, as well as the acquisition of the option rights related to the Capital Increase of Olimpia (as defined in the Agreement), to allow for the subscription and payment, individually by UCI and
BCI, under the conditions decided upon by the shareholders’ meeting of August 29, 2001, of 38,460,183 shares; 

  

	(b)	by signing the Agreement, Pirelli, UCI and BCI also agreed to establish the discipline of their mutual relationships as shareholders of Olimpia S.p.A.; 

  

	(c)	In consideration of the new agreements reached on September 19, 2001 between Pirelli, Edizione and Bell S.A. concerning the acquisition of the Olivetti Shares and Olivetti Warrants
(as defined in the Agreement), while leaving unchanged all other provisions of the Shareholders’ Agreement (as defined in the Agreement), agree on the appropriateness of amending recital j, as well as Article II and paragraph 10.01 of said
Agreement; 

  

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	(d)	except to the extent otherwise established below, in this amendment act (hereinafter “Amendment Acts”), taking the same definitions contained in the Agreement and with the
same meaning set forth therein; 

  
 with these
recitals, 
  

	    	effective as of the date of this Amendment Act, the Parties agree that the Shareholders’ Agreement must be deemed amended by the adoption of the new text of recital j, as well
as Article II and paragraph 10.01, as reproduced below, to replace the provisions agreed upon on September 14, 2001. 

  

	    	(j)    Pirelli offered to UCI and BCI to purchase each a minority interest in the Company; it is the will of each of the New Partners to purchase
individually a holding of 10% of the company’s capital and, in particular, to purchase from Pirelli, respectively, 140,000,000 shares and 140,000,000 shares of the Company, including the option rights concerning the New Olimpia Capital Increase
(as defined below); 

  
 ARTICLE II

 Transfer of Olimpia UCI Securities and Olimpia BCI Securities and subscription of 
 the New UCI shares and the New BCI Shares. 
  

	2.0	Except as set forth in the provisions of paragraph 10.01 below concerning the perfecting and complete and regular closing of the contract as an essential condition of the agreements
referred to in this instrument, the commitments made by UCI and BCI referred to below are also subject to the condition that, on September 28, 2001 or, should Pirelli so require, on October 1, 2001 (a) The Current Partners have subscribed a total of
222,019,235 shares arising from a tranche of the Olimpia Capital Increase and paid the shares to which they are entitled in a total amount of € 2,309,000,044 and (b) the Shareholders’ Meeting of Olimpia has (i) revoked the Olimpia
Capital Increase, in the non-performed part, (ii) have decided to increase the capital free of charge using reserves up to € 1,400,000,000; and (iii) have decided on a new capital increase by a total disbursement of € 1,690,999,960, to be
carried out by issuing 162,596,150 new common shares reserved under option to the shareholders, in proportion to the number of shares owned, at the price of € 10.40 per share, of which € 9.40 as issue premium (the “New Olimpia Capital
Increase”). 

  

	2.01	Except as set forth in paragraph 10.01 below, UCI and BCI pledge, not jointly, to purchase from Pirelli, on September 28, 2001 or, should Pirelli so require, on October 1, 2001,
140,000,000 Olimpia Shares (“Olimpia UCI Shares”) with their option rights, so as to allow for the subscription and payment of a quota equal to 10% of the capital arising from the New Olimpia Capital Increase (“UCI Option
Rights”) (hereinafter the “UCI Olimpia Shares and the UCI Option Rights, jointly the “UCI Olimpia Securities”), as well as 140,000,000 Olimpia Shares (“Olimpia BCI Shares”) with their option rights, so as to allow for
the subscription and payment of a quota equal to 10% of the capital arising from the New Olimpia Capital Increase (hereinafter “BCI Option Rights”) (hereinafter the “BCI Olimpia BCI Shares and the BCI Option Rights, jointly the
“BCI Olimpia Securities”), under the following terms and conditions: 

  

	2.01.01	Total Price of Olimpia UCI Securities and Olimpia BCI Securities 

  

	 	(a)	Olimpia UCI Securities will be sold by Pirelli and purchased by UCI at the total price agreed upon, including in a tentative manner, of € 350,900,006.40 (the “Total UCI
Price”); 

  

	 	(b)	The Olimpia BCI Securities will be sold by Pirelli and purchased by BCI at the total price agreed upon, including in a tentative manner, of € 350,900,006.40 (the “Total
BCI Price”). 

  

	2.01.02	Payment Time and Terms 

  
 On September 28, 2001 or, should Pirelli so require, on October 1, 2001, UCI and BCI will pay to Pirelli, respectively, the Total UCI Price and the total
BCI Price by separate fund credits, with the same value date, to the following checking accounts: - checking account with Credito Italiano No. 16421 ABI 02008 CAB 01600 in the name of “Pirelli S.p.A.”; 
  

	 	–	checking account with Banca Commerciale Italiana No. 1686542177 ABI 02002 CAB 01700 in the name of “Pirelli S.p.A.” 

  
 At the same time as the payment of, respectively, the Total UCI Price and
the Total BCI Price, BCI, UCI and BCI will each deliver to Pirelli the original of the bank document attesting the credit of the respective amounts in the aforementioned checking accounts. 
  

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	2.01.03	Transfer of the Olimpia UCI Securities and Olimpia BCI Securities 

  
 The Transfer of the Olimpia UCI Securities and Olimpia BCI Securities will take place, simultaneously, on September 28, 2001 or, should Pirelli so
require, on October 1, 2001, at the same time with the payment of the Total UCI Price and the Total BCI Price, without need for any further expression of will between the parties, and will be valid between the parties as of that moment. On the same
date, at the same time, all acts necessary or appropriate will be carried out pursuant to applicable law—including tax law—in order to perform the transfer of the Olimpia UCI Securities and the Olimpia BCI Securities, making it valid for
third parties as well, including the following actions: 
  

	 	(a)	Pirelli: 

  

	 	(i)	will deliver to UCI and BCI the certificates representing, respectively, the Olimpia UCI Shares and the Olimpia BCI Shares, duly endorsed in favour of UCI and BCI, by methods
appropriate, based on applicable laws in the matter, to transfer to UCI and BCI full title and full availability of the Shares and allow the registration of UCI and BCI in the book of partners of Olimpia, as well as the option warrants representing
the BCI Option rights and the UCI Option Rights; (ii) will sign and exchange and/or cause signature and exchange of all other acts and documents (including tax stamps, whenever necessary) that may be required pursuant to the law; (iii) will deliver
to each of the New Partners an original of the declaration under the signature of Edizione Finance, as referred to in recital 1); 

  

	 	(b)	UCI and BCI, each to the extent applicable to it: (i) will pay to Pirelli, respectively, the Total UCI price and the Total BCI Price; (ii) will sign and exchange all other acts and
documents (including tax stamps, whenever necessary) that may be required pursuant to the law. 

  

	2.01.04	Expenses and charges 

  
 All expenses, costs and charges, including of a tax nature, related to the transfer of the Olimpia UCI Holding and of the Olimpia BCI Holding will be
borne half by UCI and BCI, and the other half by Pirelli. 
  

	2.02	Without prejudice to the provisions set forth in paragraph 10.01 below, on the Execution Date, UCI and BCI pledge non-jointly to subscribe and pay the New Capital Increase of
Olimpia, respectively (i) with a par value of € 16,259,615, equal to 16,259,615 new Olimpia shares (the “New UCI Shares”) with a total disbursement of € 169,099,996 and (ii) with a par value of € 16,259,615, equal to
16,259,615 new Olimpia shares, with a total disbursement of € 169,099,996 (the “New BCI Shares”). 

  

	2.03	At the same time with the subscription of the New Olimpia Capital Increase, (i) each of the New Partners, to the extent applicable to it, pledges to fully pay up the New BCI
Shares and the New UCI Shares, and (ii) Pirelli and Edizione Finance (to which Pirelli guarantees performance pursuant to art. 1381 of the Civil Code), to the extent applicable to them, pledge to subscribe and pay the residual part of
the New Olimpia Capital Increase, respectively, for a par value of € 97,557,690 equal to 97,557,690 shares, and a par value of € 32,519,230, equal to 32,519,230 shares, to assure that, at the end of the execution of the New Olimpia Capital
Increase, Pirelli will own 60%, Edizione Finance 20% and each of the New Partners 10% of the new capital of the Company. 

  

	2.04	Pirelli will take steps so that, within 30 (thirty) Business Days from the Execution Date, the Bylaws are amended so as to set forth the qualified quorum of 91% of the capital for
the validity of the decisions to amend or eliminate the list voting clause for the appointment of the directors, as well as to modify the number of the members of the Board of Directors. 

  
 ARTICLE X 
 Term 
  

	10.01	Effective Date 

  
 Except as set forth in Article II above, whose efficacy and validity are subject only to the provisions thereof, the efficacy and validity of this
Instrument are subject to complete and regular execution of the Contract and therefore, secondary to obtaining the necessary authorizations, including in compliance with antitrust regulations, for the acquisition by the Company of the entire holding
in Olivetti represented by the Olivetti Shares and Olivetti Warrants as set forth therein. It is, however, understood that in the event of 

  

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failure to execute the Contract completely and regularly by January 31, 2002, after the acquisition by BCI and UCI of 10% each of the capital of the Company
by the methods indicated in Article II above, this instrument will be deemed cancelled ipso jure, effective ex tunc and, in this case, at the simple request of UCI and/or BCI, Pirelli will be obligated (i) to acquire the entire UCI
Olimpia Holding and the entire BCI Olimpia Holding at a price exactly identical to that possibly already paid by UCI and BCI for the acquisition of the Olimpia UCI Shares, Olimpia BCI shares, the new UCI Shares and the New BCI Shares, and (ii) to
release UCI and BCI from any commitment possibly already made to the Company. 
  
 *** 
  
 If you agree with all of
the above, please send us a letter reproducing the content hereof, signed by you in token of confirmation and agreement. Best regards. 
  

			
	signed UniCredito Italiano S.p.A.	  	signed IntesaBCI S.p.A.

  
 *** 
  
 We confirm to you that we agree with all of the above. 
 Best regards. 
 PIRELLI S.P.A. 
  

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 Milan, October 24, 2001 
  
 To: 
 INTESABCI S.p.A. 
 Piazza Paolo Ferrari, 10 
 20121 – MILAN 
  
 To: 
 UNICREDITO ITALIANO S.p.A. 
 Piazza Cordusio 
 20121 – MILAN 
  
 Dear Sirs: 
  
 We have received your letter dated October 24, 2001, which we transcribe in its entirety below: 
  
 * * * 
  
 Milan, October 24, 2001 
  
 To: 
 PIRELLI S.p.A. 
 Viale Sarca, 222 
 20126 – MILAN 
  
 Dear Sirs, 
  
 following our talks, we propose the following: 
  

SECOND INSTRUMENT OF AMENDMENT OF THE PARTNERS’ AGREEMENT 
  
 Between Pirelli S.p.A., with headquarters in Milan, Viale Sarca 222, company capital € 1,043,094,358.28, recorded with the Registry of
Companies of Milan, Taxpayer Code and VAT Number 00886890151, in the person of the Chairman of the Board of Directors, Dr. Marco Tronchetti Provera, holding the necessary powers of attorney pursuant to the decision of the Board of Directors of July
28, 2001 (hereinafter “Pirelli”) 
  
 - party of the first
part - 
  
 and 
  
 UniCredito Italiano S.p.A., with headquarters in Genoa, Via Dante 1, Central Address in
Milan, Piazza Cordusio, company capital € 2,523,215,059, recorded in the Registry of Companies of Genoa, Taxpayer Code and VAT Number 00348170101, in the person of the General Deputy Director Dr. Peter Modiano, holding of the necessary powers
of attorney following the decision of the Board of Directors of August 3, 2001 (hereinafter “UCI”) 
  
 and IntesaBCI S.p.A., with registered office in Milan, Piazza Paolo Ferrari 10, capital Euro 3,488,995,258.84, recorded with the Registry of Companies of Milan, taxpayer identification number 00799960158, VAT code
10810700152, in the person of Managing Director Lino Benassi, holding the necessary powers of attorney following the decision of the Board of Directors of September 14, 2001 (hereinafter “BCI”) 
  
 - party of the second part - 
  
 (Pirelli, UCI and BCI hereinafter referred to as “the Parties”) 
  
 whereas 
  

	(a)	Pirelli, UCI and BCI signed on September 14, 2001, a Partners’ Agreement (the “Agreement”) for the acquisition by UCI and BCI individually of a holding equal to 10%
each of the capital of Olimpia S.p.A. held from Pirelli, as well as the acquisition of the option rights related to the Capital Increase of Olimpia (as defined in the Agreement), to allow for the subscription and payment, individually by UCI and
BCI, under the conditions decided upon by the shareholders’ meeting of August 29, 2001, of 38,460,183 shares; 

  

	(b)	by signing the Agreement, Pirelli, UCI and BCI also agreed to establish the discipline of their mutual relationships as partners of Olimpia S.p.A.; 

  

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	(c)	in consideration of the agreements reached on September 19, 2001 between Pirelli, Edizione and Bell S.A. concerning the acquisition of the Olivetti Shares and Olivetti Warrants (as
defined in the Agreement), on September 26, 2001, the Parties amended the Agreement, amending recital j, Article II and paragraph 10.01; 

  

	(d)	by this act (the “second Amendment Act”), the Parties intend to amend Article VIII of the Agreement, in which (i) they correct a material error present in item (a) of said
article and (ii) make the clauses under items (b) and (c) consistent with the actual will of the Parties; 

  

	(e)	except as otherwise set forth below, the same definitions used in the Agreement, and with the same meaning, are used in this Second amendment Act; 

  
 with these recitals, 
  
 effective as of the date of this Second Amendment Act, the Parties agree that Article III of
the Agreement is amended by the adoption of the new text reproduced below. 
  
 ARTICLE VIII 
 Collateral Acquisitions 
  

	8.1	Commitment of the Parties. 

  

	(a)	UCI and BCI declare that, on September 13, 2001, they hold, including through their respective subsidiaries, pursuant to Art. 2359, paragraph one, civil code, Olivetti common shares
(including the Olivetti voting rights held under any status), in an amount not exceeding, respectively, 6,616,827 Olivetti common shares in ownership and 46,694,466 Olivetti common shares in pledge with voting rights, concerning ICU, and 15,129,380
Olivetti common shares in ownership and 13,865,712 Olivetti common shares in pledge with voting rights, concerning BCI. 

  

	(b)	For the entire term of this Agreement, the Parties, including through their respective subsidiaries and/or parent companies, pursuant to Art. 2359, paragraph one, civil code, the
parties may not acquire Olivetti common shares (or acquire voting rights in Olivetti common shares under any status), or exercise conversion or acquisition or subscription rights in Olivetti common shares arising from convertible bonds and warrants.

  
 It is, however, permitted for UCI and BCI to
acquire and hold Olivetti common shares (including those arising from the conversion of convertible bonds and/or exercise of warrants) provided the Olivetti common shares held overall at any time by UCI and BCI do not exceed, for each of them, the
total maximum limit of 0.40% of the capital, as of the Execution Date. 
  

	(c)	Unless otherwise agreed upon in writing between the Parties, the Company may not acquire Olivetti common shares (or exercise conversion or acquisition or subscription rights in
Olivetti common shares arising from the bonds and warrants referred to in item (b) above), so as to exceed the current OPA [take-over bid] floor, currently established at 30% (thirty percent), taking into account for this purpose the effect of the
Olivetti common shares pursuant to the preceding item (b), held by BCI and UCI, as well as the common shares held directly and indirectly by Olivetti S.p.A., as set forth in the current laws and regulations, including the regulations issued by
CONSOB. 

  
 * * * 
  
 With the understanding that any other provision of the Agreement (including the arbitration
clause, which must be understood referred to herein as if it were transcribed) remain firm, valid and enforceable, if you agree with the above, please send us a letter reproducing the contents hereof, signed by you in token of confirmation and
agreement. 
  
 Best regards. 
  

			
	signed UniCredito Italiano S.p.A.	 	signed IntesaBCI S.p.A.

  
 * * * 
  
 We confirm to you that we accept all of the above.

 Best regards. 
  
 PIRELLI S.P.A. 

  

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 Milan, December 16, 2003 
  
 Messrs. 
 Pirelli & C. S.p.A. 
 Via G. Negri, 10 
 20123 Milan 
  
 Dear Sirs, 
  
 We received your letter of December 16, 2003 which we fully transcribe below: 
  
 *** 
  
 Milan, December 16, 2003 
  
 Messrs. 
 Banca Intesa S.p.A. 
 Piazza Paolo Ferrari, 10 
 20121 Milan 
  
 Messrs. 
 UniCredito Italiano S.p.A. 
 Piazza Cordusio 
 20121 Milan 
  
 Dear Sirs, 
  
 Following our conversations we propose the terms of this 
  
 THIRD AMENDMENT OF THE SHAREHOLDERS’ AGREEMENT 
  
 Between 
  
 Pirelli & C. S.p.A., headquartered in Milan, via G. Negri N. 10, capital of Euro 1,799,399,399.20, recorded with the Register of Companies of Milan, taxpayer and VAT
code 00860340157, in the person of the Chairman of the Board of Directors, Dr. Marco Tronchetti Provera, holding the necessary authorization pursuant to the decision of the Board of Directors of November 11, 2003 (hereinafter
“Pirelli”) 
  
 Party of the first part 

 
 And 
  
 UniCredito Italiano S.p.A., headquartered in Genova, via Dante 1, Central Management in
Milan, Piazza Cordusio, capital of Euro 3,158,168,076, recorded with the Register of Companies of Genova, taxpayer and VAT code 00348170101, in the person of Dr. Pietro Modiano, who has the necessary powers pursuant to the decision of the Board of
Directors of November 13, 2003 (hereinafter “UCI”) 
  
 And Banca Intesa
S.p.A., headquartered in Milan, Piazza Paolo Ferrari 10, with capital of Euro 3,561,062,849.24, recorded with Register of Companies of Milan, taxpayer 00799960158, VAT code 10810700152, in the person of Dr. Gaetano Micciche, who has the necessary
powers pursuant to the decision of the Board of Directors of November 13, 2003 (hereinafter “BCI” and, together with UCI, the “Banks” and each of them individually the “Bank”) 
  
 Party of the second part 
  
 Recitals 
  

	 	(a)	Pirelli and the Banks are, together with others, shareholders of Olimpia SpA (hereinafter “Olimpia”), a company with a total holding in the common capital of
Telecom Italia SpA of approximately 14.16% (17.02% as of December 18, 2003); in particular, Pirelli holds 937,557,690 common shares, equal to 50.40% of the capital, while BCI and UCI hold each 156,259,615 common shares, equal to 8.40% of
Olimpia’s capital; 

  

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	 	(b)	On November 13, 2003, Olimpia’s Shareholders’ Meeting, in the presence of all shareholders, approved a capital increase with payment up to a maximum of Euro 770 million in
two tranches, the first up to a maximum of Euro 700 million (the “First Tranche”) and the second up to a maximum of Euro 70 million (the “Second Tranche”) by issuing a maximum of 770,000,000 new common shares,
subscription of which is reserved under option to the shareholders pursuant to art. 2441, paragraph 1, of the civil code; the issue price of the new common shares, to be paid fully in money, was established by the meeting at the par value of Euro 1
each; 

  

	 	(c)	Pirelli, on the one hand, and the Banks on the other hand, signed on September 14, 2001 a para-corporate agreement referring to their holding in Olimpia, titled
“Shareholders’ Agreement,” subsequently amended by document dated September 26, 2001 and further amended by document dated October 24, 2001 (the “Shareholders’ Agreement,” together with its amendments are
collectively referred to hereinafter as the “Agreement”); 

  

	 	(d)	the Agreement, inter alia, in the case of transfer to Pirelli by each of the Banks of the Olimpia shares held by them, in the occurrence of certain conditions established therein,
sets forth for such transfers the criteria for the determination of the price of the transfer of the shares, establishing however that the price must be within the limits of a minimum price (“Floor”) and in certain circumstances a
maximum price expressing a ceiling for the valuation of the investment (“Cap”); 

  

	 	(e)	Pirelli is interested that the Banks subscribe, within the term established by the meeting, the new Olimpia common shares for the entire share of the capital increase to which each
of them is entitled under the option right; 

  

	 	(f)	the Banks are willing to sign Olimpia’s capital increase for their respective share under option, confirming the strategic validity of the operation, even though they deem it
necessary that the economic agreements previously reached concerning the hypothesis of transfer of their shares of the holding in Olimpia pursuant to the agreement, referred to in recital (d) above, be partially amended, exclusively referring to the
newly issued Olimpia common shares subscribed by them in execution of the capital increase referred to in recital (b) above. 

  
 With these recitals 
  
 The following is stipulated and agreed between Pirelli and the Banks. 
  
 ARTICLE I 
 Recitals,
definitions 
  

	1.01	The recitals of this Document are an integral part thereof. 

  

	1.02	Except for the definitions reported and shown graphically in this Document, the terms reported therein with initial capital letter and not otherwise defined will have the meaning
given to them in this document, as defined in recital (c) hereof. 

  
 ARTICLE II 
 Capital increase 
  

	2.01	BCI and UCI, each for itself and without joint responsibility, undertake to subscribe, within the term established by the Shareholders’ Meeting of November 13, 2003, the entire
portion to which they are entitled of the first tranche of the capital increase of Olimpia referred to in premise (b) hereof, and to pay the subscription price for the 58,800,000 Olimpia common shares reserved to each of them under the option right
(hereinafter the “New Shares”), equal to Euro 1 each. 

  

	2.02	Without prejudice to the subscription commitment in the preceding paragraph 2.01, the execution of the payment of the amounts owed as underwriting by BCI and UCI is subject to the
condition precedent that, by December 17, 2003, Pirelli must subscribe and pay its own share of the first tranches of the capital increase referred to in recital (b) hereof. 

  

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 ARTICLE III 
 Status of the new shares 
  

	3.01	The New Shares, and whenever issued, the Subsequent New Shares (as defined below) will be, by express acceptance of Pirelli and of the Banks and by the effect of this Document, the
object of the Agreement when subscribed, without need for further confirmation, including written, between the Parties. 

  

	3.02	With the exception of the provisions of Article IV below, as a consequence of paragraph 3.01 above, for the purposes of the Agreement, the New Shares and, when issued, the
Subsequent New Shares (as defined below) subscribed by the Banks will be considered for all purposes part, respectively, of the BCI Olimpia Holding and of the UCI Olimpia Holding, and also with the exception of the provisions set forth in Article IV
below, the New Shares and the Subsequent New Shares will be subject to all the provisions of the Agreement referring to the BCI Olimpia Holding and the UCI Olimpia Holding, respectively, to the extent that they are compatible.

  
 ARTICLE IV 
 Transfer price of the New Shares and of the Subsequent New Shares 
  

	4.01	Pirelli and the Banks agree, in derogation to the provisions to the contrary of the Agreement, that: 

  

	 	(a)	in the event of sale by UCI and/or BCI pursuant to paragraph 7.05, Article VII of the Agreement, for the determination of the price of the transfer to Pirelli of the respective New
Shares and Subsequent New Shares, according to the criteria established in letter (d) of the aforementioned paragraph 7.05 of the Agreement, the Cap set forth therein will not apply, but the Floor identified therein will continue applying;

  

	 	(b)	in the event of sale by UCI and/or BCI pursuant to paragraph 10.03, Article X of the Agreement, for the determination of the transfer price to Pirelli of the respective New Shares
and Subsequent New Shares according to the criteria established in the same paragraph 10.03, the Cap set forth therein will not apply, but the Floor identified will continue applying; 

  

	 	(c)	in the event of sale by UCI and/or BCI pursuant to Article XI of the Agreement, for the determination of the transfer price to Pirelli of the respective New Shares and Subsequent
New Shares according to the criteria established in the aforementioned Article XI, the Cap set forth therein will not apply, but the Floor identified therein will continue applying; 

  

	 	(d)	in reference to the New Shares and without prejudice to the fact that the premium referred to in paragraph 7.05 (b) (y) of the Agreement will not apply, the total transfer price to
Pirelli will be equal, including in an aleatory manner, to the highest between (I) Euro 3.53 and (II) the weighted average of the reference price recorded by the Telecom Italia shares in the 30 trading days prior to the request for sale, multiplied
by a number of Telecom Italia Spa shares equal to 16,657,224. 

  
 In the event that BCI and/or UCI subscribe the 5,880,000 new Olimpia common shares representing the portion respectively reserved to them from the Second Tranche of Olimpia’s capital increase referred to in
recital (b) hereof (the “Subsequent New Shares”) and they pay the respective subscription price, the total transfer price to Pirelli of the New Shares and of the Subsequent New Shares will be equal, including in an aleatory manner, to the
highest between (I) Euro 3.53 and (II) the weighted average of the reference price recorded by the Telecom Italia shares in the 30 trading days prior to the request for sale, multiplied by a number of Telecom Italia Spa shares equal to 18,322,946.

  
 It is understood that if Telecom Italia engages in capital
operations not implying a change in net equity (such as merely for illustration, free capital increases, capital reduction due to losses or modification of the par value of the Telecom Italia shares) changing the formulas referred to in this
paragraph, Pirelli, BCI and UCI will agree on the adjustments of such formulas that become necessary in order to neutralize the effect of such capital operations on the transfer price of the New Shares and of the Subsequent New Shares. 

 

	 	(e)	for the determination of the Floor, the New Shares, when issued, together with the Subsequent New Shares and the Company shares held today by the Banks (the “Old
Shares”) will be considered separately and, for this purpose: (i) the Floor for the Old Shares will be the amounts paid by the Banks to subscribe them, minus the dividends possibly received, and (ii) the Floor for the New Shares and, when
issued, the subsequent New Shares will be equal to the amounts paid by the Banks to subscribe them, minus the dividends possibly received, without average or offset between the two Floors. 

  

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	4.02	Pirelli and the Banks give note and agree, each for the aspects regarding them, that the derogation established in the letters (a) through (e) in the previous paragraph 4.01 will
apply exclusively to the possible sale to Pirelli by UCI and/or BCI of the New Shares and of the Subsequent New Shares, without prejudice to the provisions set forth in the Agreement, including the Cap referred to therein, concerning the possible
sale by UCI and/or BCI of Olimpia shares owned by them other than the New Shares and the Subsequent New Shares. 

  
 ARTICLE V 
 Edizione and Hopa

  
 Pirelli undertakes to obtain – by December 17, 2003 for the New
Shares and by December 31, 2003 for the Subsequent New Shares – for Edizione and Hopa to confirm, in connection to the possible sale by UCI and/or BCI of the respective New Shares and the Subsequent New Shares, of the provisions of art. 6.09
(iii) and (iv) of the contract of 02/21/03 in connection with the possible sale of the respective original holding in Olimpia. 
  
 *** 
  
 Without prejudice to the validity and efficacy of every provisions of the Agreement (including the arbitration clause which must be considered, repeated here as if transcribed) which has not been expressly modified or
derogated to in this Document, if you agree with the above, please send us a letter reproducing in full the content hereof, duly signed by you in token of confirmation and acceptance of all its provisions. 
  
 Best regards, 
  
 Signed Pirelli & C. S.p.A. 
  
 *** 
  
 We confirm that we accept all of the above. 
  
 Best regards, 
  

			
	 UNICREDITO ITALIANO S.P.A.
	 	 BANCA INTESA S.P.A.

	 Dr. Pietro Modiano
	 	 Dr. Gaetano Micciche

	 [signature]
	 	 [signature]

  

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 CONTRACT 
  

Between Pirelli S.p.A., with home offices in Milan, at viale Sarca 222, capital of €1,043,604,420.04, registered in the Milan
Business Registry under tax code and VAT no. 008690151, herein represented by Dr. Carlo Buora, holding the necessary powers as granted by the Board of Directors on December 19, 2002; 
  
 Edizione Finance International S.A., with home offices at Place d’Armes 1, L-1136, Luxembourg, capital of
€1,000,000.00, registered with the Luxembourg Chamber of Commerce under number B77504, herein represented by Dr. Sergio De Simoi and Dr. Gustave Stoffel, holding the necessary powers pursuant to By-laws; 
  
 Banca Intesa S.p.A (formerly Intesa BCI S.p.A.), with home offices in Milan, at
Piazza Paolo Ferrari 10, Administrative Offices at Via Monte de Pietà 8, capital of €3,561,062,849.24, registered in the Milan Business Registry under tax code no. 00799960158 and VAT no. 108107000152, herein represented by Dr. Gaetano
Miccichè, holding the necessary powers as granted by the Board of Directors on December 17, 2002; 
  
 Unicredito Italiano S.p.A., with home offices in Genoa, at via Dante 1, Central Administration in Milan, Piazza Cordusio, capital of €3,148,070,110.00, registered in the Genoa Business
Registry under tax code no. and VAT no. 00348170101, herein represented by Dr. Alessandro Profumo, holding the necessary powers as granted by the Board of Directors on December 19, 2002; and 
  
 Olimpia S.p.A., with home offices in Milan, at Viale Sarca 222, capital of
€1,562,596,150.00, registered in the Milan Business Registry under tax code no. and VAT no. 03232190961, herein represented by Dr. Marco Tronchetti Provera, holding the necessary powers as granted by the Board of Directors on December 19, 2002;

  
 the party of the first part, 
  
 and 
  
 Hopa S.p.A., with home offices in Brescia, at Corso Zanardelli 32, capital of €709,800,000.00, registered in the Brescia
Business Registry under tax code no. and VAT no. 03051180176, herein represented by Dr. Emilio Gnutti, holding the necessary powers as granted by the Board of Directors on December 17, 2002; 
  
 the party of the second part, 
  
 and 
  
 Edizione Holding S.p.A., with home offices in Treviso, at Calmaggiore, capital of €47,160,256.00, registered in the
Treviso Business Registry under number 13945, tax code no. and VAT no. 00778430264, herein represented by the Chairman of the Board of Directors, Dr. Gilberto Benetton, holding the necessary powers as granted by the By-laws; 
  
 standing as guarantor for Edizione Finance, 
  
 whereas 
  

	(a)	Olimpia (as defined in paragraph 1.22 below) is a holding company with approximately 28.5% of the capital of Olivetti (as defined in paragraph 1.23 below); 

 

	(b)	Olivetti, an Italian corporation traded on the Italian Stock Exchange, is an industrial holding company operating in the field of telecommunications and in specific sectors of
information technology and communications, whose main subsidiaries, both direct and indirect, are Telecom (as defined in paragraph 1.45 below), TIM (as defined in paragraph 1.46 below), and Seat (as defined in paragraph 1.38 below);

  

	(c)	Pirelli, Edizione, Intesa, and Unicredito (as defined below in paragraphs 1.31, 1.09, 1.17, and 1.48, respectively) hold 60%, 20%, 10% and 10% of the capital in Olivetti,
respectively; 

  

	(d)	Pirelli has signed with Edizione and with Intesa and Unicredito two separate Paracorporate Pacts involving the relationship between Pirelli and Edizione, and between Pirelli and
Intesa and Unicredito, as partners of Olimpia; 

  

	(e)	Edizione Finance as a shareholder of Olimpia will replace Edizione with regard to all rights and obligations of the latter pursuant to the agreement (as subsequently modified)
signed between Pirelli and Edizione such as referred to in clause (d) above. Accordingly: 

  

	 	(i)	Edizione Finance signs the present Contract as a party thereto (as a partner of Olimpia); whereas 

  

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	 	(ii)	Edizione signs the present Contract only as guarantor for Edizione Finance with regard to every obligation assumed by the latter pursuant to the present Contract;

  

	(f)	Hopa (as defined in paragraph 1.15 below), through its fully-owned subsidiary Holy (as defined in paragraph 1.14 below), on the date the Merger (as defined in paragraph 1.11 below)
enters into effect, inter alia, will assume ownership of 163,558,339 Olivetti Bonds (as defined in paragraph 1.21 below), 99,941,661 shares of Olivetti stock (as defined in paragraph 1.01 below), and Holy holding in Holinvest (as defined in
paragraph 1.25 below); 

  

	(g)	Current Olimpia Partners (as defined in paragraph 1.02 below) and Olimpia, on the one hand, and Hopa, on the other, have jointly expressed an interest in forming a partnership for
strategic purposes, pursuant to the terms and conditions of the present Contract, so as to maximize the creation of value for their shareholders, and accordingly have agreed to the following: 

  

	 	(i)	the joining of Hopa capital to that of Olimpia through a merger of Holy (which in turn owns Holy holding in Holinvest) in Olimpia, and 

  

	 	(ii)	the concurrent formalizing of understandings of a paracorporate type intended to govern the relations between Current Olimpia partners and Hopa, as Olimpia partners, and the
relations between Olimpia and Hopa, as Holinvest partners; 

  
 now therefore 
  
 the parties hereto do mutually covenant, stipulate and
agree as follows: 
  
 ARTICLE I 
 Definitions 
  
 1.01    “Olivetti Stock”: common shares in with voting rights in Olivetti (as defined in paragraph 1.23 below). 
  
 1.02    “Current Olimpia Partners”: 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 syndication pact with regard to
Hopa. 
  
 1.04    “Standstill notice”: shall have
the meaning set forth in paragraph 8.04(d) below. 
  
 1.05    “Accelerated standstill notice”: shall have the meaning set forth in paragraph 8.06(b)(i) below. 
  
 1.06    “Control”, “to control”, “Subsidiary,” 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 Civil Code. 
  
 1.07    “Relevant date”: shall have the meaning set forth in paragraph 9.01 of the present Contract. 
  
 1.08    “Agreement Term”: shall have the meaning set forth in
paragraph 6.00 below. 
  
 1.09    “Edizione”:
Edizione Holding S.p.A. as referred to in the heading of the present Contract. 
  
 1.09bis “Edizione Finance”: Edizione Finance International S.A., as referred to in the heading of the present Contract. 
  
 1.10    “Experts”: shall have the meaning set forth in paragraph 5.05 below. 
  
 1.11    “Merger”: shall have the meaning set forth in paragraph 5.01 below. 
  
 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. 
  
 1.13    “Holinvest”: Holinvest S.p.A., with home offices in Brescia, at Corso Zanardelli 32, capital of €700,000,000 and subscribed
capital of €514,000,000.00, registered in the Brescia Business Registry under registration no., tax code no. and VAT no. 03562710172. 
  

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 1.14    “Holy”: Holy s.r.l., with home offices in Brescia, at Corso Zanardelli 32, capital
of €10,000.00, registered in the Brescia Business Registry under registration no., tax code no., and VAT no. 03517530170. 
  
 1.15    “Hopa”: Hopa S.p.A., as referred to in the heading of the present Contract. 
  
 1.16    “Net Financial Borrowing”: unless otherwise specified
with regard to specific cases, shall be the algebraic consolidated sum (with the understanding that for each case net financial borrowing for Olimpia, borrowing for Olivetti and its subsidiaries will not be taken into account) of the following items
entered in the statement of assets and liabilities prepared pursuant to Art. 2424 of the 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 subsidiaries (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 updated value must be added to this amount, for financial leasing fees, if such are not included in the
aforementioned items. 
  
 1.17    “Intesa”: Banca
Intesa S.p.A (formerly Intesa BCI S.p.A), as referred to in the heading of the present Contract. 
  
 1.18    “Relevant Subjects”: shall have the meaning set forth in paragraph 6.02 below. 
  
 1.19    “Net Asset Value”: shall mean the evaluation method used for calculating increase in 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 Stock issued by Olivetti, each of which is an
“Olivetti Bond”. 
  
 1.22    “Olimpia”:
Olimpia S.p.A., as referred to in the heading of the present Contract. 
  
 1.23    “Olivetti”: Olivetti S.p.A., with home offices in Ivrea, at Viale Jervis 77, capital of €8,845,456,658.00, registration number in the Turin Business Registry and tax code no. 00488410010.

  
 1.24    “Extraordinary Operations”: every merger
or split involving Olivetti, on the one hand, and one or more of its directly or indirectly controlled companies, 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 split, reverse split, assignment of Olivetti stock to partners for capitalization of capital. 
  
 1.25    “Holy holding in Holinvest”: Holy holding of Holinvest capital, or 19.999% of this capital. 
  
 1.26    “Hopa holding in Holinvest”: Hopa holding of Holinvest
capital, or 80.001% of this capital. 
  
 1.27    “Olivetti holding”: alternately: 
  

	 	(i)	when there are no Extraordinary Operations, 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 Operations, the entire package of Olivetti Stock 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 Operations executed prior to the Relevant Date. 

  
 1.28    “Parties”: the current Olimpia Partners, Olimpia (which, in accordance with the provisions of
paragraph 12.10 below, must be considered as a single Party), and Hopa. 
  
 1.29    “Net Assets”: the difference – to be determined in accordance with Accounting Principles – between assets and liabilities on the “civil” 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. 
  

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 1.30    “Pacts”: agreements of a paracorporate nature set forth in Articles VI and VII of
the present Contract. 
  
 1.31    “Pirelli”: Pirelli
S.p.A. as referred to in the heading of the present Contract. 
  
 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 Borrowing (as defined in
paragraph 1.16 above). Possible derivative instruments (as defined in Decree Law 24.2.1998, no. 58 – Draghi Law, Article 1, paragraph 2), not for coverage (as defined by Banca d’Italia Measure of July 30, 2002) created as of 11-30-02, 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 coverage must be valued in a manner consistent with the asset or liability pertaining to
the coverage, with it understood that the so-called equity swap underwritten by Olimpia on November 20, 2001, will be customarily valued at cost. 
  
 1.35    “Stipulated Exchange Rate”: shall have the meaning set forth in paragraph 5.03(a)(ii) below. 
  
 1.36    “Split”: shall have the meaning set forth in paragraph
9.01 below. 
  
 1.37    “Holinvest Split”: shall
have the meaning set forth in paragraph 9.05 below. 
  
 1.38    “Seat”: Seat – Pagine Gialle S.p.A, with home offices at Via Grosso 10/8, Milan, registration number in the Milan Business Registry and tax code no. 12213600153. 
  
 1.39    “Holy Position”: Financial statements 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 Merger project.

  
 1.40    “Olimpia Position”: Financial statements
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
Merger project. 
  
 1.41    “Olivetti Companies”:
Telecom, TIM, and Seat, collectively. 
  
 1.42    “Standstill”: shall have the meaning set forth in paragraph 8.01 below. 
  
 1.42bis “Accelerated Standstill”: 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 Stock (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 document attached hereto as no. 1.44. 
  
 1.45    “Telecom”: Telecom Italia S.p.A., with home offices at Piazza degli Affari 2, Milan, registration number in the Milan Business Registry and tax code no. 00471850016. 
  
 1.46    “Initial Term”: shall have the meaning set forth in
paragraph 8.05 below. 
  
 1.47    “TIM”: Telecom
Italia Mobile S.p.A., with home offices at Via Giannone 4, Turin, registration number in the Turin Business Registry and tax code no. 06947890015. 
  
 1.48    “Unicredito”: Unicredito Italiano S.p.A, as referred to in the heading of the present Contract. 
  

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 ARTICLE II 
 Object of Contract 
  
 (a)    Under the present Contract, the various operations governed thereby and the Paracorporate Pacts contained herein, the Current Olimpia Partners, 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 Partners, and
the subsequent joining of Olimpia’s capital to that of Holinvest, together with Hopa. 
  
 (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 of a paracorporate nature 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 Standstills or Accelerated Standstills such as may arise in the administration of Olimpia (to include with regard to voting instructions as
determined by the Olivetti Extraordinary Shareholders’ Meeting) and/or of Holinvest; and 

  

	 	(B)	the means of any possible breakup of the partnership carried out under the present Contract, with regard to confirming a Standstill or Accelerated Standstill, as well as to the
failure to renew Pacts upon their expiration; 

  
 with particular regard to the provisions of Articles VIII, IX, and X below. 
  
 ARTICLE III 
 Preliminary Obligations of the Parties 
  
 (a)    Following the signing of the present Contract, and in any case no
later than February 28, 2003, Hopa, Holinvest, and the Hopa Controlling Companies must divest themselves of all Olivetti Stock, and Olivetti Instruments such as they may own, with the following exceptions: 
  

	 	(i)	with regard to Hopa, Olivetti Instruments as referred to up to a maximum of 40 million shares in Olivetti; 

  

	 	(ii)	with regard to Holinvest, Olivetti Instruments, Olivetti Stock and Olivetti Bonds as set forth in paragraph 4.01(ii)(A) below; 

  

	 	(iii)	with regard to Holy, up to a maximum of 99,941,661 shares in Olivetti and 163,558,339 Olivetti Bonds; and 

  

	 	(iv)	with regard to the Hopa Controlling Companies, up to one (1) million shares in Olivetti for each Company. 

  
 (b)    In order to certify proper compliance with the obligations set forth in the previous paragraph (a), and so that
the actions taken under the conditions precedent set forth in paragraphs 4.01 (i), 4.01 (ii), and 4.01 (iii) can be verified by no later than February 28, 2003: 
  

	 	(i)	Hopa and the Hopa Controlling Companies must furnish the Current Olimpia Partners with declarations (signed by the authorized legal representative, or in the case of individuals, by
the individual from the Hopa Controlling Company), from which full compliance with the obligations set forth in the previous paragraph (a) can be inferred, with regard to Hopa and each of the Hopa Controlling Companies, respectively, and the
consequent ownership of Olivetti Stock, Olivetti Instruments, and Financial Instruments as permitted under the present Contract, all based on the model attached under number 3(b), with it being understood, to avoid any doubt, that:

  

	 	(A)	the declaration furnished by Hopa must include the Olivetti Stock and/or Olivetti Instruments it holds, to include indirectly through its Subsidiaries (including Holy and
Holinvest); and 

  

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	 	(B)	determination of compliance with the obligation to divest set forth in the previous paragraph 3(a) (and subsequently for properly preparing the declaration under paragraph 3(b)(i),
must also include all of the rights of any type whatsoever regarding Olivetti Stock as prescribed in the standards on Tender Offers currently in force); 

  

	 	(ii)	Hopa must furnish the Current Olimpia Partners with a declaration (signed by the authorized legal representative), from which it can be inferred that Holinvest meets the condition
set forth in paragraph 4.01(ii) below. 

  
 (c)    Following the signing of the present Contract, and in any case no later than February 28, 2003, Olimpia, and the Current Olimpia Partners must divest themselves of all Olivetti Stock such as they may own on that
date, also through their respective Subsidiaries, in excess of the limit set forth in paragraph 4.01(iii) below, with it understood that the maximum amount of Olivetti Stock that Hopa, its Subsidiaries and Hopa Controlling Companies can own pursuant
to the present Contract, as stipulated in paragraph 4.01, also following verification of the Conditions Precedent referred to in Article IV, must be determined in order to calculate this excess. 
  
 (d)    In order to certify proper compliance with the obligations set
forth in the previous paragraph (c), and so that the actions with regard to the Conditions Precedent set forth in paragraph 4.01(iii) below can be verified by no later than February 28, 2003, Olimpia and the Current Olimpia Partners must furnish
Hopa with declarations (signed by the authorized legal representative), from which full compliance with the obligations set forth in the previous paragraph (c) can be inferred, and the consequent ownership of Olivetti Stock as permitted under the
present Contract, all based on the model attached under number 3(d), with it being understood, to avoid any doubt, that: 
  

	 	(i)	the declaration furnished by each of the Current Olimpia Partners must also include the Olivetti Stock, the Olivetti Instruments and the Financial Instruments (as prescribed in the
standards on Tender Offers currently in force) that each one holds, to include indirectly through their Subsidiaries and/or which are owned by companies belonging to the same groups managed by the Current Olimpia Partners; 

 

	 	(ii)	determination of compliance with the obligation to divest set forth in the previous paragraph 3(c) (and subsequently for properly preparing the declaration under this paragraph
3(d), must include all of the rights of any type whatsoever regarding Olivetti Stock as prescribed in the standards on Tender Offers currently in force); and 

  

	 	(iii)	when providing these declarations, Intesa and Unicredito may be limited – in accordance with the commitments assumed with Pirelli in the Paracorporate Pact governing their
relationships as Olimpia partners - to furnishing the amount of Olivetti Stock they own and the additional circumstance whereby they could jointly hold additional Olivetti Stock up to a maximum of 0.40% of the capital of this company, with voting
rights, with it being understood that such an exception is to be considered in calculating any possible excess as referred to in the previous paragraph (c). 

  
 (e)    Hopa hereby declares and assures that the Hopa Controlling Companies will modify, by February 28, 2003 at the
latest (inserting provisions in this regard to take immediate effect), the Paracorporate Pacts that bind them, with a stipulation whereby if any of the Hopa Controlling Companies holds more than one (1) million shares in Olivetti, such shall be
grounds for immediately canceling the aforesaid Paracorporate Pacts regarding the Hopa Controlling Company/Companies that has/have exceeded the limit. 
  
 (f)    Understanding the commitment to divest under the present Article III, the Parties – to include their Subsidiaries and Controlling
Companies and third parties with whom, while the present Contract is in effect, agreements have been signed (by the Parties themselves and/or their Subsidiaries and or Controlling Companies) relative to Olivetti Stock and/or Financial Instruments
and/or Olivetti Instruments – hereby agree and mutually acknowledge that, during the entire time the present Contract and the Pacts contained herein are in force, none of them will hold Olivetti Stock and/or Financial Instruments and/or
Olivetti Instruments of sufficient quantity such as to exceed, among the Parties and with regard to Olivetti Stock and/or Financial Instruments and/or Olivetti Instruments, the limit referred to in paragraph 4.01(iii) below. 
  
 ARTICLE IV 
 Conditions Precedent 
  
 4.01    Specifications. The Parties agree that the effectiveness of the present Contract is subject to the following conditions precedent:

  

	 	(i)	 that by February 28, 2003 at the latest, the Hopa Controlling Companies will dispose of all Olivetti Stock in excess of the amount excepted under the preceding
paragraph III(a) such as they may hold, 

  

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and will modify the Paracorporate Pacts binding on them in accordance with item (e) of Article III above; and 

  

	 	(ii)	that by February 28, 2003 at the latest, Holinvest will have: 

  

	 	(A)	assets comprised of: 

  

	 	(1)	134,721,109 Olivetti Bonds as third-party loans; 

  

	 	(2)	the right to obtain, by June 30, 2003, (i) 58,110,100 Olivetti Bonds pursuant to the agreement signed with GPP International S.A.; (ii), 39,203,282 Olivetti Bonds pursuant to the
agreement signed with Hopa, and (iii) 66,244,957 Olivetti Bonds resulting from reimbursement for an equal number of Olimpia Bonds, for a total of 163,558,339 Olivetti Bonds, with the understanding that, to avoid any doubt: 

 

	 	(x)	Hopa will ensure that Holinvest exercises the above right, and that GPP International S.A. meets the commitments assumed vis-à-vis Holinvest so that the latter will obtain
the aforesaid Olivetti Bonds no later than June 30, 2003; 

  

	 	(y)	the sale of the Olivetti Bonds will not result in Net Financial Borrowing by Holinvest in excess of the maximum limit set forth in paragraph (D) below; and 

 

	 	(3)	Olivetti Instruments tantamount to 486,500,000 shares in Olivetti; 

  

	 	(4)	2,431 shares in Olivetti. 

  

	 	(B)	the stipulated value of Net Worth (applying Net Asset Value and using as a base for reference the stipulated per-share value of Olivetti Stock of €1.20), not less than
€220,000,000.00; 

  

	 	(C)	a debt/equity ratio of not more than 1:1; and 

  

	 	(D)	Net Financial Borrowing of not more than €721,750,000.00. 

  
 It is understood that calculation of Net Financial Borrowing and the stipulated Net Assets referred to in paragraphs (B) and (D) above must not take into
account (1) accrued interest payable on financial debt dating from December 19, 2002, or the effects of the time lapsed during the normal management of the company and the costs of belonging to the partnership set forth herein and of purchasing
Olivetti Instruments; and (2) the 100,000,000 Olivetti Bonds owned by Holinvest involved in a loan to JP Morgan Chase, and 100,000,000 nonconvertible Olivetti Bonds owned by JP Morgan Chase loaned to Holinvest. Accordingly, Hopa assures that the
assets under the aforesaid loans, opposite in sign, have the same value, and thus the sum of the respective values (and the consequent effect of these operations on Holinvest) is at least 0 (zero). 
  

	 	(iii)	that – gross of the exemption allowed for Hopa, Holinvest, Holy, and the Hopa Controlling Companies as set forth in paragraph (a) of Article III above – the totality of
Olivetti Stock held by Olimpia, the Current Olimpia Partners, Hopa, Holinvest, Holy, the other Hopa Subsidiaries and the Hopa Controlling Companies (upon conclusion of the operations referred to in Article III above) will not exceed 30% of Olivetti
capital with voting rights (it being understood that for this calculation the provisions of paragraphs (c) and (d) of Article III must be taken into account); it is understood that accordingly all of the rights of any type whatsoever regarding
Olivetti Stock must be calculated, as prescribed by the standards on Tender Offers currently in effect. 

  
 4.02    Unilaterality and Other Pacts. The Parties agree that – in view of the conditions set forth in paragraphs 4.01(i) and (iii) above
– the condition set forth in paragraph 4.01(ii) above is in the exclusive interest of Current Olimpia Partners and Olimpia, and who may, upon unanimous agreement, waive same by written communication sent to Hopa no later than March 10, 2003.

  
 4.03    Effectiveness. (a) If the conditions set
forth in paragraph 4.01 fail to materialize by February 28, 2003 (or if the condition set forth in paragraph 4.01(ii) has not been waived by the above deadline set for the Current Olimpia Partners and Olimpia), this Contract shall be regarded as
automatically without effect and cancelled as of that date, and the Parties shall be released from any remaining obligations arising from same, with the Current Olimpia Partners and Olimpia having no claim whatsoever against Hopa, and vice versa,
with paragraphs 12.03, 12.05, 12.08, 12.10, and Articles XI and XIII no longer applicable. 
  

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 ARTICLE V 
 Merger 
  
 5.01    Type of Merger. The Parties agree to create a partnership among themselves by a merger involving the incorporation of Holy into Olympia, with the corresponding increase of capital of the incorporating
company, to be earmarked for Hopa as the sole partner of Holy (hereafter the “Merger”). 
  
 5.02    Financial positions of reference. The Parties agree to utilize as the financial statements for the Merger during the approval stage and as a deposit for the Merger project, solely
for Olimpia and Holy, respectively: 
  

	 	(i)	for Olimpia, the statements at November 30, 2002, as shown in Attachment 5.02(i) (hereafter, the “Olimpia Position”); 

  

	 	(ii)	for Holy, the statements at December 31, 2002, as shown in Attachment 5.02(ii) (hereafter, the “Holy Position”) 

  
 5.03    Stipulated exchange rate. (a) The Parties mutually
acknowledge: 
  

	 	(i)	that each has, prior to the date of the present Contract, carried out fact-finding investigations and verifications of the company involved in the Merger and a subsidiary of the
other Party, aimed at verifying its asset, financial, economic, administrative, legal, and fiscal position; 

  

	 	(ii)	that each has – following the verifications referred to in paragraph (i) above – determined the exchange rate for the Merger to be 297,637,360 shares of Olimpia stock at a
par value of €1.00 each, for a single share of Holy at a par value of €10,000.00 (hereafter the “Stipulated Exchange Rate”); 

  

	 	(iii)	that each has taken into account, in order to calculate the Stipulated Exchange Rate, the financial statements of Holy and Holinvest referred to in paragraph 5.10.1.2 below, as well
as the pro forma financial statements shown in the attachment under 5.03 (iii), as indicated in paragraphs 5.03 (b), 4.01 (ii)(A)(2) and 4.01 (ii)(D). 

  
 (b)    The Parties also acknowledge that – apart from verifications made – the above ascertainments indicate:

  

	 	(i)	that the Olimpia and Holy Positions are accurately represented; 

  

	 	(ii)	that on the date the Merger becomes effective, Holy, by virtue of owning: 

  

	 	(A)	163,558,339 Olivetti Bonds and 99,941,661 shares in Olivetti, none of them encumbered in any manner whatsoever, entered in their totality on the balance sheets at a value of
€476,935,000.00; 

  

	 	(B)	Holy holding in Holinvest, not encumbered in any manner whatsoever, and entered on the balance sheet at a value of €385,400,000.00; 

  

	 	(C)	net cash holdings of €98,800,000.00, plus any dividends such as may be distributed by Olivetti by the effective date of the Merger, with regard to 98,975,110 shares in
Olivetti; will have a Net Worth of not less than €961,135,000.00, and with no debts or other liabilities. It is understood that, for calculating the net cash holdings referred to in paragraph (C) above, and the Net Assets, as of December 19,
2002, no consideration should be given to the effects of the passing of time for the normal management of the company, nor to the costs of pertaining to the Merger herein referred to. 

  
 5.04    Directors’ Report. (a) Current Olimpia Shareholders
shall provide for the Olimpia Board of Directors to prepare the Report under Article 2501 quater of the Civil Code by or before February 28, 2003. 
  
 (b)    Hopa shall provide for the governing body of Holy to prepare the Report under Article 2501 quater of the Civil Code, as soon as possible after
execution of this Contract, and in any case no later than February 28, 2003. 
  
 (c)    The Parties agree that the reports under Article 2501 quater of the Civil Code, referred to in paragraphs (a) and (b) above, must be consistent in structure. 
  
 5.05    Expert’s report on exchange rate adequacy. (a) For
the purpose of writing the experts’ report as prescribed under Article 2501 quinquies, subsection 1 of the Civil Code, the Parties mutually recognize as follows: 
  

	 	(i)	the President of the Court of Milan (at the request of Olimpia) has indicated Milan-based Price Waterhouse & Coopers S.p.A. as expert, according to the definition under Article
2501 quinquies, subsection 2, letter b) of the Civil Code, in charge of writing a report – in Olimpia’s interest – concerning the adequacy of the Merger exchange rate; and 

  

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	 	(ii)	the President of the Court of Brescia (at the request of Holy) has indicated Prof. Maurizio Dallocchio, whose office is located in Milan, Via dei Bossi 6, as expert according to the
definition under Article 2501 quinquies, subsection 2, letter b) of the Civil Code, in charge of writing a report – in Holy’s interest – concerning the adequacy of the Merger exchange rate; 

  
 (For the purposes of this Contract, Milan-based Price Waterhouse & Coopers S.p.A. and
Prof. Maurizio Dallocchio are hereinafter collectively referred to as the “Experts”.) 
  
 (b)    The Parties agree that, should the Experts find the Stipulated Exchange Rate inadequate, Olimpia, each of the Current Olimpia Shareholders, and Hopa, shall meet to resolve the matter
amicably and in good faith, provided however that, should Olimpia, each of the Current Olimpia Shareholders, and Hopa fail to come to an agreement, to be formalized within thirty [30] calendar days after the Experts have filed their report, this
Contract shall be deemed terminated to all intents and purposes, and neither Party shall have any liability of whatever nature to the other Party by reason of such termination. 
  
 5.06    Merger Resolutions. (a) The Parties mutually agree, after undertaking the corrective measures as
described in paragraph 5.05(b) above, if required, and after fulfilling all legal and regulatory requirements for the approval, filing, publication and registration of the Merger project, to provide for the following : 
  

	 	(i)	call a Extraordinary Meeting of Olimpia Shareholders to approve the Merger and pass all resolutions related and consequent thereto; and 

  

	 	(ii)	call a Extraordinary Meeting of Holy Shareholders, to be held on the following day, to approve the Merger and pass all resolutions related and consequent thereto.

  
 (b)    The Parties shall provide for a new
set of Olimpia by-laws (post Merger) to be adopted as a part of the Merger project; such by-laws shall adhere to the text attached hereto as Addendum 5.07(b), so as to adjust the company’s corporate governance according to the agreed
stipulations, as described in detail in Article VI below. 
  
 (c)    It is understood that, for all accounting and tax purposes, the Merger shall be effective as of January 1, 2003. 
  
 5.07    Merger Agreement. The Parties agree to provide for Olimpia and Holy to execute the Merger Agreement, as soon as possible after the term
required by law. 
  
 5.08    Interim Management. (a) As
of the date of this Contract and until the effective date of the Merger, each Party agrees to provide for its subsidiary to be merged, and in the case of Hopa, Holinvest, to abstain from performing, without prior written consent from the other Party
and subject to compliance with express provisions contained herein, such acts as may produce significant changes in its economic and financial structure, including direct or indirect purchase of company stock or shares, except as required to fulfill
the obligations hereunder, as known to the Parties. 
  
 (b)    Additionally, each Party agrees to provide for the companies to be merged to abstain from issuing new shares, in order to avoid altering the Stipulated Exchange Rate. 
  
 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%; and
	 Intesa
	 	: 8.40%.

  
 (ii)     Holinvest
post-Merger shall be owned as follows: 
  

			
	 Hopa
	 	: 80.001%; and
	 Olimpia
	 	: 19.999%.

  

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 5.10    Mutual Guarantees by the Parties. The Parties mutually guarantee and represent as
follows in relation to Holy and Holinvest (with respect to Hopa) and Olimpia (with respect to Current Olimpia Shareholders), their financial statements, financial position and operating results, as well as any other circumstances concerning such
companies, as indicated below. 
  
 5.10.1    Hopa’s
Guarantees 
  
 5.10.1.1    Capitalization and
Title. (a) The capital of Holy and Holinvest reflects, as to amount and structure, the relevant specifications contained in Addendum 5.10.1.1. 
  
 (b)     There are no: 
  

	 	(i)	titles or rights of any type or nature which may be converted into shares of or interests in Holy or Holinvest, nor any other rights of third parties to obtain any shares of or
interests in Holy or Holinvest, presently or in the future; 

  

	 	(ii)	credit rights of any nature, claimed against Holy or Holinvest by Hopa – except as indicated in balance sheet situations described in paragraph 5.10.1.2 below – or by any
persons (whether individuals or entities) who own, are owned by, or are under the same ownership as Hopa. 

  
 5.10.1.2    Financial statement. Holy’s financial statement, attached hereto as Addendum 5.02(ii) and Holinvest’s financial
statement, attached hereto as Addendum 5.10.1.2, have been written clearly and accurately, in compliance with the requirements of all civil and tax laws and regulations as applicable from time to time, and based on Accounting Principles applied
consistently throughout the years using prudent and constant evaluation criteria; such statements constitute true and correct representations of Holy’s and Holinvest’s assets and liabilities, financial position, and operating results in
the indicated periods. The positive and negative entries recorded in the financial statements are true and real, and have been evaluated on the basis of prudent appreciation; additionally, the provisions and reserves required to meet any possible
contingent liabilities of Holy and Holinvest have been duly allocated. With reference to the date of such statements, no lower assets or greater liabilities or any other causes or events exist which may affect the value of the Net Assets indicated
therein, nor are there any further debts or liabilities, of whatever kind or nature, in addition to those entered in the financial statements, regardless of whether such debts or liabilities require the allocation of a fund or reserve. 

 
 5.10.1.3    Unrecorded Liabilities and Credits. (a) As of the
effective date of the Merger, Holy and Holinvest shall have no liabilities except those not yet paid shown in the statements referred to in paragraph 5.10.1.2 above, as well as those emerged after the statements’ reference dates in connection
with ordinary business conducted by Holy and Holinvest after such effective date, according to the stipulations under paragraph 5.08 above, as a result of acts performed by said companies under this Contract, or as a result of costs related to the
Merger, or the partnership regulated hereunder, or – with respect to Holinvest - the acquisition of Olivetti instruments, plus the interest expense accrued on financial debt as of December 19, 2002. 
  
 (b)    The credits shown in the aforesaid statements and those emerged
after the reference dates of such statements, until the effective date of the Merger, are and shall be existent, certain, liquid, and collectible within the terms agreed with the debtors, with the exception of the special adjustment fund entered in
the liabilities. 
  
 5.10.1.4    Interim Management.
(a) Hopa guarantees and represents that in the period following the reference date of the financial statements referred to in paragraphs 5.10.1.2 and 5.10.1.3 above, and until the date of this Contract, the business operations of Holy and Holinvest
were managed and conducted in accordance with the provisions under paragraph 5.08 above; (b) after the reference date of the statements referred to in paragraphs 5.10.1.2 and 5.10.1.3 above, no situations or circumstances occurred which may
significantly affect Holy and/or Holinvest or their financial statements or financial positions, assets, operating results, or future outlooks, except for any acts required to fulfill the obligations hereunder. 
  
 5.10.2    Current Olimpia Shareholders’ Guarantees

  
 5.10.2.1    Capitalization and Title. (a) The
capital of Olimpia reflects, as to amount and structure, the relevant specifications contained in Addendum 5.10.2.1(a). 
  

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 (b)    With the exception of the details specified in the document attached hereto as Addendum
5.10.2.1(b), there are no : 
  

	 	(i)	titles or rights of any type or nature which may be converted into shares of or interests in Olimpia, nor any other rights of third parties to obtain any shares of or interests in
Olimpia, presently or in the future; 

  

	 	(ii)	credit rights of any nature, claimed against Olimpia by Current Olimpia Shareholders. 

  
 5.10.2.2    Financial statement. Olimpia’ financial statement, attached hereto as Addendum 5.02(i) has been
written clearly and accurately, in compliance with the requirements of all civil and tax laws and regulations as applicable from time to time, and based on Accounting Principles applied consistently throughout the years using prudent and constant
evaluation criteria; such statement constitutes a true and correct representation of Olimpia’s assets and liabilities, financial position, and operating results in the indicated periods. The positive and negative entries recorded in the
financial statements are true and real, and have been evaluated on the basis of prudent appreciation; additionally, the provisions and reserves required to meet any possible contingent liabilities of Olimpia have been duly allocated. With reference
to the date of such statements, no lower assets or greater liabilities exist, or any other causes or events, which may affect the value of the Net Assets as indicated therein, nor are there any further debts or liabilities, of whatever kind or
nature, in addition to those entered in the financial statement, regardless of whether such debts or liabilities require the allocation of a fund or reserve. 
  
 5.10.2.3    Unrecorded Liabilities and Credits. (a) As of the effective date of the Merger, Olimpia shall have no liabilities except those not yet
paid shown in the statements referred to in paragraph 5.10.2.2 above, as well as those emerged after the statements’ reference dates in connection with ordinary business conducted by Olimpia after such effective date, according to the
stipulations under paragraph 5.08, or as a result of costs related to the Merger, or the partnership regulated hereunder, or the acquisition of Olivetti instruments, plus the interest expense accrued on financial debt as of December 19, 2002.

  
 (b)    The credits shown in the aforesaid statements and
those emerged after the reference dates of such statements, until the effective date of the Merger, are and shall be existent, certain, liquid and collectible within the terms agreed with the debtors, with the exception of the special adjustment
fund entered in the liabilities. 
  
 5.10.2.4    Interim
Management. Unless otherwise stated in Addendum 5.10.2.4 : 
  

	 	(i)	in the period following the reference date of the financial statements referred to in paragraphs 5.10.2.2 and 5.10.2.3 above, and until the date of this Contract, the business
operations of Olimpia were managed and conducted in accordance with the provisions under paragraph 5.08 above; 

  

	 	(ii)	after the reference date of the statements referred to in paragraphs 5.10.2.2 and 5.10.2.3 above, no situations or circumstances occurred which may significantly affect Olimpia or
its financial statement or financial positions, assets, operating results or future outlooks, except for any acts required to fulfill the obligations hereunder. 

  
 5.11    Indemnification obligations (a) Each Party – this term meaning, for the purposes of this paragraph 5.11,
Hopa, on one side, and Current Olimpia Shareholders on the other, each in relation to the guarantees respectively given herein - shall fully indemnify and hold harmless the other Party with respect to: 
  

	 	(i)	any liability (whether actual or potential) of its subsidiary to be merged and/or of Holinvest, existing as of the reference dates of the financial statements referred to in
paragraphs 5.10.1. and 5.10.2 above, pertaining to such subsidiary or otherwise arising out of any acts, omissions, circumstances, or facts existing at such date, and which is not indicated in the relevant statement (regardless of whether or not,
under the Accounting Principles, the Party was allowed to omit such liabilities in the aforesaid statement). 

  

	 	(ii)	any loss or damage incurred by its subsidiary to be merged and/or by Holinvest or by the other Party, which would not have been incurred, had the Party’s guarantees and
representations contained in paragraph 5.10 above been accurate, true and correct, to the extent that such loss or damage has not been indemnified under paragraph (i) above. 

  
 (b)    The rights provided by this paragraph 5.11 shall survive until the second (2nd) anniversary of the date of
subscription of this Contract or until the effective date of the Split, whichever is closer; provided, however, that as long as the Split is not effective, Olimpia shall have the right to be indemnified by Hopa with respect to the guarantee issued
by Olimpia under paragraph 4.01(ii), and shall maintain such right until expiration of said loan. 
  

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 ARTICLE VI 
 Agreements between Shareholders concerning Olimpia and Olivetti Companies 
  
 6.00    Agreements and Agreement Term. (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 (“Agreement Term”) between the effective date of the Merger and 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 Standstill, the Split and Holinvest Split become effective; (B) as a result of an
Accelerated Standstill, the Current Olimpia Shareholders receive an Accelerated Standstill notice. 

  
 (b)    The Agreements shall have a term of three years as of 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)    Subject to law requirements concerning particular cases, the Parties may withdraw from the Agreements, effective on the earliest 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 Duration of the Agreements, the Board of Directors of Olimpia will be made up of a fixed and non-changeable 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) Work 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 Partners 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 harmless and to holding Olimpia harmless 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    Relevant
Subjects. (a) For the purposes of this contract and in particular of subsequent Article VIII the following shall be considered to be Relevant Subjects: 
  

	 	(i)	In reference to the resolutions to be adopted by Olimpia’s Shareholders’ Extraordinary 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 Partners 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 Shareholders’ Extraordinary Meeting; 

  

	 	(B)	The purchase, sale and transfer of any security interest valued over €100,000,000.00 per transaction, or for multiple transactions performed 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 inducing stalling) 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 Shareholders’ Extraordinary Meeting. 

  

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 (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 Relevant Subjects for the purposes of this Contract: actions relating to the purchase or sale of Olivetti stock, the conversion of convertible
Olivetti bonds in to Olivetti stock or equivalent financial instruments, as long as even after these transactions Olimpia’s debt/equity ratio remains below 1:1. 
  
 6.03    Board of Directors of Olivetti Companies. (a) For the entire Duration of the Agreements the current Olimpia
partners will do whatever is in their power to ensure that, in the meetings of the Boards of Directors of the Olivetti Companies, a director 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 on Olivetti Stock. Hopa commits itself to
the fact that, in the event Olivetti Stock is subject to a tender offer, the Director that it designated in Olimpia’s Board of Directors – if the Current Olimpia Partners requests it in writing – will not oppose Olimpia’s
agreeing to such tender offer. 
  
 6.05    Stand still.
(a) Except for what set forth in the subsequent paragraph (b) or expressly provided for by this Contract, the Current Olimpia Partners and Hopa (also with respect to its respective controlling companies and affiliates) commit themselves not to
purchase Olivetti Stock for the Duration 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 Stock 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 bear
in mind the quantities allowed by paragraph (a) of Article III. 
  
 (b)    The following cases are exceptions to the Stand Still 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 Stocks and Bonds (which are described in detail in the attached document designated by number 6.05(b)(i); 

  

	 	(ii)	For purchases of Olivetti Stock which were already allowed: 

  

	 	(A)	From Unicredito and Intesa, by the current Paracorporate Pact agreed to by these entities with Pirelli, which is described in the attached document designated by number 6.05 (b)
(ii) (A); and 

  

	 	(B)	From Edizione, within the limits outlined by the current Paracorporate Pact 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 Stock 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 Side of convertible bonds and/or warrants that grant the right to underwrite convertible bonds in to Olivetti Stock 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 Partners that at the time of
this request are Olimpia partners. 
  
 6.06    Olimpia’s Business Purpose. The Current Olimpia Partners commit themselves not to change Olimpia’s business purpose (as reflected in the sample Articles of Incorporation which are found under
Addendum 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 Stall or an accelerated Stall, the effective date of the
Break-up and the Holinvest Break-up. 
  

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 6.07    Other Commitments Relating to Olimpia. The current Olimpia Partners commit to make it
so that, for the entire duration 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 Partners.

  
 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 Spinoff and
of the Holinvest Spinoff – if the holding of Pirelli in the capital of Olimpia is reduced by transfer, contribution, assignment (including by spinoff), or transfer 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 jointly the “Signed Holding”) for payment, free of charge, for cash, or for payment in kind, under any status, including in several branches 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) the buyer (hereinafter the “Third Party Buyer”) – pursuant to the applicable
provisions of this paragraph 6.08: 
  

	 	(i)	whenever, notwithstanding the transfer and/or assignment of the Assigned Holding, Pirelli, together with Unicredito and Intesa, maintains absolute majority in the capital of Olimpia
by acquiring: 

  

	 	(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 for which 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 percentages between the Assigned Participation 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%: 

  
 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); 
  

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	 	(ii)	whenever the assignment and/or transfer with price paid in kind (contribution and/or spinoff) of the Assigned Holding implies the loss of the absolute majority in the common capital
of Olimpia by Pirelli together with Unicredito and Intesa, acquiring the entire holding held by Hopa in Olimpia and/or Holinvest; 

  

	 	(iii)	whenever the assignment and/or transfer with the price paid in cash of the Assigned Holding implies the loss of the absolute majority in the common 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 unavailable. 
  
 (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 spinoff) or otherwise transfer under any status 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 transfer project of 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 assignment 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 securities and to any Financial Instrument held by Olimpia evaluating Holinvest on this basis at Net Assets Value;

  

	 	(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 securities 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 this agreement 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. 
  

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 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 Spinoff and of the Holinvest Spinoff – if the holding of Olimpia 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 spinoff) 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) the buyer (hereinafter the “Third Party Buyer of Olivetti Instruments”) – pursuant to the applicable provisions of this
paragraph - to buy 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 Participation; 
  
 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 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 spinoff), or
otherwise transfer under any status 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 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 transfer project of 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 prize 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 include an event
of Accelerated Standstill – it will not be considered Accelerated Standstill. 
  

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 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 Paracorporate Pact 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 Paracorporate Pact 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 Paracorporate Pact 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)    for 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 preference right established in their favor in the bylaws. 
  
 ARTICLE VII 
 Paracorporate Pacts 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 sale steps, lend or otherwise transfer or assign (including by
contribution or partial spinoff), directly or indirectly, Hopa’s Holinvest Holding 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 steps, lending, granting in pledge to guarantee obligations of third parties or otherwise transferring or assigning (including by contribution or partial spinoff),
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. 
  

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 (b)    Concerning the provisions of the following paragraph 7.03: 
  
 (i)    the Parties mutually take note that they know 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 a possible discussion of the pledge by the Creditor Banks and therefore to preserve the preferred 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 discussion of the pledge referred to in the
preceding paragraph (i)(A), Olimpia be granted a preferred right concerning the acquisition of the Olivetti Instruments so sold; or, whenever such hypothesis is not feasible, 
  
 (2)    to accept – in the event that the pledge referred to in the preceding paragraph (i)(A) must
be discussed – 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 given 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 the this contract, the Parties will send a joint communication to the Creditor Banks to inform them of the existence of the preferred 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); 
  
 (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 guarantee pledges of 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 preferred 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 director 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 Preferred 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 Spinoff and of the Holinvest Spinoff
– Holinvest may freely dispose of the Financial Instruments and of the Olivetti Shares, provided it – should it carry out any of the transactions set forth in the previous paragraph 7.02(a)(ii)(A) and (B) – grant 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 his seriousness) a preferred right in 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 preferred right referred to in the previous paragraph (b) must be exercised by the Olimpia within two (2) Business Days after Olimpia’s receipt of the respective denunciatio. 
  

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 7.04    Holinvest’s Bylaws. Hopa will take all necessary steps so that, by the date of
the Merger and not later, Holinvest’s bylaws be amended to allow Holinvest exclusively to engage in the holding and financial activity concerning ownership 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 the prohibition to Holinvest from continuing to own the holdings in securities other than those indicated in this paragraph, as currently owned, with the understand that, in
this case, Hopa undertakes to cause Holinvest not to acquire new securities other than those described above. In addition, within the same term, Hopa undertakes to make in the current bylaws of Holinvet [sic] the amendments necessary to make it
consistent with the model bylaws enclosed herewith under No. 7.04. 
  
 7.05    Second Preferred Right in Favor of Olimpia. (a) In the absence of a scenario of Accelerated Standstill, 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 preferred rights agreement with a term of two years, under which – as of that
date – Holinvest – whenever it intends to offer, pledge, sell, carry out preliminary sale steps, sell 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 spinoff), directly or indirectly, all or part of Olivetti’s holding post-Spinoff – it must offer it preferentially 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 Spinoff; or 
  
 (ii)    65% of the Olivetti Instruments owned by Holinvest on the reference date of the Spinoff. 
  
 (b)    The preferred 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 preferred rights agreement set forth in this paragraph 7.05, the provisions of the previous paragraph 6.05 apply, mutatis mutandis. 
  
 ARTICLE VIII 
 Standstill and Accelerated Standstill 
  
 8.01    Identification of standstill cases. For the purposes of this Contract, “Standstill” 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 of Olimpia, among the Current Olimpia Shareholders, on the one hand, and Hopa, on the other
hand, on a Relevant Subject, 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 from the meeting of the Board of Olimpia pursuant to the applicable bylaws’ 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 in 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 impose on the absent or abstaining Party the obligation to comply with and observe such decisions. 
  

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 8.04    Manifestation of will. (a) Whenever the Current Olimpia Shareholders and Hopa, in the
preliminary consultation referred to in paragraphs 8.02 and 8.03 above, reached an agreement concerning the issues submitted to said consultation, they will be obligated to express their will at the competent levels, according to the following
provisions: 
  

	 	(i)	by giving a joint representative delegation 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 in the Board of Directors of Olimpia to participate in the meeting of the board and cast their vote there, according to the joint 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. 
  
 (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 Relevant Subject, 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 “Standstill Notice” 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 Standstill Notice, the Parties must request – for the only purpose referred to in paragraph 10.01
below – by unappealable judgment of an Arbitration Board, to be appointed in accordance with Article XIII below, the ascertainment, for the purposes set forth in Article X, of whether or not the Standstill 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 Spinoff [and] the Holinvest Spinoff take place without the results of such ascertainment and therefore the Current Olimpia Shareholders must implement all necessary steps for the
Spinoff and Holinvest Spinoff 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 Standstill Notice pursuant to paragraph 9.04 (c) above, Hopa will have the right (which will be
deemed exercised by the receipt of the Standstill Notice 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 Spinoff and Holinvest Spinoff 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
Parties 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 Standstill.

  
 (a)    Whenever - during the Term of the Agreements
– one of the following events takes place (each of them an event of “Accelerated Standstill”): 
  

	 	(i)	a decision is made for the merger and/or spinoff 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, including as a consequence of: 

  

	 	(A)	transfer and/or assignment (including by spinoff) 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 

  

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	 	(B)	transfer and/or assignment (including by spinoff) 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; 

  

	 	(v)	without prejudice tot he provisions of paragraph 8.06(b) (iii) (C) below, there are plans for transfer, assignment and/or conveyance (including by spinoff) 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 adapted 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 President Judge of the Court
of Milan; 

  

	 	(vi)	there are plans for assignment and/or conveyance (including by spinoff) of all or part of the total participation 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 Spinoff and Holinvest Spinoff.

  
 (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 Standstill, “Accelerated Standstill Notice”; 

  

	 	(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 preferred right established in the bylaws; and 

  

	 	(C)	any co-sale obligation. 

  
 8.07    Exceptions to Cases of Accelerated Standstill. 
  
 (a)    In partial derogation to the provisions of paragraph 8.06(a)(iii) above, the Parties mutually take note that: 
  

	 	(i)	the occurrence of a possible excess over the ratio of 1:1 in the debt/equity Ratio of Olimpia, relevant for the purposes of paragraph 8.06(iii) above, will exclusively be that
carried out by Olimpia and the Current Olimpia Shareholders and communicated by them to Hopa (including as part of the approval of the periodic financial statements and balance sheets 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 

  

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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 Olimpia Shareholders will be obligated (in order to avoid an Accelerated Standstill) 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 transfer or contribution of their holding in Olimpia will not constitute a case of Accelerated Standstill 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 Pool Agreement between Pirelli, on the one hand, and Unicredito and Intesa on the other hand, provided that Pirelli –
simultaneously with such assignment 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 Pool 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 assignment or contribution, in the obligations assumed by Edizione towards Hopa pursuant to the Agreements and, in general, pursuant to this Contract; 

  

	 	(ii)	the assignments 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 preferred
right established for it in the bylaws, nor will they create any co-sale obligation for Hopa. 

  
 8.08.    Relations between Standstill and Accelerated Standstill. The Parties mutually take note that whenever, in the event of a Standstill, there is an event of Accelerated Standstill, the
applicable provisions in the case of Accelerated Standstill will prevail and, whenever there is an Accelerated Standstill, there may be no Standstill or a subsequent Accelerated Standstill, with the understanding that in the event of a Standstill,
an Accelerated Standstill may take place but a subsequent Standstill may not be deemed to occur. 
  
 ARTICLE IX 
 Spinoff and Holinvest Spinoff 
  
 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 Spinoff 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 Spinoff
takes place. 

  
 9.01    The Spinoff. (a)
The Spinoff will consist of a partial spinoff 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 Spinoff (the “Relevant Date”) will be: 
  

	 	(i)	the Initial Term, in the event of Standstill 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 

  

	 	(ii)	a date coinciding with the third (3rd) Business Day
following the date of the relevant event for the purposes of Accelerated Standstill, in the event of Accelerated Standstill. 

  

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 (c)    Without prejudice to paragraph 9.06 below, the Current Olimpia Shareholders must take all
necessary steps to complete the Spinoff within six (6) months: 
  

	 	(i)	from the Initial Term, in the event of Standstill 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 Accelerated Standstill Notice, in the event of Accelerated Standstill. 

  
 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 Spinoff, 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 Spinoff is equal to
the percentage of Hopa’s holding in the capital of Olimpia, without prejudice to the fact that, in the Spinoff, 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 pro rata 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 Data; 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 Standstill, Accelerated
Standstill and Failure to Renew. In addition to the provisions of Paragraph 9.02 above, in the event of Spinoff following a Standstill, and an Accelerated Standstill 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 Standstill. In addition to the provisions of paragraph 9.02 above, in the event of Spinoff following an Accelerated Standstill
(and therefore not in the case of Standstill 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
Standstill (provided it does not consist of the events referred to in paragraphs 8.06(ii) and 8.06(iii) below) do not damage the Spinoff. 
  
 9.05    Holinvest Spinoff. (a) The Holinvest Spinoff will consist of a partial spinoff 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 Spinoff will be the Relevant Date of the Spinoff (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 Spinoff to be completed within six (6) months: 

  

	 	(i)	from the Initial Term, in the event of Standstill 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 Accelerated Standstill Notice, in the event of Accelerated Standstill. 

  
 9.06    Commitment of Hopa. In all cases in which the Holinvest
Spinoff 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 derivative from Extraordinary
Transactions or Olivetti Shares arising from the conversion of the instruments of mentioned above, in addition to the Olivetti Shares referred to in paragraph 4.01 (a) (ii) (A) (4) above. 

  

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 9.07    Modalities of the Spinoff and Holinvest Spinoff. 
  
 (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 Spinoff and the Holinvest Spinoff: 
  

	 	(i)	the Holinvest Spinoff must proceed and be effective before the Spinoff becomes effective, and must attribute to Olimpia (or, should it so require, in writing, to one of its
fully-held 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 Spinoff (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 Spinoff (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 without solution of continuity – at the time the Holinvest Spinoff becomes effective, the Spinoff will be carried out attributing to Hopa (or, if
it so desires, to one of its fully-held 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 Spinoff (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 Spinoff (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 Spinoff instrument will be subject to the stipulation of the preferred 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 Spinoff. 

  

	(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 Spinoff between the company subject to spinoff and the beneficiary, and that therefore: 

  

	 	(i)	such syndicated loan will fully remain in the liabilities of Olimpia; 

  

	 	(ii)	as part of the Spinoff, Olimpia will attribute to the beneficiary another financial loan, equal to the portion of the syndicated loan receivable by the beneficiary of the Spinoff,
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 Spinoff, as part of the attribution of the pro-quota of the applicable assets and liabilities, Hopa will be attributed
1,000,000 Olivetti Bonds and the respective debt as referred to in paragraph 4.01(ii)(D)(2). 

  
 9.08    Penalty. (a) Without prejudice to paragraph (b) below, in the event that (for reasons other than failure to complete the Holinvest Spinoff by the fault of Hopa) the Spinoff does not
become effective within the term indicated in paragraph 9.01(c) above, the Current Olimpia Shareholders must promptly pay an indemnity to Hopa (the “Penalty”) equal to € 0.70 for each Olivetti Share and/or Financial Instrument which,
by the effect of the Spinoff, 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 so-called cash settlement pursuant to paragraph 9.07(a)
above), without prejudice to the fact that, in all events, Hopa must be attributed a share of the Olivetti Holding 

  

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even in the event that Olimpia owns a holding lower than the Olivetti Holding (except if, when the Olimpia holding in Olivetti is reduced below the Olivetti
holding, Hopa exercises the co-sale right); in this case, the Penalty will be calculated in connection with Olimpia’s holding in Olivetti and the Financial Instrument thereof, with the understanding that the Penalty will be paid (in an amount
equal to the difference between € 0.70 and the portion of the Increase Premium possibly already paid to Hopa) only in connection with the Olivetti shares and the financial instruments which, on the date of the spin-off, are the property, held
or available directly or indirectly to Olimpia (net of those arising from the Holinvest spin-off, which will not therefore be considered for the determination of the penalty). 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 adapted as a consequence of such transactions, according to market practice, without prejudice
to the fact that, whenever there is a disagreement between the parties concerning the determination of such number, the determination will be requested by the most diligent among them from a prime business bank chosen by mutual agreement, or, in the
absence thereof, designated by the presiding judge of the Court of Milan. 
  
 (b)    In partial derogation to the preceding paragraph, the parties agree as follows: 
  

	 	(i)	whenever the effectiveness of the spin-off, even though it does not take place within the term established in the previous paragraph 9.01(c), takes place within the subsequent term
of six (6) months from the expiration of the term set forth in the preceding paragraph 9.01(c) (the “new term”) the amount paid by the current Hopa shareholders as penalty must be refunded by Hopa to the current Olimpia shareholders when
Olimpia delivers to Hopa everything the latter is entitled to pursuant to the spin-off; however, it is understood that, in such latter event, the Increase Premium referred to in Article 10 below must be paid by the current Olimpia shareholders
to Hopa plus interest on said amount, accrued on the balance of the Increase Premium at annual Euribor 6 months from the expiration of the term referred to in the preceding paragraph 9.01(c) to the effective date of the spin-off.

  

	 	(ii)	the payment of the indemnity referred to in the preceding paragraph (a) pending on the new term must therefore be considered provisional, and may be considered final and therefore
mature, including for tax purposes, only if, at the expiration of the new term, the spin-off is not yet executed. 

  
 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 adapted 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 Spinoff (net of those arising from the Holinvest Spinoff, 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 Standstill or the accelerated Standstill, as the case may be. 
  
 10.01    The Increase Premium In The Event of Standstill: In the
event that the spin-off takes place following a standstill, 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 standstill was
declared by Hopa not in good faith; or instead 

  

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	 	(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 standstill was
declared by Hopa in good faith. 

  
 10.02    The Increase Premium in the Event of Accelerated Standstill. In the event that the spin-off takes place following an accelerated standstill, 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 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” within 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 appointment 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 task) 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 of its subsequent transfer of the task; 

  

	 	(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 Civil Code, for the purposes of this Article X and
in particular this paragraph 10.03. 

  
 10.04    Terms and Modalities 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 standstill 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 accelerated standstill notice 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 
 Expenses and Burdens 
  
 Except as otherwise agreed between the parties, the cost, dues, taxes, expenses, and other burdens arising from this contract or related to it will be paid by each party
in the part concerning it. 
  
 ARTICLE XII

 GENERAL PROVISIONS 
  
 12.01    Amendments. Any amendment to this contract will be valid and binding only if it arises from a written document signed by all the
parties. 
  

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 12.02    Prohibition of Assignment. Except as otherwise set forth in the specific clauses of
this contract, neither party may assign this contract in full or in part, nor may it assign any of the rights or obligations arising from it, without the prior written agreement of the other party. 
  
 12.03    Communications and Notices. Except as otherwise set forth
in the provisions of this contract, any communication requested or allowed by it must be made in writing and will be deemed efficiently and validly made when it is received, if sent by letter or telegram, or at a time of the acknowledgment of
receipt by the appropriate declaration (including by fax) at the time of transmission indicated in the report automatically issued by the transmitting machine, if made by fax, provided it is addressed as follows: 
  

	 	(i)	if to Pirelli, to it at: 

 Via G. Negri 10 
 20100 Milano 
 Fax: 02-86354469 
 To the attention of the pro tempore Managing Director 
  

	 	(ii)	if to Edizione Finance and Edizione, to the former at: 

 Calmaggiore23 
 Treviso 
 Fax: 0422-411118 
 To the attention of the pro tempore Managing Director 
  

	 	(iii)	if to Unicredito, to it at: 

 Via Tommaso Grossi, 10

 20121 Milano 
 Fax: 02-88622196

 To the attention of Dr. Pietro Modiano and Dr. Paola Pierri 
  
 With copy to: 
 Atty. Pietro Caliceti 
 Studio Legale Caliceti 
 Via Manzoni 14 
 20121 Milano 
 Fax: 02-77809334 
  

	 	(iv)	if to Intesa, to it at: 

 Via Monte di Pieta 8 

20100 Milano 
 Fax: 02-87963837 

To the attention of the pro tempore Managing Director 
  

	 	(v)	if to Olimpia, c/o Pirelli at: 

 Via G. Negri 10

 20100 Milano 
 Fax: 02-85354469

 To the attention of the pro tempore Managing Director 
  

	 	(vi)	if to Hopa, to it at: 

 Corso Zanardelli 32 
 25100 BRESCIA 
 Fax: 030 3773851 

 
 To the attention of the pro tempore Managing Director or at a different address or
fax number, in the Italian territory, as each of the parties may communicate to the other in writing after the date of this contract, pursuant to the preceding provisions, with the understanding, that, at the aforementioned addresses, or at
different addresses that may be communicated in the future, the parties will also elect their own domicile for all purposes related to this contract, including for possible notices to be issued during or in connection to judicial or arbitration
proceedings. 
  
 12.04    Addenda. The Addenda are an
integral part of this contract as if they were fully transcribed therein. 
  
 12.05    Tolerance. The possible tolerance of one of the parties for the behavior of the other constituting violation of the provisions of this contract does not constitute waiver of the rights arising from the
violated provisions or of the right to require exact performance of all terms and all the conditions set forth therein. 
  

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 12.06    Headings. The headings of the individual articles are included only to facilitate the
reading of this contract and therefore they must not be taken into account in any manner in the interpretation thereof. 
  
 12.07    References. Unless it arises otherwise from the context, the references contained herein to articles, paragraphs, points or addenda
will be understood to refer to the articles, paragraphs, points or addenda of this contract. 
  
 12.08    Governing Law. This contract and the rights and obligations of the parties arising from it will be governed and interpreted pursuant to the laws of the Italian Republic. 

 
 12.09    Subsequent Commitments. The parties undertake to sign
and exchange all acts and documents and to comply with all acts and to communicate everything necessary in order to assure the achievement of the objectives of this contract. 
  
 12.10    The Current Olimpia Shareholders and Olimpia as Joint Party. The current Olimpia shareholders and
Olimpia, recognizing that they have the joint common interest, declare that they are a joint contractual party for all the purposes of this contract and therefore bind themselves to comply with the obligations and exercise with the rights arising
from said contract in accordance with such joint capacity, in particular (but without limitation thereto) concerning the clause in Article XIII below. 
  
 12.11    Announcements. Except as otherwise set forth in any applicable imperative law, or provisions enforced by any authority with
jurisdiction on the current Olimpia shareholders, Olimpia and Hopa, neither one of the parties will engage in announcements, publicity, distribution of similar, in connection with the performance or execution of the contents of this contract, any of
its clauses or provisions or any of the transactions referred to therein, without prior agreement of the other party concerning the form and contents of such possible communications. 
  
 12.12    Effects of the Contract. All the provisions of this contract indicating obligations to be performed by
the parties after the merger will remain in force and fully valid including after the merger, pursuant to their terms, without need for the parties to renew the assumption of their own commitments in connection with such obligations. 
  
 12.13    Whole Agreement. The parties acknowledge and mutually
take note that the provisions of this agreement express their complete and entire will in connection with its object and therefore, fully replace any prior pact or agreement, including verbal, between them, in connection with the same object.

  
 ARTICLE XIII 
 Dispute 
  
 13.01    Arbitration. Unless a different jurisdiction is established in this contract, any dispute arising from this contract or from possible
agreements for execution, amendment or addition, will be subject to the decision of an arbitration board made up of three arbitrators, which will decided without procedural formalities, except for the respect of the principle of hearing both
parties, but will apply Italian substantive law. The arbitration will be legal pursuant to the provisions of the Code of Civil Procedure and will take place in Milan. 
  
 13.02    Appointment of the Arbitrators. (a) The party which requests the arbitration proceeding by notice sent
through a process server must indicate, at least in general lines, the petition submitted to arbitration and must designate its own arbitrator at the same time, under penalty of invalidity. 
  
 (b)    The party called to arbitration will have twenty (20) business
days to designate its own arbitrator. The two arbitrators of the parties will designate by mutual concern the third arbitrator, which will preside the arbitration board. 
  
 (c)    Whenever the arbitrators, as appointed above, do not reach an agreement concerning the appointment of the third
arbitrator within twenty (20) business days from the appointment of the second arbitrator, the latter will be designated by the President of the Arbitration Chamber of Milan, at the request of the most diligent party, after assigning an appropriate
term for the hearing of the other. The President of the Arbitration Chamber of Milan will also be authorized to provide, pursuant to this point (c), whenever the party called to arbitration fails to designate its own arbitrator within the
aforementioned term, or the arbitrator designated refuses the task, or becomes disabled or is terminated from the task and is not replaced by the party which had appointed him within twenty (20) business days, by another arbitrator, who accepted.

  

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 (d)    For the purposes of this contract, the current Olimpia shareholders will jointly be considered
one party. 
  
 (e)    Whenever, notwithstanding the provisions
of the previous paragraph (d), the dispute involves more than 2 parties, the arbitration board will be made up (i) of three arbitrators appointed by the same method as indicated in 13.02 (a) and 13.02 (b) above, or the parties involved will
spontaneously regroup in only two groups or (ii) whenever there is a conflict of interest which does not allow for the appointment of an arbitrator, arising between more than two parties, the multilateral dispute must be decided upon by an
arbitration board with three arbitrators, all designated by the President of the Arbitration Chamber of Milan at the request of the party which asks for arbitration, and after hearing the other parties involved in the dispute. 
  

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	 LIST OF ATTACHMENTS

	  	 
	 Attachment 1.44
	  	Olivetti Instruments
	 Attachment 3(b)
	  	Declaration – Hopa and Hopa Controlling companies
	 Attachment 3(d)
	  	Declaration – Olimpia and Current Olimpia Shareholders
	 Attachment 5.02(i)
	  	Equity Situation of Olimpia
	 Attachment 5.02(ii)
	  	Equity Situation of Holy
	 Attachment 5.03(iii)
	  	Pro forma Equity Situation of Holy and Holinvest
	 Attachment 5.07(b)
	  	Bylaws of Olimpia
	 Attachment 5.10.1.1
	  	Capital of Holinvest and Holy
	 Attachment 5.10.1.2
	  	Equity Situation of Holinvest
	 Attachment 5.10.2.1(a)
	  	Capital of Olimpia
	 Attachment 5.10.2.1(b)
	  	Credit Rights of the Current Olimpia Shareholders Against Olimpia
	 Attachment 5.10.2.4
	  	Relevant Event (Olimpia)
	 Attachment 6.03(a)
	  	Directors Designated by Hopa
	 Attachment 6.05(b)(i)
	  	Exceptions to the Standstill Commitments
	 Attachment 6.05(b)(ii)(A)
	  	Exceptions to the Standstill Commitments
	 Attachment 6.05(b)(ii)(B)
	  	Exceptions to the Standstill Commitments
	 Attachment 7.02(b) (ii) (A)
	  	Pledged Olivetti Instruments
	 Attachment 7.04
	  	Bylaws of Holinvest

	*	Document is not attached to this translation. 

  

			
	 Milan, February 21, 2003
	 	 
		
	 Pirelli S.p.A
	 	Edizione Finance International S.p.A.
	 Banca Intesa S.p.A.
	 	Unicredito Italiano S.p.A.
	 Olimpia S.p.A
	 	Hopa S.p.A.

  
 In capacity of guarantor of the
obligations of Edizione Finance International S.A.: Edizione Holding S.p.A. 
  

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 Milan, January 23, 2004 
  
 Messrs. 
 HOPA S.p.A. 
 Holding of Corporate Participations 
  
 Corso Zanardelli, 32 
 25121 Brescia 
  
 We transcribe in full the text of your letter received today in token of acceptance: 
  
 * * * 
  
 “Messrs. 
  
 Olimpia S.p.A. 
 Pirelli & C. S.p.A. 
 Banca Intesa S.p.A. 
 Unicredito Italiano S.p.A. 
 Edizione Finance International S.A. 
 Edizione Holding S.p.A. (as guarantor of the obligations of Edizione Finance
International S.A.) 
 c/o 
 Olimpia S.p.A. 
 Viale Sarca, 222 
 20100 Milan 
 Attn: President 
  
 Brescia,
January 8, 2004 
  
 BY MAIL 
 FIRST SENT BY FAX TO No. 02 8535 4469 
  

	Re:	Modification agreement of the Contract executed on February 21, 2003 

  

	    	Dear Sirs, 

  
 We are referring to the Contract executed on February 21, 2003 by the undersigned company, as party of the first part, and Olimpia S.p.A., Pirelli S.p.A. (now Pirelli & C. S.p.A.), Banca Intesa S.p.A., Unicredito
Italiano S.p.A., Edizione Finance International S.A., as party of the second part (hereinafter the “Contract”). 
  
 Following our discussions, we are transmitting below the draft text of the modification agreement of the provisions of the Contract, according to the terms and conditions
below. 
  
 * * * * * 
  
 MODIFICATION AGREEMENT 
  
 Between 
  
 Pirelli & C. S.p.A., headquartered in Milan, Via G. Negri, 10, capital Euro
1,799,399,399.20, recorded with the Register of Companies of Milan under No., taxpayer code and VAT code 00860340157, in the person of the Chairman of the Board of Directors, Dr. Marco Tronchetti Provera, who has the necessary powers; 
  
 Edizione Finance International S.A., headquartered at Place d’Armes, 1,
L-1136, Luxembourg, capital Euro 1,000,000.00, recorded with the Chamber of Commerce of Luxembourg under number B77504, in the person of Dr. Sergio De Simoi and Dr. Gustave Stoffel, who have the necessary powers pursuant to the bylaws; 

 
 Banca Intesa S.p.A. (formerly Intesa BCI S.p.A.), headquartered in Milan,
Piazza Paolo Ferrari 10, General Management Via Monte di Pietà 8, capital Euro 3,561,062,849.24, registration number with the Register of Companies of Milan, taxpayer code 00799960158, VAT code 108107000152, in the person of Dr. Gaetano
Miccichè, who has the necessary powers; 
  

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 Unicredito Italiano S.p.A., headquartered in Genoa, via Dante 1, Central Management in Milan, Piazza
Cordusio, capital Euro 3,148,070,110.00, registration number with the Register of Companies of Genoa, taxpayer code and VAT code 00348170101, in the person of Dr. Alessandro Profumo, who has the necessary powers; and 
  
 Olimpia S.p.A., headquartered in Milan, viale Sarca 222, capital Euro
2,630,233,510.00, registration number with the Register of Companies of Milan, taxpayer code and VAT code 03232190961, in the person of Dr. Marco Tronchetti Provera, who has the necessary powers; 
  
 - party of the first part - 
  
 and 
  
 Hopa S.p.A., headquartered in Brescia, Corso Zanardelli 32, capital Euro
709,800,000.00, registration number with the Register of Companies of Brescia, taxpayer code and VAT code 03051180176, in the person of Dr. Emilio Gnutti, who has the necessary powers under the decision of the Board of Directors of December 17,
2002; 
  
 - party of the second part - 
  
 and 
  
 Edizione Holding S.p.A., headquartered in Treviso, Calmaggiore 23, capital Euro
47,160,256.00, recorded with the Register of Companies of Treviso under number 13945, taxpayer code and VAT code 00778430264, in the person of the Chairman of the Board of Directors, Dr. Gilberto Benetton, who has the necessary powers pursuant to
the bylaws; 
  
 - as guarantor of the obligations of Edizione
Finance - 
  
 Recitals 
  

	(a)	On February 21, 2003, the Parties, taking into account the participation situations of each of them as of that date in the then called Olivetti group, executed a Contract in order
to form a partnership with strategic purposes so as to maximize the creation of value for their respective shareholders, agreeing: 

  

	 	(i)	that Hopa would enter the capital of Olimpia by merger of Holy into Olimpia and that the latter would be attributed, for this purpose, a certain number of Olivetti Shares; and

  

	 	(ii)	to formalize the para-corporate understandings designed to govern the relationships between the Parties in their respective capacities of partners of Olimpia and Holinvest,
following their respective contributions, as of the date of the Contract, as agreed between the Parties; 

  

	(b)	Pursuant to the terms and conditions in paragraphs 3.01 (f) and 4.01 (iii) of the Contract, the Parties undertook to cause the number of the Olivetti Shares and/or Olivetti
Instruments and/or Financial Instruments held, as of the date of the Contract, overall, by Olimpia, the Current Olimpia Partners, Hopa, Holinvest, Holy, the other Hopa Affiliates and the Hopa Parent Companies to never be such as to exceed the
threshold referred to in paragraph 4.01 (iii) of the Contract; 

  

	(c)	For the correct performance of the commitments cited in the above recital, the Parties had agreed inter alia: 

  

	 	(i)	on the right to hold certain quantities of Olivetti Shares and/or Olivetti Instruments and/or Financial Instruments as indicated in articles III and IV of the Contract;

  

	 	(ii)	referring to the Current Olimpia Partners and to Hopa, certain stand still obligations, pursuant to paragraph 6.05 of the Contract (hereinafter the “Stand
Still Obligations”); and 

  

	 	(iii)	referring exclusively to Hopa, certain lock-up obligations pursuant to paragraph 7.02 of the Contract (hereinafter “Lock-up
Obligations”); 

  

	(d)	Following the perfecting of the merger by incorporation of Telecom into Olivetti, in force from August 4, 2003 (hereinafter the “Olivetti Merger”), and the
consequent modification of the corporate holdings owned respectively by Olimpia, the Current Olimpia Partners, Hopa, Holinvest, Holy, the other Hopa Affiliates and the Hopa Parent Companies in Olivetti’s capital arising from the Olivetti
Merger, Hopa requested and the other Parties indicated that they are willing to derogate – partially and limited to Hopa – to the application of the Lock-up and Stand Still Obligations, under the terms and conditions set
forth in this modification agreement (hereinafter the “Modification Agreement”); 

  

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	(e)	All the terms indicated in this Modification Agreement with initial capital letter are intended to have the same meaning attributed to them in the Contract, unless otherwise
indicated. 

  
 With these recitals,

 which are an integral and substantial part of this Modification Agreement, it is stipulated and agreed as follows: 
  
 ARTICLE I 
  
 Modification of the Stand Still and
Lock-up Obligations 
  
 The Parties agree that, in
express derogation to paragraphs 6.05 (a), 7.02 (a) and 7.02 (c) of the Contract, Hopa has the right to exchange or to cause exchange, directly or through one of its Affiliates, with Nexgen Capital Limited, an Irish company with headquarters at
25/28 North Wall Quay, Dublin, Ireland, under the terms and conditions agreed upon with it: 
  

	 	(i)	No. 973 financial instruments (Equity Linked Notes) indexed to the price trend of 486,500,000 Olivetti Shares issued by CDC IXIS Capital Market with the characteristics indicated in
Addendum 1.44 of the Contract; with 

  

	 	(ii)	No. 229,411,021 Telecom Shares, as they result from the exchange with the Olivetti Shares carried out following the Olivetti Merger. 

  
 ARTICLE II 
  
 Validity of the subsequent agreements 
  
 2.01    Taking into account that all the provisions of the Contract had
been executed between the Parties with reference to participation situations, in the then so-called Olivetti group, directly and/or indirectly managed by it as of the date of the Contract, the Parties agree and give mutual note that the derogation
to the provisions of the Contract referred to in Article I above has been agreed upon by Hopa exclusively with reference to the perfecting of the exchange operation above and limited to its effects. 
  
 2.01 [sic] Furthermore, the Parties agree that in the aspects not expressly derogated or
established in this Modification Agreement, any other provision of the Contract remains fully valid and produces all its effects between the Parties, in the terms and conditions agreed upon on February 21, 2003, including the provisions of Articles
XI, XII and XIII of the Contract. 
  

			
	
 Pirelli & C. S.p.A.
	 	
 Edizione Finance International S.A.

		
	
 Banca Intesa S.p.A.
	 	
 Unicredito Italiano S.p.A.

		
	
 Olimpia S.p.A.
	 	
 Hopa S.p.A.

  
 In the capacity of guarantor of the
obligations of Edizione Finance International S.A.: 
  

			
	
 Edizione Holding S.p.A.
	 	 

  
 *  *  *  *  * 
  
 Whenever the
text of the above Modification Agreement reflects the understandings reached by the Parties to the Contract (as defined therein), please transcribe such text and transmit it to us initialed on every page and signed by the Parties in token of full
and irrevocable acceptance. 
  
 Best regards. 
  
 Signed Hopa S.p.A.” 
  
 *  *  * 
  

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 We confirm that we accept all of the above. 
 Best regards. 

			
		
	
 Pirelli & C. S.p.A.
	 	
 Edizione Finance International S.A.

		
	
 Banca Intesa S.p.A.
	 	
 Unicredito Italiano S.p.A.

		
	
 Olimpia S.p.A.
	 	 

  
 In the capacity of guarantor of the
obligations of Edizione Finance International S.A.: 
  

			
	
 Edizione Holding S.p.A.
	 	 

  

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 Milan, January 28, 2005 
  
 Pirelli & C. S.p.A. 
 Via G. Negri, 10 
 20100 Milan 
 Fax: 02-85354469 
 For the attention of Dr. Marco Tronchetti Provera 
  
 Edizione Finance International S.A./Edizione Holding S.p.A. 
 Calmaggiore, 23

 31100 Treviso 
 Fax: 0422-411118 
 For the attention of Dr. Gustave Stoffel and Mr. Gilberto Benetton 
  
 Olimpia S.p.A. 
 c/o Pirelli & C. S.p.A. 
 Via G. Negri, 10 
 20100 Milan 
 Fax: 02-83354469 
 For the attention of Dr. Carlo Buora 
  
 Hopa S.p.A. 
 Corso Zanardelli, 32 
 25100 Brescia 
 Fax: 030-3773851 
 For the attention of Dr. Emilio Gnutti 
  

We transcribe here, in full, the text of your letter dated January 27, 2005, as full and unconditional acceptance of the content of that letter. 
  
 *  *  * 
  
 To 
 Banca Intesa S.p.A. 
 Via Monte di Pietà, 8 
 20100 Milan 
 Fax: 02-87963837 
 For the attention of
Dr. Gaetano Miccichè 
  
 To 
 Unicredito Italiano S.p.A. 
 Via Tommaso Grossi, 10 
 20121 Milan 
 Fax: 02-88622196 
 For the attention of Dr. Alessandro Profumo and Dr. ssa Paola Pierri 
  
 Milan, January 27, 2005 
  

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 Sent by courier 
 Sent in advance by fax 
  

	Re:	Proposal for modified agreements within the Contract signed on February 21, 2003 

  
 Dear Sirs, 
  
 With reference to the Contract signed on February 21, 2003 between Olimpia S.p.A., Pirelli S.p.A. (now Pirelli & C. S.p.A.), Banca Intesa S.p.A., Unicredito
Italiano S.p.A., Edizione Finance International S.A. and Hopa S.p.A. and Edizione Holding S.p.A., as guarantor for the obligations of Edizione Finance International S.A., as modified on January 23, 2004 (hereinafter referred to as the
“Contract”). 
  
 We write to propose you to enter into modified
agreements within the terms stipulated in the Contract (the “Second Modified Agreement”), as per the terms and conditions below. 
  
 * * * * * 
  
 MODIFIED AGREEMENT 
  
 BETWEEN 
  
 Pirelli & C. S.p.A.,
with address at Via G. Negri, 10, Milan, registered in the Milan Business Register with Number, Tax Code and VAT Number 00860340157, represented by the Chairman of the Board of Directors, Dr. Marco Tronchetti Provera, provided with the powers
required; 
  
 Edizione Finance International S.A., with address at Place
d’Armes, 1, L-1136, Luxembourg, registered in the Luxembourg Chamber of Commerce with Number B77504, represented by Dr. Gustave Stoffel, provided with the powers required; 
  
 Banca Intesa S.p.A. (was Intesa BCI S.p.A.), with address at Piazza Paolo Ferrari, 10, Milan, General Management, Via Monte di
Pietà, 8, registered in the Milan Business Register with Number and Tax Code 00799960158, VAT Number 108107000152, represented by the Dr. Gaetano Miccichè, provided with the powers required; 
  
 Unicredito Italiano S.p.A., with address at Via Dante, 1, Genoa, General Management,
Piazza Cordusio, Milan, registered in the Genoa Business Register with Number, Tax Code and VAT Number 00348170101, represented by Dr. Alessandro Profumo, provided with the powers required; and 
  
 Olimpia S.p.A., with address at Viale Sarca 222, Milan, registered in the Milan
Business Register with Number, Tax Code and VAT Number 03232190961, represented by Dr. Carlo Buora, provided with the powers required; 
  
 - on one hand - 
  
 and 
  
 Hopa
S.p.A., with address at Corso Zanardelli, 32, Brescia, registered in the Brescia Business Register with Number, Tax Code and VAT Number 03051180176, represented by Dr. Emilio Gnutti, provided with the powers required; 
  
 - on the other hand - 
  
 and 
  
 Edizione Holding S.p.A., with address at Calmaggiore, 23, Treviso, registered in the Treviso Business Register with Number 13945, Tax
Code and VAT Number 00778430264, represented by the Chairman of the Board of Directors Dr. Gilberto Benetton, provided with the powers required as per the company by-laws 
  
 - as guarantor for the obligations of Edizione Finance - 
  
 Premises 
  

	(a)	 on February 21, 2003, the Parties, considering the shareholding situation with reference to each of these Parties, on that date, within the Group at the time called
the Olivetti Group, signed a Contract aimed at 

  

 72 

Table of Contents

	 	 
creating a partnership with strategic connotations for maximizing the creation of value for their own respective shareholders, thereby agreeing the
following: 

  

	 	(i)	the entrance of Hopa in the capital of Olimpia by means of Olimpia the merger of Holy in Olimpia and the assigning, as an effect, of a certain number of Olivetti Shares to Olimpia;
and 

  

	 	(ii)	the formalizing of agreements of a company law nature aimed at governing the relationships 

  

	 	between	the Parties within their respective roles as Shareholders of Olimpia and of Holinvest; 

  

	(b)	at the terms and conditions specified in paragraphs 3.01 (f) and 4.01 (iii) of the Contract, the Parties undertook to ensure that the number of Olivetti Shares and/or Olivetti
Instruments and/or Financial Instruments held overall, on the date of the Contract, by Olimpia, the Current Olimpia Shareholders, Hopa, Holinvest, Holy, the other Hopa Subsidiary Companies and the Hopa Controlling Companies is never such that it
exceeds the threshold limit specified in paragraph 4.01 (iii) of the Contract; 

  

	(c)	also in relation to the correct fulfillment of the obligations referred to in the above premise, the Parties had also agreed on the following: 

  

	 	(i)	the right to hold given quantities of Olivetti Shares and/or Olivetti Instruments and/or Financial Instruments as indicated in articles III and IV of the Contract

  

	 	(ii)	with reference to the Current Olimpia Shareholders and to Hopa, certain stand still obligations, as per the terms specified in paragraph 6.05 of the Contract (hereinafter referred
to as the “Stand Still Obligations”); and 

  

	 	(iii)	with exclusive reference to Hopa, certain lock-up obligations, as per the terms specified in paragraph 7.02 of the Contract (hereinafter the “Lock-up Obligations”);

  

	 	(iv)	Hopa’s right, in the event of a demerger, to receive the Majority Premium, in the cases and at the conditions specified in the Contract itself; 

  

	(d)	on January 23, 2004, the parties signed the Modified Agreement with which the other Contract Parties accepted the partial repeal in favor of Hopa in relation to the Lock-up and
Stand Still Obligations; 

  

	(e)	in view of the envisaged merger of Telecom Italia Mobile S.p.A. in Telecom Italia S.p.A. (hereinafter, the “Merger”), the proposed share capital increase approved
by the Olimpia S.p.A. Board of Directors on December 7, 2004 and Shareholders’ Meeting on December 22, 2004 (hereinafter, the “Capital Increase”) and the possible resulting modifications to the company shareholdings held
respectively by Olimpia, the Current Olimpia Shareholders, Hopa, Holinvest, the other Hopa Subsidiary Companies and the Hopa Controlling Companies in the company capital of Telecom Italia S.p.A. as a result of the merger, the Parties hereby intend,
as per the limits and methods specified by Articles I, II and III below, and notwithstanding the ban on exceeding the threshold limit of 30% of the capital of Telecom Italia, as per article 106 of Italian Legal Decree 58/1998:

  

	 	(i)	to partially repeal the application of the Stand Still Obligations, at the terms and conditions specified by this modified agreement; 

  

	 	(ii)	to modify the regulations concerning the Majority Premium specified by article X of the Contract; and 

  

	 	(iii)	to regulate certain reciprocal relationships in relation to the Capital Increase; 

  

	(f)	all the terms indicated in this Second Modified Agreement with a Capital Letter intend to have the same meaning as attributed to these terms in the Contract, except where otherwise
indicated. 

  
 Given the above premises,

 which are an integral and substantial part of this Second Modified Agreement, the parties 
 hereby agree the following: 
  
 ARTICLE I 
 Modifications to
the Stand Still Obligations 
  
 1.01    The Parties hereby agree that, as an express modification to the terms of art. 6.05 (a) of the Contract, Pirelli & C. S.p.A., Edizione Finance International S.A. and/or Edizione Holding S.p.A., Unicredito
Italiano S.p.A., Banca Intesa S.p.A., Hopa S.p.A., have the right, also through subsidiary companies, to acquire ordinary 

  

 73 

Table of Contents

 
shares in Telecom Italia S.p.A. (hereinafter, “Telecom Shares”) directly or by acquiring Telecom Italia Mobile S.p.A. shares which will be
exchangeable at the time of the Merger, with the maximum quantities indicated here: 
  

					
	 Pirelli & C. S.p.A.
	  	300	  	million
	 Telecom Shares
	  	 	  	 
	 Edizione Finance International S.A. and/or Edizione Holding S.p.A.
	  	100	  	million
	 Telecom Shares
	  	 	  	 
	 Unicredito Italiano S.p.A.
	  	100	  	million
	 Telecom Shares*
	  	 	  	 
	 Banca Intesa S.p.A.
	  	100	  	million
	 Telecom Shares*
	  	 	  	 
	 Hopa S.p.A.
	  	100	  	million
	 Telecom Shares
	  	 	  	 

	*	includes the quantity permitted as per article 6.05 (b) (ii) of the Contract. 

  
 Having made an exception for the above acquisitions, it is understood that none of the controlling companies and the subsidiary companies of
the Parties (for which each of the Parties themselves is obliged as per article 1381 of the Italian Civil Code) will acquire ordinary shares in Telecom Italia S.p.A. or instruments which are convertible into ordinary shares in Telecom Italia S.p.A.
for the entire Duration of the Agreements, notwithstanding the specifications of art. 6.05 (b) of the Contract. 
  
 1.02    The Parties undertake to communicate directly about the acquisitions of shares permitted as per article 1.01 above, in the form of a written
communication to be sent to all the other Parties within 5 working days as of the acquisition. 
  
 ARTICLE II 
 Modification to the agreements on the Majority Premium 
  
 2.01    The Parties hereby agree, to modify articles 10.01 and 10.03 of
the Contract, that the total amount of the premium due to Hopa in the event of Demerger, as per the hypotheses specified in these articles 10.01 and 10.03, is set definitively at a total of 208 million Euros, regardless of the number of Telecom
Shares and/or Financial Instruments (and, therefore, even if acquired after December 1, 2004) due to Hopa as an effect of the Demerger. Payment will be made by June 30, 2006 if the Demerger takes place following a Deadlock or if the Contract is not
renewed for a further three years as per art. 6.00. In relation to what may occur, it is confirmed that the Demerger will be carried out as follows: in the event of a Deadlock or if the Contract is not renewed at first expiry, within 6 months as of
May 8, 2006; in the event of contract renewal or further subsequent renewals, within 6 months of the end of the last renewal. 
  
 2.02    It is also understood that in the event that there has been an Accelerated Deadlock as per art. 8.06 (a) (ii) which involves the right of
Olimpia receiving, as payment for the sale/assigning/granting all or part of its shareholding in Telecom Italia, a cash amount, Hopa not having exercised the rights specified in its favor as per art. 8.06 (a), the total amount of the premium, as
specified by paragraph 2.01 above (or by paragraph 2.03, in the event of renewal), due to Hopa as a result of the failure to renew the Contract on expiry or as a result of the occurrence of an event which may give rise to a Deadlock after this
sale/assigning/granting, will be due to Hopa limited to the difference, if positive, between: 
  

	 	(i)	the total amount of the premium as specified by paragraph 2.01 above (or by paragraph 2.03, in the event of renewal); and 

  

	 	(ii)	any positive difference between the price recognized by the purchaser/grantor/assignor of the Telecom shares which Hopa would have the right to receive in the event of a Demerger
and the Stock Exchange value of these shares on the sale/assigning/granting date. 

  
 2.03    In the event of renewal, of any kind, of the Contract, the total amount of the premium due in the hypotheses envisaged by Arts. 10.01 and 10.03 of the Contract is set at 215 million Euros
and the relative payment will be made by the first of the following dates: (i) June 30, 2007 and (ii) the thirtieth day after the registration date of the Demerger in the Milan Business Register, if the Deadlock occurs from May 8, 2006 to May 8,
2007. The setting of the total amount of the premium starting from this latter date will be agreed by the Parties in good faith. The payment of the total amount of the premium calculated in this way will be made within 30 days as of the registration
date of the Demerger in the Milan Business Register. 
  

 74 

Table of Contents

 2.04    In the hypothesis specified by art. 10.2 of the Contract, any Majority Premium is excluded in
relation to Telecom Italia Shares or Telecom Financial Instruments, above the number of Telecom Italia Shares or Telecom Financial Instruments held by Olimpia on December 1, 2004, covered by the Demerger and acquired after December 1, 2004.

  
 ARTICLE III 
 Agreements on the Capital Increase 
  
 If Unicredito Italiano S.p.A. and/or Banca Intesa S.p.A. do not subscribe the Capital Increase, Hopa and Edizione Finance International S.A. as of now undertake
irrevocably not to exercise their right to subscribe, pro quota, the shares not subscribed by these banks, with the condition that these shares are subscribed personally by Pirelli & C. S.p.A. 
  
 ARTICLE IV 
 Validity of the extra agreements 
  
 The Parties hereby also agree that, for matters not expressly repealed or in any case agreed within this Second Modified Agreement, any other regulation of the Contract
and of the first Modified Agreement, including, in particular, the undertaking of the Parties to avoid in all cases the exceeding of the thresholds set for the public purchase offer regulation, remains fully valid and specifies all the effects for
the Parties, as per the terms and conditions agreed on February 21, 2003, including the specifications in art. XIII of the Contract. 
  
 * * * * * 
  
 If the text of this Second Modified Agreement as outlined above reflects the agreements made by the Contract Parties (as defined in the Second Modified Agreement), as a Contract Party, please transcribe this text,
sign it and initial it on every page and send it to us as full and irrevocable acceptance of this irrevocable proposal. 
  
 Yours faithfully, 
  

			
	Pirelli & C. S.p.A.	 	Edizione Finance International S.A.

  

			
	Signed by Marco Tronchetti Provera	 	Signed by Gustave Stoffel
		
	Hopa S.p.A.	 	Olimpia S.p.A.
	Signed by Emilio Gnutti	 	Signed by Carlo Buora
	
	 As guarantor for the obligations of Edizione Finance International S.A.:

		
	Edizione Holding S.p.A.	 	 
	Signed by Gilberto Benetton	 	 
	
	 * * *
  

	
	 	

	Banca Intesa S.p.A	 	Unicredito Italiano S.p.A.

  

 75Stock Purchase Agreement

 Exhibit 10.1 
 STOCK PURCHASE AGREEMENT 
 by and among 

C&J SPEC-RENT SERVICES, INC., 
 CASEDHOLE HOLDINGS, INC., 
 and 

THE SHAREHOLDERS AND OPTION HOLDERS OF CASEDHOLE HOLDINGS, INC. 

Dated as of June 5, 2012 

 TABLE OF CONTENTS 

 

							
	 	 	 	  	Page	 
	ARTICLE I	 	 DEFINITIONS
	  	 	1	  
	 1.1
	 	 Definitions
	  	 	1	  
			
	ARTICLE II	 	 SALE AND TRANSFER OF THE SHARES
	  	 	1	  
	 2.1
	 	 The Shares
	  	 	1	  
	 2.2
	 	 Purchase Price
	  	 	2	  
			
	ARTICLE III	 	 PURCHASE PRICE ADJUSTMENT
	  	 	2	  
	 3.1
	 	 Pre-Adjustment Purchase Price Statement
	  	 	2	  
	 3.2
	 	 Final Adjustment Amount
	  	 	3	  
	 3.3
	 	 Final Purchase Price
	  	 	4	  
	 3.4
	 	 Final Payment
	  	 	5	  
			
	ARTICLE IV	 	 REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
	  	 	5	  
	 4.1
	 	 Organization and Standing
	  	 	5	  
	 4.2
	 	 Subsidiaries
	  	 	5	  
	 4.3
	 	 Organization Documents
	  	 	6	  
	 4.4
	 	 Authority and Enforceability
	  	 	6	  
	 4.5
	 	 Non-Contravention
	  	 	6	  
	 4.6
	 	 Consents
	  	 	7	  
	 4.7
	 	 Material Contracts
	  	 	7	  
	 4.8
	 	 Capital Structure
	  	 	9	  
	 4.9
	 	 Financial Statements
	  	 	9	  
	 4.10
	 	 Absence of Certain Changes
	  	 	9	  
	 4.11
	 	 No Undisclosed Liabilities
	  	 	11	  
	 4.12
	 	 Real Property
	  	 	11	  
	 4.13
	 	 Title to Property; Encumbrances
	  	 	11	  
	 4.14
	 	 Litigation
	  	 	12	  
	 4.15
	 	 Compliance with Laws
	  	 	12	  
	 4.16
	 	 Intellectual Property
	  	 	12	  
	 4.17
	 	 Environmental Matters
	  	 	13	  
	 4.18
	 	 Taxes
	  	 	14	  
	 4.19
	 	 Employee Benefit Plans
	  	 	15	  
	 4.20
	 	 Labor; Employees
	  	 	17	  
	 4.21
	 	 Insurance
	  	 	18	  
	 4.22
	 	 Permits
	  	 	18	  
	 4.23
	 	 Affiliate Transactions
	  	 	19	  
	 4.24
	 	 Capital Commitments
	  	 	19	  
	 4.25
	 	 Customers and Suppliers
	  	 	19	  
	 4.26
	 	 Finders’ Fees
	  	 	19	  
			
	ARTICLE V	 	 REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND BUYER
	  	 	19	  
	 5.1
	 	 Representations and Warranties of the Sellers
	  	 	19	  
	 5.2
	 	 Representations and Warranties of Buyer
	  	 	21	  

  
 -i-

 TABLE OF CONTENTS 

(continued) 
  

							
	 	 	 	  	Page	 
	ARTICLE VI	 	 CONDUCT PRIOR TO THE CLOSING
	  	 	22	  
	 6.1
	 	 Conduct of Business of the Company
	  	 	22	  
	 6.2
	 	 Restrictions on Conduct of Business of the Company
	  	 	23	  
			
	ARTICLE VII	 	 ADDITIONAL AGREEMENTS
	  	 	24	  
	 7.1
	 	 Confidentiality; Public Disclosure
	  	 	24	  
	 7.2
	 	 Commercially Reasonable Efforts
	  	 	25	  
	 7.3
	 	 Third-Party Consents; Notices
	  	 	25	  
	 7.4
	 	 Access to Information
	  	 	25	  
	 7.5
	 	 Expenses
	  	 	26	  
	 7.6
	 	 Pay-Off Letters
	  	 	26	  
	 7.7
	 	 Tax Matters
	  	 	26	  
	 7.8
	 	 Employee Benefits Matters
	  	 	29	  
	 7.9
	 	 Labor Matters; WARN
	  	 	30	  
	 7.10
	 	 No Other Representations; Non-Reliance
	  	 	30	  
	 7.11
	 	 Waiver
	  	 	31	  
	 7.12
	 	 Release
	  	 	31	  
	 7.13
	 	 Waiver of Certain Rights
	  	 	32	  
	 7.14
	 	 Developments
	  	 	32	  
	 7.15
	 	 Repayment of Certain Obligations and Liens on Certain Shares
	  	 	32	  
			
	ARTICLE VIII	 	 CONDITIONS TO CLOSING
	  	 	33	  
	 8.1
	 	 Conditions to Obligations of Each Party to Effect the Acquisition
	  	 	33	  
	 8.2
	 	 Additional Conditions to Obligations of the Sellers
	  	 	33	  
	 8.3
	 	 Additional Conditions to the Obligations of Buyer
	  	 	34	  
			
	ARTICLE IX	 	 CLOSING
	  	 	34	  
	 9.1
	 	 Closing
	  	 	34	  
	 9.2
	 	 Actions to Occur at Closing
	  	 	35	  
			
	ARTICLE X	 	 TERMINATION, AMENDMENT AND WAIVER
	  	 	36	  
	 10.1
	 	 Termination
	  	 	36	  
	 10.2
	 	 Effect of Termination
	  	 	37	  
	 10.3
	 	 Amendment
	  	 	37	  
	 10.4
	 	 Extension; Waiver
	  	 	37	  
			
	ARTICLE XI	 	 INDEMNIFICATION
	  	 	37	  
	 11.1
	 	 Survival of Representations and Warranties
	  	 	37	  
	 11.2
	 	 Indemnification Provisions for Buyer’s Benefit
	  	 	38	  
	 11.3
	 	 Indemnification Provisions for the Sellers’ Benefit
	  	 	39	  
	 11.4
	 	 Limitations
	  	 	39	  
	 11.5
	 	 Exclusive Remedy; Non-Recourse
	  	 	40	  
	 11.6
	 	 Other Limitations
	  	 	40	  
	 11.7
	 	 Appointment of Sellers’ Representative
	  	 	41	  
	 11.8
	 	 Defense of Third-Party Claims
	  	 	43	  
	 11.9
	 	 Mitigation
	  	 	44	  

  
 -ii-

 TABLE OF CONTENTS 

(continued) 
  

							
	 	 	 	  	Page	 
	ARTICLE XII	 	 GENERAL PROVISIONS
	  	 	45	  
	 12.1
	 	 Notices
	  	 	45	  
	 12.2
	 	 Company Disclosure Schedules
	  	 	46	  
	 12.3
	 	 Counterparts
	  	 	46	  
	 12.4
	 	 Entire Agreement; Parties in Interest
	  	 	47	  
	 12.5
	 	 Assignment
	  	 	47	  
	 12.6
	 	 Severability
	  	 	47	  
	 12.7
	 	 Remedies; Specific Performance
	  	 	47	  
	 12.8
	 	 Choice of Forum
	  	 	48	  
	 12.9
	 	 Governing Law
	  	 	48	  
	 12.10
	 	 Interpretation
	  	 	48	  

  
 -iii-

 EXHIBITS 
  

			
	 EXHIBIT 9.2(a)(IV)
	  	FORM OF ESCROW AGREEMENT
		
	ANNEX	  	
		
	 ANNEX I
	  	LOAN AGREEMENTS
	
	COMPANY DISCLOSURE SCHEDULES
		
	 Schedule 2.1
	  	Seller Pro Rata Percentages
	 Schedule 2.2(a)
	  	New Equipment
	 Schedule 2.2(b)
	  	Option Payments
	 Schedule 4.2
	  	Subsidiaries
	 Schedule 4.5
	  	Non-Contravention
	 Schedule 4.6
	  	Required Consents
	 Schedule 4.7(a)
	  	Material Contracts
	 Schedule 4.8(b)
	  	Capital Structure
	 Schedule 4.10(b)
	  	Post Interim Balance Sheet Date Events
	 Schedule 4.11
	  	Undisclosed Liabilities
	 Schedule 4.12
	  	Real Property
	 Schedule 4.17
	  	Environmental Matters
	 Schedule 4.18
	  	Tax Matters
	 Schedule 4.19(a)
	  	Benefit Plans
	 Schedule 4.19(a)(j)
	  	Multiemployer Plan
	 Schedule 4.19(k)
	  	Payments
	 Schedule 4.19(l)
	  	Nonqualified Deferred Compensation Plan
	 Schedule 4.21
	  	Insurance Policies and Bonds
	 Schedule 4.23
	  	Affiliate Transactions
	 Schedule 4.24
	  	Capital Commitments
	 Schedule 4.25(a)
	  	Customers
	 Schedule 4.25(b)
	  	Suppliers
	 Schedule 4.26
	  	Finders’ Fees
	 Schedule 6.2
	  	Permitted Conduct
	 Schedule 7.3
	  	Approvals
	 Schedule 13
	  	Liens

 STOCK PURCHASE AGREEMENT 

THIS STOCK PURCHASE AGREEMENT (this “Agreement”) is dated as of June 5, 2012 (the “Agreement
Date”) and is made by and among C&J SPEC-RENT SERVICES, INC., an Indiana corporation (“Buyer”), CASEDHOLE HOLDINGS, INC., a Delaware corporation (the “Company”), the shareholders of
the Company listed on the signature pages hereto (the “Selling Shareholders”), and the option holders of the Company listed on the signature pages hereto (the “Option Holders” and, collectively with
the Selling Shareholders, the “Sellers”). Buyer, the Company and each Seller may be referred to herein individually as a “Party,” and collectively as the “Parties.” 

RECITALS 
 WHEREAS, the Company, through its Subsidiaries, is engaged in the business of providing cased-hole wireline and other complementary services, including pump-down and pressure
testing, to customers in the oil and gas industry. 
 WHEREAS, the Sellers are (i) the record holders
and beneficial owners of all of the issued and outstanding shares of capital stock of the Company (the “Shares”) and (ii) the holders of all outstanding options to purchase shares of Company Common Stock granted under
the Company Option Plan (“Company Options”). On the terms and subject to the conditions of this Agreement, (i) Buyer desires to purchase and acquire from the Selling Shareholders, and the Selling Shareholders desire to
sell and transfer to Buyer, all of the Shares (the “Acquisition”), and (ii) the Company and the Option Holders desire to provide for the termination of the Company Options held by the Option Holders. 

WHEREAS, the Parties desire to make the representations, warranties, covenants, and agreements set forth in this
Agreement and also to prescribe various conditions to the transactions contemplated by this Agreement. 
 NOW
THEREFORE, in consideration of the representations, warranties, covenants, and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and on the terms and subject to the conditions hereinafter set forth, each of the Parties, intending to be legally bound hereby, agrees as follows: 
 ARTICLE I 
 DEFINITIONS 

1.1 Definitions. Unless otherwise expressly provided to the contrary in this Agreement, capitalized terms used herein shall have
the meanings set forth in Exhibit A hereto. 
 ARTICLE II 

SALE AND TRANSFER OF THE SHARES 
 2.1 The Shares. Subject to and in accordance with the terms and conditions set forth in this Agreement, at the Closing, each Selling Shareholder shall sell, transfer, assign, and deliver to Buyer,
and Buyer shall purchase from each Selling Shareholder, such Selling Shareholder’s right, title, and interest in and to the number of Shares set forth opposite such Selling Shareholder’s name in Schedule 2.1 of the Company
Disclosure Schedules. 

 2.2 Purchase Price. 

(a) The aggregate consideration to be paid by Buyer to the Sellers in connection with the purchase by Buyer of the Shares and the
termination of the Company Options shall be an amount equal to: (i) $272,466,938, plus (ii) the CapEx Expenditures/Payments, plus (iii) the Closing Cash, if any, minus (iv) the Closing Debt, if any,
minus (v) the Unpaid Company Transaction Costs, if any, plus (vi) the amount, if any, by which the Net Working Capital is greater than the Working Capital Requirement, minus (vii) the amount, if any, by which the
Net Working Capital is less than the Working Capital Requirement, plus or minus, as applicable, (viii) the CapEx Double Count Adjustment, if any (collectively, the “Purchase Price”). The estimate of the
Purchase Price calculated pursuant to Section 3.1 (the “Pre-Adjustment Purchase Price”) shall be increased or decreased after the Closing pursuant to Sections 3.2 and 3.3. 

(b) Each Option Holder hereby agrees with the Company and Buyer that, effective immediately prior to the Closing, each outstanding
Company Option held by such Option Holder shall terminate and be of no further force or effect and, in exchange for such termination, such Option Holder shall be entitled to receive in respect of each such Company Option held by such Option Holder a
portion of the Purchase Price equal to (i) the portion of the Purchase Price that such Option Holder would have been entitled to receive if such Option Holder had exercised the Company Option in full immediately prior to Closing and transferred
all of the shares acquired thereunder to Buyer at Closing, reduced by (ii) the aggregate exercise price of such Company Option (the “Option Payments”). Each Option Holder shall receive, at Closing from the Closing Date
Payment, a portion of such Option Holder’s Option Payment set forth on Schedule 2.2(b), which Schedule shall (A) be prepared by the Sellers’ Representative and delivered to the Option Holders and Buyer at least one Business Day
prior to the Closing and (B) indicate, for each Option Holder, the portion of such Option Holder’s Option Payment that is to constitute part of the respective Escrow Amounts deposited into the respective Escrow Funds at Closing. At
Closing, the appropriate party, that being Buyer, the Company, the Sellers’ Representative, or the Escrow Agent (the “Withholding Party”), shall deduct and withhold from the Option Payments deliverable at Closing to any
Option Holder such amount of Taxes as the Withholding Party reasonably determines that it is required to deduct and withhold with respect to such Option Payments in accordance with applicable Legal Requirements; provided, however, that
the determination of such amount of Taxes to deduct and withhold at Closing with respect to such Option Payments shall be made by reference to the entire amount of any such Option Holder’s Option Payment (including the portion of any such
Option Holder’s Option Payment that constitutes part of the Escrow Amounts deposited into the Escrow Funds at Closing). Any such amount of Taxes deducted and withheld from Option Payments shall be treated for all purposes of this Agreement and
the Escrow Agreement as having been delivered and paid to such Option Holders in respect of which such deduction and withholding was made. Each Option Holder hereby agrees to make an election under Section 83(b) of the Code with the Internal
Revenue Service within thirty (30) days from the Closing Date with respect to the portion of such Option Holder’s Option Payments that constitute part of the Escrow Amounts deposited into the Escrow Funds at Closing. 

(c) Each Seller agrees that the portion of the Escrow Funds to which such Seller is entitled upon any disbursement of Escrow Funds to the
Sellers shall be equal to such Seller’s Pro Rata Percentage. 
 ARTICLE III 

PURCHASE PRICE ADJUSTMENT 
 3.1 Pre-Adjustment Purchase Price Statement. At least one Business Day prior to Closing, the Company shall deliver to Buyer (a) the Company’s good faith estimates of (i) the
Purchase Price, (ii) the CapEx Expenditures/Payments, (iii) the Closing Cash, if any, (iv) the Closing Debt, if any, (v) the 

  
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Unpaid Company Transaction Costs, if any, and (vi) the Net Working Capital (the “Estimated Net Working Capital”), and (b) the consolidated balance sheet of the
Company and the Company Subsidiaries as of 11:59 p.m. on the date immediately preceding the Closing Date (the “Pre-Adjustment Purchase Price Statement”). Buyer shall promptly provide the Company with notice of any disputes to
the Pre-Adjustment Purchase Price Statement, describing its objections with reasonable detail and specificity, and the Parties shall in good faith attempt to resolve any disputes as promptly as practicable. If any such disputes are resolved prior to
the Closing, then the Pre-Adjustment Purchase Price Statement shall be adjusted to reflect the resolution of such disputed items. In the event any disputes remain unresolved immediately prior to the Closing, Buyer shall accept the unresolved amounts
as initially set forth in the Pre-Adjustment Purchase Price Statement as delivered by the Company, provided that the aggregate amount of unresolved disputes which will be included in the Pre-Adjustment Purchase Price Statement may not exceed
$3,000,000, with all such unresolved disputes (including any excess over such amount) being fully and finally resolved in the Final Adjustment Amount as provided below. 
 3.2 Final Adjustment Amount. The Parties hereby covenant and agree as provided in this Section 3.2 and Sections 3.3 and 3.4 with respect to the adjustment of the Purchase
Price following the Closing: 
 (a) As promptly as practicable after the Closing (but in no event later than 90 days after the
Closing Date), Buyer shall cause the Company to prepare and deliver to the Sellers’ Representative a balance sheet of the Company and its Subsidiaries prepared as of 11:59 p.m. on the date immediately preceding the Closing Date (the
“Final Balance Sheet”), and a statement (the “Post-Closing Statement”) which shall set forth in reasonable detail and specificity its calculation of the following: (i) the Purchase Price,
(ii) the CapEx Expenditures/Payments, (iii) the Closing Cash, if any, (iv) the Closing Debt, if any, (v) the Unpaid Company Transaction Costs, if any, (vi) the Net Working Capital based on the Final Balance Sheet (the
“Final Net Working Capital”), and (vii) the CapEx Double Count Adjustment, if any. The Final Balance Sheet shall be prepared in accordance with GAAP and, to the extent consistent with GAAP, using the same accounting
methods, policies, practices, principles and procedures with consistent classifications, judgments and methodologies as were used in connection with preparing the Interim Balance Sheet, shall include all accounting entries and adjustments required
in a year end closing of the books. The Post-Closing Statement will be prepared based upon the information set forth in the Final Balance Sheet and in a manner consistent with the preparation of the Pre-Adjustment Purchase Price Statement.

 (b) Following the delivery of the Final Balance Sheet to the Sellers’ Representative, Buyer and the Company shall
provide the Sellers’ Representative and its designees reasonable access during normal business hours to all personnel, materials, books and records of the Company, including such supporting schedules, analyses, workpapers, and other underlying
records or documentation as are reasonably necessary and appropriate for the Sellers’ Representative to verify the Final Balance Sheet, the Post-Closing Statement and the amount of the Final Net Working Capital. Buyer and the Company shall
reasonably cooperate with the Sellers’ Representative and its designees in such examination, including providing answers to questions asked by the Sellers’ Representative or its designees, and Buyer and the Company shall make available to
the Sellers’ Representative and its designees any records that are requested by the Sellers’ Representative and its designees as promptly as practicable. 
 (c) The calculation of the Final Balance Sheet, the Post-Closing Statement and the amount of the Final Net Working Capital submitted by Buyer to the Sellers’ Representative shall become final and
binding upon the Parties 30 days following the Sellers’ Representative’s receipt thereof (the “Review Period”), unless the Sellers’ Representative, within the Review Period, has delivered to Buyer written
notice (the “Objection Notice”) of its objections with reasonable detail and specificity to the Final Balance Sheet, the Post-Closing Statement or the amount of the Final Net Working Capital, in which case

  
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the Final Balance Sheet, the Post-Closing Statement and the amount of the Final Net Working Capital shall not be binding upon the Parties and such dispute shall be resolved pursuant to
Section 3.2(d); provided, however, that any item or amount contained in the Final Balance Sheet, the Post-Closing Statement or the calculation of the Final Working Capital that is not a Disputed Item (as defined below)
shall be binding upon the Parties. 
 (d) After the receipt of the Objection Notice by Buyer, the Sellers’ Representative
and Buyer shall meet by telephone, or at a mutually agreeable location, to discuss and attempt to reconcile their differences with respect to the disputed items set forth in the Objection Notice (the “Disputed Items”). If the
Sellers’ Representative and Buyer are unable to mutually resolve each of the Disputed Items within 15 days after receipt of the Objection Notice by Buyer, then no later than the second Business Day after the expiration of such 15 day period the
Sellers’ Representative and Buyer shall each propose to the other at least one nationally recognized accounting firm that does not have an existing relationship with Buyer or Sellers’ Representative, as applicable, and Buyer and the
Sellers’ Representative shall attempt to agree on one such mutually acceptable nationally recognized accounting firm (an “Accounting Firm”) to be engaged to resolve such Disputed Items that remain in dispute following
such 15 day period for resolution; provided, however, if the Sellers’ Representative and Buyer have not agreed upon an Accounting Firm within seven days after either party first proposes an Accounting Firm for such Disputed Items,
one Accounting Firm shall be chosen by each of the Sellers’ Representative and Buyer and the two Accounting Firms so chosen will finally select an Accounting Firm to resolve such Disputed Items (such Accounting Firm, as finally selected
pursuant to the foregoing procedures, the “Independent Accountant”). The Independent Accountant: (i) will be jointly engaged by Buyer and the Sellers’ Representative; (ii) will be provided, within three
Business Days of accepting the engagement, with a definitive written statement from the Sellers’ Representative and Buyer of their respective positions with respect to the unresolved Disputed Item(s); (iii) will be advised in the
engagement letter that the Parties accept the Independent Accountant as the appropriate Person to interpret this ARTICLE III for all purposes relevant to the resolution of the unresolved Disputed Item(s); (iv) will be granted reasonable
access during normal business hours to all materials, books and records and personnel of the Company; and (v) will have 30 days to carry out a review, interview Buyer’s representatives and the Sellers’ Representative and prepare a
written statement of its decision regarding the unresolved Disputed Item(s) and its determination of the Final Net Working Capital, the CapEx Expenditures/Payments, the Closing Cash, the Closing Debt, the Unpaid Company Transaction Costs, and the
CapEx Double Count Adjustment, as the case may be, based upon its decision regarding such Disputed Item(s). For the avoidance of doubt, the Independent Accountant shall not be requested to, nor shall the Independent Accountant make any
determination, with respect to any item reflected in the Final Balance Sheet or the Post-Closing Statement that is not a Disputed Item submitted to the Independent Accountant in accordance with this Section 3.2(d) (which includes any
Disputed Item that is resolved during the 15 day period following Buyer’s receipt of the Objection Notice). The Sellers’ Representative and Buyer will each be provided the opportunity to present to the Independent Accountant any material
such Party deems relevant to the determination. In resolving any unresolved Disputed Item, the Independent Accountant may not assign a value to any item greater than the highest value for such item claimed by either Party or less than the lowest
value for such item claimed by either Party. The decision of the Independent Accountant shall be final and binding upon the Parties and shall be in substitution for and precludes the bringing of any Proceedings in any court in connection with the
resolution of any Disputed Item(s) under this Section 3.2(d). The fees and expenses of the Independent Accountant incurred in resolving the Disputed Items(s) shall be shared equally by Buyer, on the one hand, and the Sellers, on the
other hand, in accordance with each Seller’s Pro Rata Percentage. 
 3.3 Final Purchase Price. Immediately after the
Final Balance Sheet and the Post-Closing Statement becomes final and binding upon the Parties in accordance with Section 3.2(c) or 3.2(d), the Parties shall determine the final Purchase Price using the amounts set forth in the
Post-Closing Statement (as such Post-Closing Statement is adjusted to reflect the resolution of any disputes in accordance with Section 3.2(c) or 3.2(d)). 

  
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 3.4 Final Payment. On the fifth Business Day after the determination of the final
Purchase Price pursuant to this ARTICLE III (the “Adjustment Payment Date”): 
 (a) if the final
Purchase Price is less than the Pre-Adjustment Purchase Price, then the Sellers’ Representative and Buyer shall issue joint written instructions directing the Escrow Agent to pay to Buyer from the Adjustment Escrow Fund, by wire transfer of
immediately available funds to the account specified in writing by Buyer, an amount equal to such difference plus interest at the Agreed Rate from (and including) the Closing Date to (but excluding) the date paid (the
“Shortfall”); provided, that if the Shortfall is less than the amount held in the Adjustment Escrow Fund, the Sellers’ Representative and Buyer shall also simultaneously issue joint written instructions directing
the Escrow Agent to pay to the Sellers’ Representative the excess of the amount held in the Adjustment Escrow Fund over the Shortfall; provided, further that in the event the Adjustment Escrow Amount is not sufficient to satisfy
the Shortfall, then the Sellers’ Representative and Buyer shall issue joint instructions directing the Escrow Agent to pay to Buyer the entire amount of the Adjustment Escrow Fund and the amount equal to the Shortfall less the Adjustment Escrow
Amount from the Indemnity Escrow Fund, by wire transfer of immediately available funds to the account specified in writing by Buyer; and 
 (b) if the final Purchase Price is greater than the Pre-Adjustment Purchase Price, then (i) Buyer shall pay to the Sellers, by wire transfer of immediately available funds to the account(s) specified
in writing by the Sellers’ Representative (on behalf of the Sellers), an amount equal to such difference plus interest at the Agreed Rate from (and including) the Closing Date to (but excluding) the date paid and (ii) the Sellers’
Representative and Buyer shall issue joint written instructions directing the Escrow Agent to pay to the Sellers’ Representative the full amount of the Adjustment Escrow Fund. 

ARTICLE IV 

REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY 
 Except as disclosed by the Company in the disclosure schedules delivered to Buyer concurrently with the execution and delivery of this Agreement (the “Company Disclosure
Schedules”), the Company represents and warrants that the statements contained in this ARTICLE IV are true, correct and complete as of the Agreement Date (except to the extent any of the following statements speak expressly as of
an earlier or later date). 
 4.1 Organization and Standing. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to conduct its business as currently being conducted and to own, lease and operate its material properties and assets as such are
currently being owned, leased and operated. The Company is duly qualified to conduct business and is in good standing in each jurisdiction where it is legally required to be qualified, except where the failures to be so qualified or in good standing
are not, in the aggregate, reasonably likely to have a Material Adverse Effect on the Company and the Company Subsidiaries. 

4.2 Subsidiaries. Schedule 4.2 of the Company Disclosure Schedules lists (a) each Company Subsidiary, (b) the
number of authorized shares of capital stock or other equity interests of each Company Subsidiary and (c) the number of issued and outstanding shares of capital stock or other equity interests of each Company Subsidiary, the names of the
holder(s) thereof and the number of shares of capital stock or other equity interests held by such holder. Each Company Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and
has full corporate power and authority to conduct its business as currently being conducted and to own, lease and operate its 

  
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material properties and assets as such are currently being owned, leased and operated. Each Company Subsidiary is duly qualified to conduct business and is in good standing in each jurisdiction
(other than the jurisdiction of its organization) where it is legally required to be qualified, except where the failures to be so qualified or in good standing are not, in the aggregate, reasonably likely to have a Material Adverse Effect on the
Company and the Company Subsidiaries. Other than as set forth in Schedule 4.2 of the Company Disclosure Schedules, there are no issued and outstanding securities of any Company Subsidiary and no outstanding commitments of any character,
whether written or oral, or Contracts to issue or sell any securities of any Company Subsidiary. Other than as set forth in Schedule 4.2 of the Company Disclosure Schedules, neither the Company nor any Company Subsidiary owns, directly or
indirectly, any capital stock or other equity interests of any other Person. In the case of the issued and outstanding shares of capital stock or other equity interests of each Company Subsidiary, each applicable owner, as set forth in Schedule
4.2 of the Company Disclosure Schedules, is the record holder and beneficial owner with respect to such shares or other equity interests, as appropriate, set forth opposite its name, and such shares or other equity interests are owned
beneficially and free and clear of any Encumbrances of any kind, other than liens relating to any Closing Debt that are released at Closing and restrictions on transfer arising therefrom and restrictions on transfer that may be imposed by applicable
federal or state securities laws. 
 4.3 Organization Documents. 

(a) The Company has provided or made available to Buyer complete and correct copies of the Certificate of Incorporation and Bylaws of the
Company (as amended through the Agreement Date, the “Organizational Documents”) and the stock records of the Company. The Company is not in violation of any provision of its Organizational Documents. 

(b) The Company has provided or made available to Buyer complete and correct copies of the organizational documents, including the
Certificate of Incorporation or other charter and Bylaws or other equivalent organizational documents of each Company Subsidiary (as amended through the Agreement Date, the “Company Subsidiary Organizational Documents”) and
the stock records of each Company Subsidiary. No Company Subsidiary is in violation of any provision of its Company Subsidiary Organizational Documents. 
 4.4 Authority and Enforceability. The Company has the relevant corporate power and authority necessary to execute and deliver this Agreement and each other Transaction Document to which it is a
party and to perform and consummate the transactions contemplated hereunder and thereunder. The Company has taken all corporate action necessary to duly authorize the execution and delivery of this Agreement and each other Transaction Document to
which it is a party, the performance of its obligations hereunder and thereunder and the consummation of the transactions contemplated hereunder and thereunder. This Agreement has been, and at Closing each other Transaction Document to which the
Company is party will be, duly authorized, executed and delivered by, and this Agreement is, and at Closing each other Transaction Document to which the Company is a party will be a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, subject only to the effect, if any, of (a) bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws relating to or affecting the rights or remedies of creditors or
(b) general principles of equity, whether considered in a proceeding in equity or at law (including the possible unavailability of specific performance or injunctive relief). 

4.5 Non-Contravention. The execution and delivery of this Agreement by the Company does not, the execution and delivery of each of
the other Transaction Documents to which it is or will be a party do not and will not, the consummation of the transactions contemplated hereby and thereby will not, and the performance by the Company of its obligations hereunder and thereunder do
not and will not: 

  
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 (a) result in the creation of any Encumbrance (other than a Permitted Encumbrance) on any of
the properties or assets of the Company or the Company Subsidiaries; or 
 (b) conflict with, result in any violation of or
default under, or otherwise require a consent with respect to (i) any provision of the Organizational Documents, (ii) any Material Contract of the Company or a Company Subsidiary or any Material Contract applicable to any of their
respective properties or assets, or (iii) any Legal Requirements applicable to the Company or to any of its properties or assets, except in the case of clauses (ii) and (iii) for such conflicts, violations, defaults or consents, as
are not, in the aggregate, reasonably likely to have a Material Adverse Effect on the Company and the Company Subsidiaries. 

4.6 Consents. Except as set forth in Schedule 4.6 of the Company Disclosure Schedules, no Approval of any Governmental
Entity is required by or with respect to the Company or Company Subsidiary in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) any Approval required under
the HSR Act and (ii) such other consents, authorizations, filings, approvals, notices and registrations which, if not obtained or made, would not materially delay or materially impede the Company’s ability to consummate the Acquisition or
to perform its obligations under this Agreement. 
 4.7 Material Contracts. 

(a) Except for this Agreement and as set forth in Schedule 4.7(a) of the Company Disclosure Schedules, neither the Company nor any
Company Subsidiary is a party to or bound by any of the following continuing Contracts as of the Agreement Date (each a “Material Contract”): 

(i) any distributor, reseller or services Contract (including open service orders but excluding master services
agreements) with a vendor or supplier to the Company or a Company Subsidiary reasonably expected to result in payments in excess of $150,000 on an annual basis; 
 (ii) any Contract for the purchase, sale or license of materials, supplies, equipment, services, software, Intellectual Property or other assets involving in the case of any such individual Contract
payments reasonably expected to be more than $150,000 by or to the Company or Company Subsidiary on an annual basis; 
 (iii) any Contract limiting the freedom of the Company or Company Subsidiary to engage or participate, or compete with any other Person, in any line of business, market or geographic area; 

(iv) any Contract pursuant to which the Company or Company Subsidiary is a lessor of any real property; 

(v) any Contract pursuant to which the Company or Company Subsidiary is a lessor or lessee of any machinery, equipment,
motor vehicles, office furniture, fixtures or other personal property involving in the case of any such individual Contract rental or lease payments reasonably expected to be in excess of $150,000 per annum; 

(vi) any Contract (or group of related Contracts) under which the Company or the Company Subsidiaries have created,
incurred, assumed, or guaranteed any liability for borrowed money of any Person (other than the Company or a Company Subsidiary) or any capitalized lease, or under which it has imposed or suffered to exist an Encumbrance on any of its assets;

  
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 (vii) any license, sublicense or other Contract pursuant to which the
Company or Company Subsidiary acquired or is authorized to use any Third-Party Intellectual Property, other than “shrink wrap” and similar generally available commercial end-user licenses to software, or that involve payments or
expenditures by the Company or Company Subsidiary in the case of any such individual license, sublicense or Contract that are reasonably expected to be $150,000 or more per annum; 

(viii) any Contract for the employment of any director, officer, employee, consultant or independent contractor of the
Company or Company Subsidiary or any other type of Contract with any director, officer, employee, consultant or independent contractor of the Company or Company Subsidiary, other than oral Contracts with the employees set forth on the list referred
to in the last sentence of Section 4.19(a); 
 (ix) any Contract reasonably expected to involve
payments by or to the Company or a Company Subsidiary in excess of $150,000 per annum that will have a remaining term of one year or more following the Closing and that may not be terminated at will, or by the giving of notice of 30 days or less,
without cost or penalty; 
 (x) any Contract that requires the Company or any Company Subsidiary to indemnify any
Person (other than Purchase Orders and master service agreements which do not require the Company or any Company Subsidiary to perform services post-Closing); 
 (xi) any Contract with any director, officer, Selling Shareholder, Option Holder, or any other Affiliate of the Company; 

(xii) any Contract with any labor union or collective bargaining agreement or similar contract with its employees; or

 (xiii) any settlement agreement with ongoing material obligations on the part of the Company or the Company
Subsidiaries. 
 (b) The Company and each Company Subsidiary (as appropriate) has materially performed the obligations required
to be performed by it and, to the Knowledge of the Company, is entitled to all benefits under, and is not in default or alleged to be in default in respect of, any Material Contract. All Material Contracts are valid and binding upon the Company and
each Company Subsidiary (as applicable) and, to the Knowledge of the Company, with the exception of Purchase Orders, are in full force and effect and enforceable against the other parties thereto. There exists no default of any Material Contract
with respect to the Company, any Company Subsidiary or, to the Company’s Knowledge, any other contracting party, except where the consequences of such nonperformance or default are not, in the aggregate, reasonably likely to have a Material
Adverse Effect on the Company and the Company Subsidiaries. The Company and each Company Subsidiary (as appropriate) has made available to Buyer in the virtual data room maintained by the Company and accessible by Buyer (the “Data
Room”) at least three Business Days prior to the Agreement Date true, correct and complete copies of each Material Contract and each of its master service agreements as in effect as of the Agreement Date. 

  
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 4.8 Capital Structure. 

(a) As of the Agreement Date, the authorized capital stock of the Company consists solely of 2,000,000 shares of Company Common Stock and
200,000 shares of preferred stock of the Company with a par value of $0.001 per share, none of which preferred stock is currently issued and outstanding. Other than as set forth in Schedule 4.8(b) of the Company Disclosure Schedules, there
are no other issued and outstanding shares of Company Common Stock or other securities of the Company and no outstanding commitments of any character, written or oral, or Contracts to issue or sell any shares of Company Common Stock or other
securities of the Company other than pursuant to the exercise of outstanding Company Options. 
 (b) Schedule 4.8(b) of
the Company Disclosure Schedules sets forth, as of the Agreement Date, the name of each Person that is the record owner as reflected in the stock records of the Company of any shares of Company Common Stock and the number of such shares so owned by
such Person. Other than as set forth in Schedule 4.8(b) of the Company Disclosure Schedules, the number of such shares set forth as being so owned by such Person constitutes the entire interest of such Person in the issued and outstanding
capital stock or voting securities of the Company. All issued and outstanding shares of Company Common Stock are duly authorized, validly issued, fully paid and non-assessable. 

(c) Schedule 4.8(b) of the Company Disclosure Schedules sets forth, as of the Agreement Date, a list of all holders of outstanding
Company Options, including the number of shares of Company Common Stock subject to such Company Options. 
 4.9 Financial
Statements. 
 (a) The Company has delivered or made available to Buyer (i) the audited consolidated balance sheets and
statements of income and cash flows of the Company and the Company Subsidiaries as of and for the fiscal years ended December 31, 2010 and December 31, 2011, and (ii) the unaudited consolidated balance sheet (the “Interim
Balance Sheet”) and statement of income of the Company and the Company Subsidiaries as of April 30, 2012 (the “Interim Balance Sheet Date”) and for the four-month period then ended (collectively, the
“Financial Statements”). 
 (b) The Financial Statements (i) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods indicated and consistent with each other, (ii) are consistent with the books and records of the Company and the Company Subsidiaries in all material respects and (iii) fairly
present in all material respects the consolidated financial condition of the Company at the dates therein indicated and the consolidated results of operations and cash flows of the Company for the periods therein specified (subject, in the case of
unaudited Financial Statements, to normal recurring year-end audit adjustments and the absence of footnote and presentation items). 
 4.10 Absence of Certain Changes. Since the Interim Balance Sheet Date, except as set forth in Schedule 4.10 of the Company Disclosure Schedules, the Company and the Company Subsidiaries have
conducted their businesses only in the ordinary course and consistent with past practice, and, without limiting the generality of the foregoing: 
 (a) there has not occurred a Material Adverse Effect with respect to the Company and Company Subsidiaries; 
 (b) there has not been any (i) material election made or changed in respect of Taxes, (ii) settlement of any material claim or assessment in respect of Taxes, or (iii) surrender of any
right to claim a material refund of Taxes; 

  
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 (c) except as required by GAAP, there has not occurred any change in accounting methods or
practices (including any change in depreciation or amortization policies or rates or revenue recognition policies) by the Company or the Company Subsidiaries or any revaluation by the Company or the Company Subsidiaries of any of their material
assets; 
 (d) there has not occurred any declaration, setting aside, or payment of a non-cash dividend or other distribution
with respect to any securities of the Company or any of the Company Subsidiaries, or any direct or indirect redemption, purchase or other acquisition by the Company of any of its securities, or any change in any rights, preferences, privileges or
restrictions of any of its outstanding securities, and the Company and the Company Subsidiaries have not effected or approved any split, combination or reclassification of the capital stock of the Company or the Company Subsidiaries; 

(e) neither the Company nor any Company Subsidiary has materially amended or materially breached any Material Contract, and, to the
Knowledge of the Company, there has not occurred any material default under any Material Contract to which the Company or any Company Subsidiary is a party or by which they are, or any of their assets and properties are, bound; 

(f) there has not occurred any amendment or change to the Organizational Documents or the Company Subsidiary Organizational Documents;

 (g) there has not occurred any increase in or modification of the compensation or benefits payable or to become payable by
the Company to any of its respective directors or executive officers (other than in the ordinary course of business) or any termination or material modification of any Company Benefit Plan, other than increases in compensation or modifications of
Company Benefit Plans made in the ordinary course of business; 
 (h) the Company has not incurred, created or assumed any
Encumbrance (other than a Permitted Encumbrance) on any of its material assets or properties, any liability for borrowed money or any liability as guaranty or surety with respect to the obligations of any other Person (other than a Company
Subsidiary), other than in connection with the acquisition of the New Equipment or in the ordinary course of business; 
 (i)
there has been no damage, destruction or loss, whether or not covered by insurance, affecting the assets, properties or business of the Company or any Company Subsidiary, except where for damage, destruction or losses as are not, in the aggregate,
material to the business, assets, properties and operations of the Company and Company Subsidiaries taken as a whole; 
 (j)
there has been no material capital expenditure or commitment for additions to plant, property or equipment other than as contemplated by the Company’s capital expenditure budget provided to Buyer prior to the Agreement Date (the
“Capital Expenditures Budget”); 
 (k) neither the Company nor any Company Subsidiary has sold, disposed
of, transferred or licensed to any Person any rights to any material items of Company Intellectual Property other than in the ordinary course of business; and 
 (l) neither the Company nor any Company Subsidiary has agreed, in writing or otherwise, to do any of the foregoing. 

  
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 4.11 No Undisclosed Liabilities. Except as set forth in Schedule 4.11 of the
Company Disclosure Schedules, the Company and Company Subsidiaries have no liabilities or obligations of the type required to be disclosed in the liabilities column of a balance sheet prepared in accordance with GAAP as applied in the Interim
Balance Sheet, other than (a) those set forth or provided for in the Financial Statements, (b) those that were incurred in the ordinary course of the conduct of the Company’s and the Company Subsidiaries’ businesses since the
Interim Balance Sheet Date, which are not material, individually or in the aggregate, to the business, assets, properties and operations of the Company and the Company Subsidiaries taken as a whole, and (c) those incurred by the Company in
connection with the execution and performance of the Company’s obligations under this Agreement. 
 4.12 Real
Property. Schedule 4.12 of the Company Disclosure Schedules identifies each parcel of real property owned or leased by the Company or any Company Subsidiary (the “Company Real Estate”) and identifies whether such
parcel is owned or leased by the Company or Company Subsidiary, as applicable. The Company has good and valid title or leasehold interest, as applicable, to all Company Real Estate and all Company Real Estate is owned or leased free and clear of all
material Encumbrances, except for Permitted Encumbrances. The Company has not received any written notice that any Company Real Estate is subject to any order to be sold or condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefor, nor, to the Knowledge of the Company, are any such Proceedings threatened. All leases under which the Company or Company Subsidiaries lease or have an interest in any Company Real Estate as set forth in
Schedule 4.12 of the Company Disclosure Schedules (collectively, the “Leases” and individually, each a “Lease”) are valid, existing and effective against the Company or Company Subsidiary, as
applicable, and the counterparties thereto in accordance with their respective terms, except as may limited by (a) bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws relating to or affecting the rights
or remedies of creditors or (b) general principles of equity, whether considered in a proceeding in equity or at law (including the possible unavailability of specific performance or injunctive relief). Neither the Company or Company
Subsidiary, as applicable, nor, to the Knowledge of the Company, any counterparty thereto, is in default under any Lease, except for any such defaults that are not, in the aggregate, reasonably likely to have a material effect on the business,
assets, properties and operations of the Company and the Company Subsidiaries taken as a whole, and there is no event which, with notice or lapse of time or both, would become a default in any material respect by (i) the Company or Company
Subsidiary, as applicable, or (ii) to the Knowledge of the Company, any counterparty thereto. The Company has made available to Buyer in the Data Room at least three Business Days prior to the Agreement Date true and complete copies of all
Leases, together with any amendments thereto, to which the Company or any Company Subsidiary is a party. 
 4.13 Title to
Property; Encumbrances. 
 (a) The Company has good and valid title to all of its personal property and assets reflected on
the Interim Balance Sheet or acquired after the Interim Balance Sheet Date (except properties and assets, or interests in properties and assets, that are not material to the businesses of the Company and the Company Subsidiaries or that were sold or
otherwise disposed of since the Interim Balance Sheet Date in the ordinary course of business) (the “Personal Property”), or, with respect to leased properties and assets, valid leasehold interests in such properties and
assets which afford the Company valid leasehold possession of the properties and assets that are the subject of such leases, in each case free and clear of all Encumbrances, except (a) Permitted Encumbrances, (b) the rights of landlords or
lessors under such leasehold interests and (c) Encumbrances reflected on the Interim Balance Sheet. The Personal Property, together with such personal property and assets acquired by the Company and the Company Subsidiaries since the Interim
Balance Sheet Date and not disposed of prior to the Closing Date, constitutes all of the personal property used in the conduct of the business of the Company and the Company Subsidiaries as currently conducted. 

  
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 (b) Each item of Personal Property of the Company and the Company Subsidiaries has been
maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear), and is suitable for the purposes for which it currently is used. 

4.14 Litigation. 
 (a) There is no private or governmental Proceeding pending, or, to the Knowledge of the Company, threatened against the Company or any Company Subsidiary or any of their assets or properties or any of
their Affiliates, directors, officers or employees (in their capacities as such or relating to their employment, services or relationship with the Company or any Company Subsidiary). 

(b) There is no judgment, decree, injunction or order against or applicable to the Company or any Company Subsidiary, any of their assets
or properties, or, to the Knowledge of the Company, any of their Affiliates, directors, officers or employees (in their capacities as such or relating to their employment, services or relationship with the Company or any Company Subsidiary).

 4.15 Compliance with Laws. 
 (a) The Company and each Company Subsidiary is in compliance with, is not in violation of, and has not received any written notice of, or, to the Knowledge of the Company, any oral communication
regarding, any violation, investigation relating to any violation or threat to be charged with any violation with respect to, any Legal Requirement with respect to the Company or any Company Subsidiary, the conduct of their businesses or the
ownership or operation of their businesses or assets, except for failures to comply or violations (if any) that are not, in the aggregate, reasonably likely to have a material effect on the business, assets, properties and operations of the Company
and the Company Subsidiaries taken as a whole. This Section 4.15 does not relate to Company Benefit Plans or employee benefit matters (which are solely the subject of Section 4.19), Tax matters (which are solely the subject
of Section 4.18) or environmental matters (which are solely the subject of Section 4.17). 
 (b) The
Company and the Company Subsidiaries have not, nor, to the Company’s Knowledge, has any director, officer, agent, employee or other Person acting on behalf of the Company or any Company Subsidiary, in the course of its actions for, or on behalf
of, the Company or any Company Subsidiary: (i) directly or indirectly used any funds of the Company or any Company Subsidiary for any unlawful contribution, unlawful gift, unlawful entertainment or other unlawful expenses relating to political
activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee or to any foreign or domestic political parties or campaigns from the Company’s or any Company Subsidiary’s funds;
(iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee. 
 4.16 Intellectual Property. 

(a) The Company owns all Company Intellectual Property free and clear of any Encumbrances (other than Permitted Encumbrances). The Company
has not received any written notice challenging the Company’s exclusive ownership of any Company Intellectual Property or the validity or enforceability of any Company Intellectual Property, nor, to the Knowledge of the Company, is any such
challenge threatened. To the Knowledge of the Company, all license or rights transfer agreements regarding Third-Party Intellectual Property are in full force and effect and no party to any such license or rights transfer agreement is in breach
thereof or default thereof. 

  
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 (b) The Company Intellectual Property together with the Third-Party Intellectual Property
constitutes all of the Intellectual Property necessary to operate the Company’s business as currently conducted. 
 (c) To
the Knowledge of the Company, the Company has not infringed, misappropriated, or otherwise violated (collectively, “Infringed”) any Intellectual Property Right of any Person. No claims of Infringement are pending or, to the
Knowledge of the Company, threatened against the Company, that are, in the aggregate, reasonably likely to have a material effect on the business, assets, properties and operations of the Company and the Company Subsidiaries taken as a whole. No
Company Intellectual Property is subject to any Proceedings or subject to any outstanding orders (in each case involving the Company or any Company Subsidiary) that restrict in any manner the use, transfer or licensing thereof by the Company or any
Company Subsidiary or may affect the validity, use or enforceability of the Company Intellectual Property that are, in the aggregate, reasonably likely to have a material effect on the business, assets, properties and operations of the Company and
the Company Subsidiaries taken as a whole. 
 (d) To the Knowledge of the Company, no Person has Infringed any of the
Intellectual Property Rights applicable to the Company Intellectual Property. 
 4.17 Environmental Matters. Except as
set forth in Schedule 4.17 of the Company Disclosure Schedules: 
 (a) The Company and the Company Subsidiaries are, and
since June 28, 2008, have been in compliance in all material respects with all Environmental Laws. 
 (b) The Company and
the Company Subsidiaries possess and are in compliance in all material respects with, and have timely sought renewal of, all Environmental Permits required in connection with the operations of the Company or any of the Company Subsidiaries as they
are currently being conducted, and, to the Knowledge of the Company, no event has occurred or condition or state of facts exists which constitutes or after notice or lapse of time or both, would result in revocation or termination of, or would
materially and adversely affect the rights of the Company or any of the Company Subsidiaries under, any such Environmental Permits. 
 (c) Neither the Company nor any of the Company Subsidiaries has received any written notice, demand, claim, request for information, citation, summons or order, and there are no Proceedings pending or, to
the Knowledge of the Company, threatened against the Company or any of the Company Subsidiaries arising out of or relating to (i) any material liability pursuant to any applicable Environmental Law, (ii) violations of or noncompliances
with any Environmental Law by the Company or any of the Company Subsidiaries in any material respect, or (iii) Damages reasonably expected to be in excess of $50,000 relating to Hazardous Materials. 

(d) Neither the Company nor any of the Company Subsidiaries have Released any Hazardous Materials on, at or under any Company Real Estate
or any other property and no Hazardous Materials are present at any Company Real Estate for which the Company or any Company Subsidiary reasonably could be expected to bear liability, in each case except in compliance in all material respects with
applicable Environmental Laws. 
 (e) Neither the Company nor any Company Subsidiary has arranged for storage, treatment or
disposal of Hazardous Materials at, or was the owner or operator of, any location that is subject to Remediation for which the Company or any Company Subsidiary may have any material liability. 

  
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 (f) The Company and each of the Company Subsidiaries have made available to Buyer prior to
the Agreement Date copies of all environmental site assessments in their possession or control relating to the Company Real Estate or any property or location formerly owned, operated, leased or occupied by them. 

(g) Notwithstanding any of the representations and warranties contained elsewhere in this Agreement, the representations and warranties
made in this Section 4.17 are the only representations and warranties of the Company with respect to environmental matters. 
 4.18 Taxes. 
 (a) The Company and the Company Subsidiaries have timely
(taking into account any applicable extensions) filed all material Tax Returns required to be filed by them; the Company and the Company Subsidiaries have timely (taking into account any applicable extensions) paid all material Taxes that were shown
as due on such Tax Returns, and all such Tax Returns were correct and complete in all material respects. 
 (b) The Company and
the Company Subsidiaries have withheld and paid all material Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, shareholder of the Company or other third
party. 
 (c) The unpaid Taxes of the Company and the Company Subsidiaries did not, as of the Interim Balance Sheet Date,
materially exceed the accruals and reserves for Taxes (excluding accruals and reserves for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the Interim Balance Sheet. Since the Interim Balance Sheet
Date, neither the Company nor any of the Company Subsidiaries has incurred any material liability for Taxes other than Taxes incurred in the ordinary course of business. 
 (d) The Company has delivered or made available to Buyer copies of all U.S. federal income tax returns filed by the Company for all Tax years ending on or after December 31, 2008, and all examination
reports and statements of deficiencies assessed against or agreed to by the Company or any Company Subsidiary within the last three years. 
 (e) There is (i) no written claim for Taxes currently being asserted against the Company or any Company Subsidiary, (ii) no lien for unpaid Taxes against the property of the Company or any
Company Subsidiary other than liens for Taxes not yet delinquent, (iii) no audit, other examination or matter in controversy with respect to Taxes currently being conducted by a Tax Authority against the Company or any Company Subsidiary,
(iv) no extension of any statute of limitations on the assessment of any Taxes granted by the Company or any Company Subsidiary currently in effect, and (v) no waiver of any statute of limitations in respect of Taxes made by the Company or
any Company Subsidiary. 
 (f) No written claim has been received by the Company or any Company Subsidiary from any Tax
Authority in a jurisdiction where the Company or such Company Subsidiary does not file Tax Returns that the Company or such Company Subsidiary is or may be subject to taxation by that jurisdiction. 

(g) Neither the Company nor any Company Subsidiary has received from a Tax Authority any written notice indicating an intent to open an
audit or other review with respect to Taxes with respect to the Company or a Company Subsidiary. 

  
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 (h) Neither the Company nor any Company Subsidiary is party to any Tax sharing or Tax
allocation agreement. 
 (i) In the two years prior to the Agreement Date, neither the Company nor any of the Company
Subsidiaries has distributed stock of another Person, or has had its stock distributed by another Person, in a transaction intended to qualify for nonrecognition of gain or loss under Section 355 of the Code. 

(j) Neither the Company nor any Company Subsidiary is or has ever been a member of any consolidated affiliated, unitary or aggregate
group for Tax purposes, other than a group of which the common parent is the Company or a Company Subsidiary. Neither the Company nor any Company Subsidiary has liability of any Person (other than the Company or any Company Subsidiary) under
Treasury Regulation Section 1.1502-6 (or any corresponding or similar provision of state or local Tax law), as a transferee or successor, by contract or otherwise. 
 (k) Neither the Company nor any of the Company Subsidiaries will be required to include any income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date as a result of any: (i) change in method of accounting for any taxable period ending on or prior to the Closing Date, (ii) “closing agreement” as described in Section 7121 of the Code (or any
corresponding or similar provision of state, local, or non-U.S. income Tax law) executed on or prior to the Closing Date, (iii) intercompany transaction or excess loss account described in Treasury Regulations under Section 1502 of the
Code (or any corresponding or similar provision of state, local or non-U.S. income Tax law), (iv) installment sale or open transaction disposition made on or prior to the Closing Date, (v) prepaid amount received on or prior to the Closing
Date, and (vi) election under Section 108(i) of the Code. 
 (l) Notwithstanding any of the representations and
warranties contained elsewhere in this Agreement, the representations and warranties contained in this Section 4.18 and Section 4.19 are the only representations and warranties of the Company with respect to Taxes.

 4.19 Employee Benefit Plans. 
 (a) Schedule 4.19(a) of the Company Disclosure Schedules contains a true, correct and complete list of all Company Benefit Plans as of the Agreement Date. The term “Company Benefit
Plans” means all employee welfare benefit plans and employee pension benefit plans as such terms are defined in sections 3(1) and 3(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”),
and all other employee benefit agreements, arrangements or understandings, whether formal or informal (and whether or not subject to ERISA), including, without limitation, any plan that provides retirement income or results in deferrals of income by
employees for periods extending to their terminations of employment or beyond, any plan that provides medical, surgical or hospital care benefits or benefits in the event of sickness, accident, disability or death, any deferred compensation plan,
incentive compensation plan, bonus plan or arrangement, stock ownership plan, stock option plan, stock purchase plan, stock award plan, phantom stock plan, golden parachute agreement, change of control agreement, severance pay plan, dependent care
plan, cafeteria plan, employee assistance program, scholarship program, retention incentive agreement, vacation policy or paid leave policy, disability plan, death benefit plan, life insurance plan and other similar plans, agreements, arrangements
and understandings that are maintained or contributed to by the Company or a Company Subsidiary or with respect to which the Company or a Company Subsidiary may have any liability, contingent or otherwise. The Company has posted in the Data Room a
list of all employees of the Company and the Company Subsidiaries, as of the Agreement Date, that includes the following information for each such employee: name, job title, date of hire, location, salary or wage rate, any other compensation
components including bonuses or commissions, and leave status. 

  
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 (b) Neither the Company nor any trade or business (whether or not incorporated) that is
treated as a single employer together with the Company under section 414 of the Code (each, an “ERISA Affiliate”) has ever adopted, sponsored, contributed to, maintained or had any liability with respect to an employee
pension benefit plan as defined in section 3(2) of ERISA that has ever been subject to Title IV of ERISA or section 412 of the Code. 
 (c) With respect to each Company Benefit Plan, the Company has provided or made available to Buyer copies of each of the following documents: 

(i) the written document setting forth the terms of the Company Benefit Plan and all amendments thereto (or if the Company
Benefit Plan or any part thereof is not set forth in a written document, a description thereof); 
 (ii) the
three most recent annual Form 5500 reports filed with the Internal Revenue Service; 
 (iii) the most recent
summary plan description and summaries of material modifications thereto; 
 (iv) the trust agreement, group
annuity contract or other funding agreement that provides for the funding of the Company Benefit Plans, if any; and 
 (v) the most recent financial statement. 
 (d) Any Company Benefit Plan intended
to be qualified under section 401(a) of the Code either (i) has been determined by the Internal Revenue Service to be qualified under section 401(a) of the Code, (ii) has an applicable remedial amendment period that will not have
ended before the Closing Date or (iii) has been established under a prototype plan with respect to which the sponsor of such prototype plan has obtained an opinion letter from the Internal Revenue Service concerning the qualified status of such
prototype plan under section 401(a) of the Code and the Company or the Company Subsidiary which has adopted such plan may rely upon such opinion letter. To the Knowledge of the Company, no facts have occurred that if known by the Internal
Revenue Service could reasonably be expected to result in the disqualification of any of those plans. 
 (e) All contributions
required to be made with respect to any Company Benefit Plan on or prior to the Closing Date have been timely made. 
 (f) No
Company Benefit Plan provides medical, surgical, hospitalization, or life insurance benefits (whether or not insured by a third party) for employees or former employees of the Company or any Company Subsidiary for periods extending beyond their
retirements or other terminations of service, other than coverage mandated by applicable Legal Requirements, and no commitments have been made to provide such coverage. 
 (g) Neither the Company nor any other Person has engaged in a transaction that could reasonably expect to result in the imposition upon the Company of a civil penalty under sections 409 or 502(i) of
ERISA or a Tax under sections 4972, 4975, 4976 or 4980 of the Code with respect to any Company Benefit Plan. 

  
 - 16 -

 (h) Each Company Benefit Plan has been operated and administered in all material respects in
accordance with its terms and in compliance with the requirements prescribed by any and all applicable Legal Requirements (including, but not limited to, ERISA and the Code). 
 (i) There is no litigation, Proceeding, audit, examination or claim pending, or, to the Company’s Knowledge, threatened or contemplated, relating to any Company Benefit Plan (other than routine
claims for benefits). 
 (j) Except as set forth in Schedule 4.19(a)(j) of the Company Disclosure Schedules, neither the
Company nor any ERISA Affiliate has ever adopted, sponsored, contributed to, had an obligation to contribute to, maintained or has any liability with respect to any plan that is or was a “multiemployer plan” as such term is defined in
section 3(37) of ERISA or any “multiple employer plan” as such term is defined in section 413(c) of the Code. 
 (k) Except as set forth in Schedule 4.19(k) of the Company Disclosure Schedules, neither the execution of this Agreement nor the consummation of the Acquisition will: (i) entitle any person to
any payment, forgiveness of indebtedness, vesting, distribution, or increase in benefits under or with respect to any Company Benefit Plan (or any other program or arrangement), (ii) otherwise trigger any acceleration of vesting or payment of
benefits under or with respect to any Company Benefit Plan, or (iii) result in any amount under a Company Benefit Plan (or any other program or arrangement) that may potentially be an “excess parachute payment” under section 280G of
the Code and the Treasury Regulations thereunder (or any corresponding provision of state, local or non-U.S. Tax law), determined without regard to whether such payment or acceleration of vesting is “reasonable compensation” for services
performed or to be performed in the future. 
 (l) Each Company Benefit Plan (and any other program or arrangement) that is a
nonqualified deferred compensation plan within the meaning of section 409A of the Code is identified as such in Schedule 4.19(l) of the Company Disclosure Schedules. Each plan, program, or arrangement (if any) identified in Schedule
4.19(l) of the Company Disclosure Schedules has at all times been operated and maintained in accordance with the requirements of Notice 2005-1, the proposed and/or final regulations under section 409A of the Code and a good faith, reasonable
interpretation of section 409A of the Code with respect to amounts deferred (within the meaning of section 409A of the Code) after December 31, 2004. 
 (m) Notwithstanding any of the representations and warranties contained elsewhere in this Agreement, the representations and warranties contained in this Section 4.19(a) through
(l) are the only representations and warranties of the Company with respect to the Company Benefit Plans and employee benefit matters. 
 4.20 Labor; Employees. 
 (a) There is no unfair labor practice charge or
complaint pending or, to the Company’s Knowledge, threatened, with regard to employees of the Company or any Company Subsidiary. 
 (b) There is no labor strike, slowdown, work stoppage or other labor controversy in effect or, to the Company’s Knowledge, threatened against the Company or any Company Subsidiary, and neither the
Company nor any Company Subsidiary has, within the last two years prior to the Agreement Date, had or been threatened with any labor strike, slowdown, work stoppage or other labor controversy. To the Knowledge of the Company, there is no
organizational effort currently being made or threatened by or on behalf of any labor union with respect to employees of the Company or any Company Subsidiary. Neither the Company nor any Company Subsidiary is party to or bound by any collective
bargaining contract or agreement. 

  
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 (c) Neither the Company nor any Company Subsidiary is a party to, or is otherwise bound by,
any consent decree with any Governmental Entity relating to employees or employment practices of the Company or any Company Subsidiary. 
 (d) The Company and the Company Subsidiaries are in compliance in all material respects with all applicable agreements, contracts and policies relating to employment, employment practices, wages, hours
and terms and conditions of employment of the employees. The Company and the Company Subsidiaries are in compliance with all Legal Requirements pertaining to employment, including Legal Requirements regarding the payment of wages or other
compensation, employment discrimination and harassment, occupational safety and health, and any and all other Legal Requirements governing or pertaining to the terms and conditions of employment, except for failures to comply that are not, in the
aggregate, reasonably likely to have a material effect on the business, assets, properties and operations of the Company and the Company Subsidiaries taken as a whole. No Proceeding is pending nor, to the Knowledge of the Company, is any Proceeding
threatened against the Company or the Company Subsidiaries alleging any failure to so comply. To the Knowledge of the Company, as of the Agreement Date no executive, key employee or work crew has any plans to terminate employment with the Company or
a Company Subsidiary. 
 (e) To the Company’s Knowledge, there are no pending claims against the Company under any workers
compensation plan or policy or for long-term disability. 
 4.21 Insurance. 

(a) Schedule 4.21 of the Company Disclosure Schedules contains a list of all Company insurance policies and bonds currently in
effect. 
 (b) There is no claim pending as of the Agreement Date under any of such policies or bonds. All premiums due and
payable under all such policies and bonds have been timely paid and the Company is otherwise in material compliance with the terms of such policies and bonds. All such policies and bonds remain in full force and effect, and the Company has no
Knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. As of the Agreement Date, the Company maintains and, immediately prior to the Closing will maintain, insurance covering its properties,
operations, personnel and business in amounts consistent with the past practice of the Company. 
 4.22 Permits. The
Company and the Company Subsidiaries hold all Permits that are required to operate their businesses as currently operated, except for any such Permits the absence of which would not reasonably be expected to have a Material Adverse Effect on the
Company and Company Subsidiaries. There has not occurred any default by the Company or a Company Subsidiary under any such Permit, nor will one result from the execution of this Agreement or the Closing, except in each case for defaults that are
not, in the aggregate, reasonably likely to have a material effect on the business, assets, properties and operations of the Company and the Company Subsidiaries taken as a whole. Since January 1, 2010, the Company has received no written
notice, or to the Knowledge of the Company, oral notice, from any Governmental Entity that such Governmental Entity intends to revoke, not renew or adversely modify any such Permit in a manner that would be reasonably likely to have a Material
Adverse Effect on the Company and the Company Subsidiaries. 

  
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 4.23 Affiliate Transactions. Except as set forth in Schedule 4.23 of the
Company Disclosure Schedules, there are no Contracts relating to transactions between the Company, on the one hand, and any Seller, director or executive officer thereof or any member of such Seller’s, director’s or executive
officer’s immediate family, or any Affiliate or Person controlled by such Seller, director or executive officer on the other hand. 
 4.24 Capital Commitments. Except as set forth in Schedule 4.24 of the Company Disclosure Schedules or as set forth in the Capital Expenditures Budget, there is no outstanding authorization
for expenditure or other commitment for capital expenditure which is binding on the Company or any Company Subsidiary and which the Company reasonably anticipates will require expenditure by the Company and the Company Subsidiaries, collectively,
after the Closing Date. 
 4.25 Customers and Suppliers. 

(a) Except as set forth in Schedule 4.25(a) of the Company Disclosure Schedules, the Company has not received any written or, to
the Company’s Knowledge, oral notice that any of the 10 largest customers of the Company and the Company Subsidiaries set forth in Schedule 4.25(a) of the Company Disclosure Schedules (which lists the 10 largest customers of the Company
and the Company Subsidiaries, by aggregate dollar value of purchases from the Company and the Company Subsidiaries, for the year ended December 31, 2011) has terminated or intends to terminate or materially reduce the volume or pricing of its
business with the Company or the Company Subsidiaries and, to the Knowledge of the Company, no such customer has threatened to take any such action. 
 (b) Except as set forth in Schedule 4.25(b) of the Company Disclosure Schedules, the Company has not received any written or, to the Company’s Knowledge, oral notice that any of the 10 largest
suppliers of the Company and the Company Subsidiaries set forth in Schedule 4.25(b) (which lists the 10 largest suppliers of the Company and the Company Subsidiaries, by aggregate dollar value of purchases by the Company and the Company
Subsidiaries, for the year ended December 31, 2011) has terminated or intends to terminate or materially reduce the volume or pricing of its business with the Company or the Company Subsidiaries and, to the Knowledge of the Company, no such
supplier has threatened to take any such action. 
 4.26 Finders’ Fees. Except as set forth in Schedule 4.26
of the Company Disclosure Schedules, the Company is not obligated for the payment of any fees or expenses of any investment banker, broker, advisor, finder or similar party in connection with the origin, negotiation or execution of this Agreement,
any of the other agreements contemplated hereby to which the Company is or will be a party, or in connection with the transactions contemplated hereby by reason of any act taken on behalf of the Company. 

ARTICLE V 

REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND BUYER 
 5.1 Representations and Warranties of the Sellers. Except as disclosed by the Sellers in the Company Disclosure Schedules, each Seller represents and warrants to Buyer, severally and not jointly,
solely with respect to such Seller, that the statements contained in this Section 5.1 are true, correct and complete as of the Agreement Date (except to the extent any of the following statements speak expressly as of an earlier or later
date). 

  
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 (a) Authority and Enforceability. Such Seller has the right, power, authority, and
capacity necessary to execute and deliver this Agreement and each other Transaction Document to which such Seller is a party and to perform and consummate the transactions contemplated hereunder and thereunder. Such Seller has taken all action
necessary to duly authorize the execution and delivery of this Agreement and each other Transaction Document to which such Seller is a party, the performance of its obligations hereunder and thereunder and the consummation of the transactions
contemplated hereunder and thereunder. This Agreement has been, and at Closing each other Transaction Document to which such Seller is party will be, duly authorized, executed and delivered by, and this Agreement is, and at Closing each other
Transaction Document to which such Seller is a party will be a valid and binding obligation of such Seller, enforceable against such Seller in accordance with its terms, subject only to the effect, if any, of (i) bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium or other similar laws relating to or affecting the rights or remedies of creditors or (ii) general principles of equity, whether considered in a proceeding in equity or at law (including the
possible unavailability of specific performance or injunctive relief). 
 (b) Ownership of the Shares. Such Seller is the
record holder and beneficial owner of the number of Shares or Company Options set forth next to such Seller’s name in Exhibit 2.1 attached hereto under the column titled “Number of Shares” or “Number of Company
Options”, as applicable, and in each case owns such Shares or Company Options free and clear of all Encumbrances except (i) transfer restrictions under state or federal securities laws, (ii) under the Company Stockholders
Agreement and (iii) the terms and conditions relating to Company Options. Except for the number of shares of Company Common Stock and Company Options described in the previous sentence, such Seller does not hold, of record or beneficially, any
shares of capital stock of the Company, any options, warrants, or other rights to purchase or otherwise acquire any shares of capital stock of the Company, or any other securities of any kind of the Company. Other than the Company Stockholders
Agreement, the Shares and Company Options owned by such Seller are not subject to any voting agreement or other Contract restricting or otherwise relating to the voting, distribution rights or disposition of such Shares and Company Options.

 (c) Non-Contravention. The execution and delivery of this Agreement by such Seller does not, the execution and
delivery of each of the other Transaction Documents to which such Seller is or will be a party do not and will not, the consummation of the transactions contemplated hereby and thereby will not, and the performance by such Seller of its obligations
hereunder and thereunder do not and will not conflict with or result in any violation of or default under (i) any provision of the organizational documents of such Seller (if such Seller is an entity), (ii) any Contract of such Seller or
any Contract applicable to any of such Seller’s properties or assets, or (iii) any Legal Requirements applicable to such Seller or to any of such Seller’s properties or assets, except in the case of clauses (ii) or (iii) for
such conflicts, violations or defaults, as are not, in the aggregate, reasonably likely to materially impede or delay such Seller’s ability to consummate the transactions contemplated by this Agreement in accordance with its terms. 

(d) Consents. No Approval of any Governmental Entity or any other Person is required by or with respect to such Seller in
connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for: (i) any Approval required under the HSR Act and (ii) such other consents, authorizations, filings,
approvals, notices and registrations which, if not obtained or made, would not be material to such Seller’s ability to consummate the Acquisition or to perform its obligations under this Agreement. 

(e) Litigation. There are no Proceedings pending or, to such Seller’s actual knowledge, threatened against such Seller
(i) that question the validity of this Agreement or any action taken or to be taken by such Seller in connection with, or which seek to enjoin or obtain monetary damages in respect of, this Agreement or (ii) that would reasonably be
expected to materially prevent, impede or otherwise adversely affect the ability of such Seller to perform its obligations under and consummate the transactions contemplated by this Agreement. 

  
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 (f) Finder’s Fees. Such Seller is not obligated for the payment of any fees or
expenses of any investment banker, broker, advisor, finder or similar party in connection with the origin, negotiation or execution of this Agreement, any of the other agreements contemplated hereby to which such Seller is or will be a party, or in
connection with the transactions contemplated hereby by reason of any act taken on behalf of such Seller. 
 5.2
Representations and Warranties of Buyer. Buyer represents and warrants to the Company and the Sellers that the statements contained in this Section 5.2 are true, correct and complete as of the Agreement Date (except to the extent
any of the following statements speak expressly as of an earlier or later date). 
 (a) Organization and Standing. Buyer
is a corporation duly organized, validly existing and in good standing under the laws of the State of Indiana and has full corporate power and authority to conduct its business as currently being conducted and to own, lease and operate its
properties as such are currently owned, leased and operated. 
 (b) Authority and Enforceability. Buyer has the relevant
corporate power and authority necessary to execute and deliver this Agreement and each other Transaction Document to which it is a party and to perform and consummate the transactions contemplated hereunder and thereunder. Buyer has taken all
corporate action necessary to duly authorize the execution and delivery of this Agreement and each other Transaction Document to which it is a party, the performance of its obligations hereunder and thereunder and the consummation of the
transactions contemplated hereunder and thereunder. This Agreement has been, and at Closing each other Transaction Document to which Buyer is party will be, duly authorized, executed and delivered by, and this Agreement is, and at Closing each other
Transaction Document to which Buyer is a party will be a valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, subject only to the effect, if any, of (i) bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium or other similar laws relating to or affecting the rights or remedies of creditors or (ii) general principles of equity, whether considered in a proceeding in equity or at law (including the possible
unavailability of specific performance or injunctive relief). 
 (c) Non-Contravention. The execution and delivery of
this Agreement by Buyer do not, the execution and delivery of each of the other Transaction Documents to which Buyer is or will be a party, the consummation of the transactions contemplated hereby and thereby will not, and the performance by Buyer
of its obligations hereunder and thereunder do not and will not conflict with, or result in any violation of or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any Person under, or require any consent, approval or waiver from any Person pursuant to, (i) any provision of the
articles or certificate of incorporation or bylaws or other equivalent organizational or governing documents, as applicable, of Buyer, in each case as amended to date, (ii) any Legal Requirements applicable to Buyer or to any of its material
properties or assets or (iii) any written or, to the knowledge of Buyer, oral request of any Governmental Entity. 
 (d)
Consents. No Approval of any Governmental Entity or any other Person is required by or with respect to Buyer in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except
for: (i) any Approval required under the HSR Act, and (ii) such other consents, authorizations, filings, approvals, notices and registrations which, if not obtained or made, would not be material to Buyer’s ability to consummate the
Acquisition or to perform its obligations under this Agreement. 

  
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 (e) Litigation. There are no Proceedings pending or, to Buyer’s actual
knowledge, threatened against Buyer (i) that question the validity of this Agreement or any action taken or to be taken by Buyer in connection with, or which seek to enjoin or obtain monetary damages in respect of, this Agreement or
(ii) that would reasonably be expected to materially prevent, impede or otherwise adversely affect the ability of Buyer to perform its obligations under and consummate the transactions contemplated by this Agreement. 

(f) Finder’s Fees. Buyer is not obligated for the payment of any fees or expenses of any investment banker, broker, advisor,
finder or similar party in connection with the origin, negotiation or execution of this Agreement, any of the other agreements contemplated hereby to which Buyer is or will be a party, or in connection with the transactions contemplated hereby by
reason of any act taken on behalf of Buyer. 
 (g) Availability of Funds; Financing. Immediately prior to the Closing,
Buyer will have sufficient immediately available funds to enable it to pay to the Sellers the Purchase Price and consummate the Acquisition on the terms and conditions set forth herein. 

(h) Investment Intention. Buyer is acquiring the Shares for its own account, for investment purposes only, and not with a view to
the distribution (as such term is used in Section 2(11) of the Securities Act) thereof. Buyer understands that the Shares have not been registered under the Securities Act and cannot be sold unless subsequently registered under the Securities
Act or an exemption from registration is available. Buyer is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. 

(i) Solvency. Buyer is not entering into the transactions contemplated by this Agreement with the actual intent to hinder, delay,
or defraud either present or future creditors. At and immediately after the Closing, and after giving effect to the Closing and the other transactions contemplated hereby, Buyer (i) will be solvent (in that both the fair value of its assets
will not be less than the sum of its debts and the present fair saleable value of its assets will not be less than the amount required to pay its probable liability on its debts as they become absolute and matured); (ii) will have adequate
capital and liquidity with which to engage in its business; and (iii) will not have incurred and does not plan to incur debts beyond its ability to pay as they become absolute and matured. 

ARTICLE VI 

CONDUCT PRIOR TO THE CLOSING 
 6.1 Conduct of Business of the Company. During the period from the Agreement Date and continuing until the earlier of the termination of this Agreement and the Closing (the “Pre-Closing
Period”): 
 (a) the Company shall, and shall cause the Company Subsidiaries to, conduct their businesses in the
ordinary course consistent with past practice and in compliance in all material respects with all applicable Legal Requirements (except to the extent expressly provided otherwise in this Agreement); and 

(b) the Company shall, and shall cause each of the Company Subsidiaries to, (i) pay all of its debts and Taxes before they shall
become delinquent, subject to good faith disputes over such debts or Taxes, (ii) pay or perform its other obligations under Material Contracts consistent with past practices and policies, (iii) use commercially reasonable efforts
consistent with past practice and policies to collect accounts receivable when due and not extend credit outside of the ordinary course of business and (iv) use commercially reasonable efforts consistent with past practice and policies to
preserve intact its present business organizations, keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees and others having business
dealings with it. 

  
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 6.2 Restrictions on Conduct of Business of the Company. Without limiting the
generality or effect of the provisions of Section 6.1, and except as set forth on Schedule 6.2 of the Company Disclosure Schedules, during the Pre-Closing Period, the Company shall not do or permit any Company Subsidiary to do any
of the following (except to the extent expressly provided otherwise in this Agreement) without the prior written consent of Buyer, which consent shall not be unreasonably withheld, conditioned or delayed: 

(a) Charter Documents. Cause or permit any amendments to the Organizational Documents or the Company Subsidiary Organizational
Documents; 
 (b) Dividends; Changes in Capital Stock. Declare or pay any non-cash dividends on or make any other
non-cash distributions in respect of any of the capital stock of the Company, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares
of its capital stock, or repurchase or otherwise acquire, directly or indirectly, any shares of its capital stock, other than (i) from former employees, non-employee directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service or (ii) the issuance of shares of Company Common Stock pursuant to the exercise of Company Options; 
 (c) Material Contracts. Terminate, materially amend or otherwise modify or extend any of the terms of any Material Contracts of the Company or the Company Subsidiaries, intentionally breach or
default, or intentionally waive any breach or default, under any of the terms of any Material Contracts of the Company or the Company Subsidiaries, or enter into any Contract which would be deemed a Material Contract if existing on the execution
date of this Agreement; provided, that this provision shall not require the Company to seek or obtain Buyer’s consent in order to set or change the prices at which the Company or a Company Subsidiary provides services to current
customers in the ordinary course of business and consistent with the applicable Material Contract; 
 (d) Issuance of
Securities. Issue, deliver or sell or authorize or propose the issuance, delivery or sale of, or purchase or propose the purchase of, any shares of Company Common Stock or other equity interests in the Company or securities convertible into, or
subscriptions, rights, warrants or options to acquire shares of Company Common Stock or other equity interests in the Company, or other Contracts of any character obligating it to issue any such shares or other convertible securities, other than the
issuance of shares of Company Common Stock pursuant to the exercise of Company Options; 
 (e) Loans and Investments.
Make any loans or advances to, or any investments in or capital contributions to, any Person, or forgive or discharge in whole or in part any outstanding loans or advances, or prepay any indebtedness for borrowed money; provided,
however, that the Company or a Company Subsidiary may make payments on any of its Debt in the ordinary course of business; 
 (f) Intellectual Property. Transfer or license to any Person any rights to any Company Intellectual Property; 
 (g) Dispositions. Sell, lease, license or otherwise dispose of or encumber (other than Permitted Encumbrances) any of its material properties or assets or enter into any Contract with respect to
the foregoing; 

  
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 (h) Indebtedness. Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt securities of others, other than drawing on existing lines of credit in the ordinary course of business; 

(i) Payment of Obligations. Pay, discharge or satisfy any claim or liability arising otherwise than in the ordinary course of
business (other than the payment, discharge, or satisfaction of liabilities reflected in or reserved against in the Financial Statements); 
 (j) Employee Benefit Plans; Pay Increases. Terminate, adopt or materially amend any Company Benefit Plan or materially amend any compensation, benefit, entitlement, grant or award provided or made
under any such plan, except in each such case as required under ERISA or other applicable Legal Requirements or as necessary to maintain the status of such plan under the Code, or pay any special bonus or special remuneration to any director,
executive officer or employee outside of the ordinary course of business; 
 (k) Lawsuits; Settlements. Settle or agree
to settle any material pending or threatened Proceeding against the Company or any Company Subsidiary; 
 (l) Taxes. Make
or change any material election in respect of Taxes, adopt or change any material accounting method in respect of Taxes, enter into any Tax sharing or similar agreement, settle any material claim or assessment in respect of Taxes, or surrender any
right to claim a material refund of Taxes; 
 (m) Accounting. Change accounting methods or practices (including any
change in depreciation or amortization policies) or revalue any of its assets (including writing down the value of inventory or writing off notes or accounts receivable otherwise than in the ordinary course of business), except in each case as
required by changes in GAAP as concurred with its independent accountants; 
 (n) Mergers and Acquisitions. Consummate
any merger or consolidation with, or acquire all or substantially all of the assets of, any Person; 
 (o) Permits. Fail
to use commercially reasonable efforts to maintain all material Permits in effect on the Agreement Date and necessary or required for the ownership and operation of the business of the Company and the Company Subsidiaries; 

(p) Capital Expenditures. Make any capital expenditure other than capital expenditures contemplated by the Capital Expenditures
Budget; 
 (q) Encumbrances. Place or allow the creation of any Encumbrance (other than a Permitted Encumbrance) on the
properties or assets of the Company or the Company Subsidiaries; or 
 (r) Other. Take, or agree in writing to take, any
of the actions described in clauses (a) through (q) of this Section 6.2. 
 ARTICLE VII 

ADDITIONAL AGREEMENTS 
 7.1 Confidentiality; Public Disclosure. The Company, the Sellers and Buyer shall not, and shall cause their respective Affiliates and representatives not to, directly or indirectly, issue any press
release or other public statement relating to the terms of this Agreement or the transactions contemplated hereby or use any Party’s name or refer to any Party directly or in any media interview, advertisement,

  
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news release, press release or professional or trade publication, or in any print media, whether or not in response to an inquiry, without the prior written approval of Buyer and the
Sellers’ Representative (not to be unreasonably withheld, conditioned or delayed), unless required by law and except as reasonably necessary for the Company and Buyer to obtain the consents and approvals contemplated by this Agreement. Buyer
will allow the Sellers’ Representative a reasonable opportunity to review and comment, at least one Business Day prior to issuing any press release, public statement or other public announcement pertaining to this Agreement or the transactions
contemplated hereby. 
 7.2 Commercially Reasonable Efforts. Each of the Parties agrees to use its commercially
reasonable efforts, and to cooperate with each other Party, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, appropriate or desirable to consummate and make effective, in the most expeditious manner
practicable, the Acquisition and the other transactions contemplated hereby, and including to execute and deliver such other instruments and do and perform such other acts and things as may be necessary or reasonably desirable to cause the closing
conditions set forth in ARTICLE VIII to be satisfied and for effecting completely the consummation of the Acquisition and the other transactions contemplated hereby. 
 7.3 Third-Party Consents; Notices. The Company shall use commercially reasonable efforts to obtain prior to the Closing, and deliver to Buyer at or prior to the Closing, all Approvals described in
Schedule 7.3 of the Company Disclosure Schedules. 
 7.4 Access to Information. 

(a) During the Pre-Closing Period, the Company shall afford Buyer and its accountants, counsel and other representatives, upon reasonable
request, reasonable access during normal business hours to all of the Business Facilities, books, Contracts and records of the Company and the Company Subsidiaries. 
 (b) Subject to compliance with applicable Legal Requirements during the Pre-Closing Period, the Company shall confer from time to time as requested by Buyer with one or more representatives of Buyer to
discuss any material changes or developments in the operational matters of the Company and the general status of the ongoing operations of the Company. 
 (c) Following the Closing, the Company and Buyer shall afford the Sellers’ Representative, its Affiliates and their respective accountants, counsel and other representatives, upon reasonable request,
reasonable access during normal business hours to all of the properties, books, Contracts, employees and records of the Company and the Company Subsidiaries to the extent that such access is reasonably required by a Seller in connection with
(i) the preparation of any Seller’s Tax returns or with any audit thereof, (ii) any claim or Proceeding relating to the operation of the businesses of the Company and the Company Subsidiaries prior to the Closing, (iii) any
regulatory filing or matter or (iv) any matter relating to this Agreement or the transactions contemplated hereby. The Company shall maintain such books and records in reasonably accessible format and at reasonably accessible locations.

 (d) Following the Closing, Buyer shall, and shall instruct its and the Company’s employees to, at any Seller’s
reasonable request, cooperate with such Seller as may be reasonably required in connection with the investigation and defense of any claim or Proceeding relating to the business of the Company or any of the Company Subsidiaries that is brought
against such Seller or any of its Affiliates at any time after the Closing by any Person other than Buyer, the Company or any of their Affiliates or successors. 

  
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 7.5 Expenses. Whether or not the Acquisition is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such expense; provided, however, that Buyer shall pay any filing fees required under or in connection with the HSR
Act or any foreign antitrust or competition laws and the Company shall pay (a) any expenses incurred by the Sellers, as a group, prior to the Closing, and (b) the attorneys’ fees and related expenses, up to a total of $15,000, of one
counsel retained by Don Gawick, Tom Wilkins, Everett Michael Hobbs, John L. Dunn and Ed Keppler in connection with their review of this Agreement and the transactions contemplated hereby. 

7.6 Pay-Off Letters. The Company shall cause the lenders under the Loan Agreements to prepare and deliver to the Company and
Buyer, no later than one Business Day prior to the Closing Date, the Pay-Off Letters, which Pay-Off Letters shall be updated, as necessary, on the Closing Date to specify the aggregate amount of Debt under such Loan Agreements outstanding as of
immediately prior to the Closing. 
 7.7 Tax Matters. 

(a) Tax Returns. Except as otherwise provided in Section 7.7(h), 

(i) The Sellers’ Representative shall prepare and timely file (taking into account all valid extensions), or shall
cause to be prepared and timely filed (taking into account all valid extensions), any and all Tax Returns of the Company or a Company Subsidiary covering a Tax period ending on or before the Closing Date that are required to be filed after the
Closing Date (each, a “Pre-Closing Tax Return”), and each such Pre-Closing Tax Return shall be prepared in a manner consistent with past custom and practice except as otherwise required by applicable Legal Requirements or
fact. The Sellers’ Representative shall provide a copy of each such Pre-Closing Tax Return, together will all supporting documentation and workpapers, to Buyer for Buyer’s review and reasonable comment at least 30 days prior to the due
date (taking into account all valid extensions) for filing such Pre-Closing Tax Return. The Sellers’ Representative shall include any reasonable comments provided in writing by Buyer to the Sellers’ Representative at least five days prior
to the due date (taking into account all valid extensions) for filing such Pre-Closing Tax Return. Subject to the indemnification obligations of the Sellers pursuant to Section 11.2(b)(iii), the Company or a Company Subsidiary, as
applicable, shall be responsible for paying all Taxes reflected on a Pre-Closing Tax Return. 
 (ii) Buyer shall
prepare and timely file (taking into account all valid extensions), or shall cause to be prepared and timely filed (taking into account all valid extensions), any and all Tax Returns of the Company or a Company Subsidiary covering a Straddle Period
(each, a “Straddle Tax Return”), and each Straddle Tax Return shall be prepared in a manner consistent with past custom and practice except as otherwise required by applicable Legal Requirement or fact. Buyer shall provide a
copy of each such Straddle Tax Return, together will all supporting documentation and workpapers, to the Sellers’ Representative for the Sellers’ Representative review and reasonable comment at least 30 days prior to the due date (taking
into account all valid extensions) for filing such Straddle Tax Return. Buyer shall include any reasonable comments provided in writing by the Sellers’ Representative to Buyer at least five days prior to the due date (taking into account all
valid extensions) for filing such Straddle Tax Return. Subject to the indemnification obligations of the Sellers pursuant to Section 11.2(b)(iii), the Company or a Company Subsidiary, as applicable, shall be responsible for paying all
Taxes reflected on a Straddle Tax Return. 

  
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 (b) Amended Tax Returns. Unless required by Legal Requirements or a Tax Authority,
Buyer shall not, and shall not cause or permit any of its Affiliates, the Company, or any Company Subsidiary to, (i) amend any Tax Return of the Company or any Company Subsidiary that covers a Tax period ending on or before the Closing Date or
a Straddle Period, or (ii) make any Tax election that has retroactive effect to any such Tax period or Straddle Period, in each case without the prior written consent of the Sellers’ Representative. 

(c) Allocation of Straddle Period Taxes. For purposes of Section 11.2(b)(iii), the portion of Taxes attributable to a
Straddle Period that are allocated to the Pre-Closing Tax Period of such Straddle Period shall, except as otherwise provided in Section 7.7(d), be determined as follows: 

(i) In the case of any real property, personal property, ad valorem and similar Taxes (“Property
Tax”), the amount of such Property Tax attributable to the Pre-Closing Tax Period of such Straddle Period shall be deemed to be the amount of such Property Tax for the entire Straddle Period, multiplied by a fraction, the numerator of
which is the number of days in such Straddle Period ending on and including the Closing Date, and the denominator of which is the number of total days in the entire Straddle Period. 

(ii) In the case of all other Taxes not described in Section 7.7(c)(i) (which, for the avoidance of doubt,
includes any Tax based on income, sales, revenue, production or similar items), the amount any such Tax that is attributable to the Pre-Closing Tax Period of such Straddle Period shall be determined based on an interim closing of the books as of and
including the Closing Date; provided, however, that exemptions, allowances or deductions that are calculated on an annual basis (including depreciation and amortization deductions) shall be allocated between the Pre-Closing Tax Period
of such Straddle Period and the remainder of such Straddle Period in proportion to the number of days in the Pre-Closing Tax Period of such Straddle Period and the number of days in the remainder of such Straddle Period. 

(d) Deductions for Option Payments. Notwithstanding anything contained in this Agreement to the contrary, unless otherwise
required by applicable Legal Requirements, any Tax deductions attributable to or arising from the Option Payments shall (i) only be included and claimed on a Pre-Closing Tax Return or Straddle Tax Return, as the case may be, and (ii) be
allocated solely to the Pre-Closing Tax Period. 
 (e) Refunds. The amount or economic benefit of any refund (whether in
cash or as a credit against or offset to any Tax) of any Tax of the Company or any Company Subsidiary attributable to any Pre-Closing Tax Period (unless such refund is already reflected in Net Working Capital used to determine the Purchase Price)
received by Buyer, the Company, any Company Subsidiary or any of their respective Affiliates shall be for the account of the Sellers. Any such amount (including any interest thereon, net of any Taxes) shall be paid by Buyer to the Sellers’
Representative within five days after any such refund is received, credited or applied as an offset, as the case may be. Notwithstanding the foregoing, any and all refunds or credits attributable to any loss or credit in a Tax period (or portion of
a Straddle Period) beginning after the Closing Date applied (e.g., as a carryback) to income in a Pre-Closing Tax Period shall be for the account of Buyer. For the avoidance of doubt, this Section 7.7(e) does not require the Sellers to
be compensated or otherwise reimbursed for the economic or Tax benefit realized by Buyer, the Company, any Company Subsidiary or any of their respective Affiliates from the use in a Tax period (or portion of a Straddle Period) beginning after the
Closing Date of any net operating loss or credit carryforwards of the Company or any Company Subsidiary attributable to any Pre-Closing Tax Period. 

  
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 (f) Tax Cooperation. Each Party shall (and shall cause its Affiliates) to provide the
other Parties with such assistance as may reasonably be requested by the other such Party in connection with the preparation of any Tax Return of or with respect to a Company or a Company Subsidiary or during the course of any, audit, investigation,
or other examination by a Tax Authority or any judicial or administrative proceeding relating to Taxes of or attributable to a Company or a Company Subsidiary. Such cooperation shall include the retention and (upon the request of the other Party)
the provision of records and information that are reasonably relevant to any such Tax Returns or audit, examination, or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. Buyer agrees (i) to retain, and, following the Closing, to cause the Company and each Company Subsidiary to retain, all books and records with respect to Tax matters relating to the Company or any Company
Subsidiary for any Tax period (or portion thereof) beginning on or before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by the Sellers’ Representative, any extensions thereof) of the respective
Tax period, and to abide by all record retention agreements entered into with any Tax Authority, and (ii) to give the Sellers’ Representative reasonable written notice prior to transferring, destroying, or discarding any such books and
records and, if the Sellers’ Representative so requests, Buyer, the Company, or such Company Subsidiary, as the case may be, shall allow the Sellers’ Representative to take possession of such books and records. Each Party further agrees,
upon reasonable request by another Party, to use its commercially reasonable efforts to obtain any certificate or other document from any Tax Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be
imposed on the Sellers, Buyer, the Company or any Company Subsidiary (including, but not limited to, with respect to the transactions contemplated hereby). 
 (g) Tax Contests. 
 (i) Buyer agrees to give prompt written
notice to the Sellers’ Representative if it or any Buyer Indemnified Person receives any communication or notice with respect to any audit, review, examination, assessment, or any other administrative or judicial proceeding with the purpose or
effect of re-determining Taxes of or with respect to the Company or any Company Subsidiary (including any administrative or judicial review of any claim for refund) for which the Sellers may be required to provide indemnification pursuant to this
Agreement (a “Tax Contest”). 
 (ii) The Sellers’ Representative shall have the
right to control and defend the conduct of any Tax Contest covering any Tax period ending on or before the Closing Date (a “Pre-Closing Tax Contest”) with counsel (including, for the avoidance of doubt, accountants) of its
choice, provided, that (A) the Sellers’ Representative shall keep Buyer reasonably informed regarding the progress and substantive aspects of the Pre-Closing Tax Contest, (B) Buyer may monitor and observe (and retain separate
counsel at its sole cost and expense to monitor and observe) the defense of the Pre-Closing Tax Contest, including, to the extent the circumstances allow, having an opportunity to review any written materials prepared in connection with the
Pre-Closing Tax Contest and the right to attend any conferences relating thereto, and (C) the Sellers’ Representative will not settle or consent to the entry of any order, ruling, decision, or other similar determination or finding with
respect to such Pre-Closing Tax Contest without the prior written consent of Buyer (which consent shall not be unreasonably withheld, conditioned, or delayed). 
 (iii) Buyer shall have the right to control and defend any Tax Contest covering any Straddle Period, any Tax Contest that is not a Pre-Closing Tax Contest, or any Pre-Closing Tax Contest for which the
Sellers’ Representative has not assumed its right to control and defend such Pre-Closing Tax Contest as contemplated by Section 7.7(g)(ii) (an “Other Tax Contest”) with counsel (including, for the avoidance
of doubt, accountants) of its choice, 

  
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provided, that, with respect to any Tax items in the Other Tax Contest for which the resulting Tax liability the Sellers would be required to provide indemnification pursuant to this
Agreement, (A) Buyer shall keep the Sellers’ Representative reasonably informed regarding the progress and substantive aspects of such Tax items in the Other Tax Contest, (B) the Sellers’ Representative may retain separate
co-counsel at its sole cost and expense and participate in the defense of such Tax items in the Other Tax Contest, including having an opportunity to review and comment on any written materials prepared in connection with such Tax items in the Other
Tax Contest and the right to attend and participate in any conferences relating thereto, and (C) Buyer will not settle or consent to the entry of any order, ruling, decision, or other similar determination or finding with respect to such Tax
items in the Other Tax Contest without the prior written consent of the Sellers’ Representative (which consent shall not to be unreasonably withheld, conditioned, or delayed). 

(h) Transfer Taxes. Any and all transfer, sales, use, value added, excise, filing, recording, documentary, stamp or other similar
Taxes applicable to, imposed upon or arising out of the transactions contemplated by this Agreement (“Transfer Taxes”) shall be borne by Buyer. Buyer shall at its own expense file, or cause to be filed, all necessary Tax
Returns and other documentation with respect to any Transfer Taxes. The Sellers shall cooperate with Buyer in the preparation of any necessary Tax Returns and other related documentation with respect to Transfer Taxes. Each Party agrees to use its
commercially reasonable efforts to mitigate, reduce or eliminate any Transfer Taxes. 
 (i) No Section 338 Election.
No election shall be made under Section 338 of the Code (or any similar provision under state, local, or foreign Legal Requirement) with respect to the purchase of the Shares pursuant to this Agreement. 

(j) Conflict. In the event of conflict between any of the provisions of this Section 7.7 and any other provisions of
this Agreement, the provisions of this Section 7.7 shall control. 
 7.8 Employee Benefits Matters.

 (a) For a period of one year after the Closing, Buyer shall, or shall cause the Company (or its successors) or another
Affiliate of Buyer to, provide employees who continue to be employed by the Company or any Company Subsidiary and employees of the Company and its Subsidiaries who become employed by Buyer or any of its Affiliates with base salary or wages, cash
bonus opportunity, and pension and welfare and other benefits and compensation under plans, programs and arrangements, which in the aggregate will provide base salary or wages, cash bonus opportunity, and pension and welfare and other benefits and
compensation to the employees in the aggregate which, taken together, are substantially comparable, in the aggregate, to the base salary or wages, cash bonus opportunity, and pension and welfare and other benefits and compensation (excluding
equity-based awards) provided to such employees in the aggregate under the Company Benefit Plans on the Agreement Date; provided, however, that (subject to compliance with the foregoing provisions of this Section 7.8(a))
nothing herein shall prevent the amendment or termination of any benefit or compensation plan, program or arrangement maintained by Buyer or its Affiliates or interfere with the right or obligation of Buyer or its Affiliate to make such changes to
such plans, programs or arrangements as are necessary to conform with applicable Legal Requirements; provided, further, that Buyer shall not be obligated to provide such substantially comparable levels of base salary or wages, cash
bonus opportunities, and pension and welfare and other benefits compensation to the extent the Company and the Company Subsidiaries, taken as a whole, fail to perform at similar levels of profitability and productivity as they performed at Closing.

  
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 (b) Notwithstanding the foregoing, nothing contained herein shall (i) be treated as an
amendment of any particular Company Benefit Plan or any employee benefit plan, program or arrangement maintained by Buyer or any of its Affiliates or (ii) (subject to compliance with the provisions of Section 7.8(a)) obligate Buyer
or any of its Affiliates to (A) maintain any particular benefit plan or compensation arrangement or (B) retain the employment of any particular employee. 
 7.9 Labor Matters; WARN. 
 (a) The Parties acknowledge and agree that
employees of the Company and any Company Subsidiary shall remain employees “at will” following the Closing, and that Buyer and the Company or Company Subsidiary, as applicable, shall be free to terminate the employment of any such employee
upon or after Closing for any reason or no reason, with or without cause or notice, subject to the terms and conditions of any employment agreements that may be entered into by the Company or a Company Subsidiary, as applicable, and an employee
thereof. 
 (b) Prior to the Closing, neither the Company nor any Company Subsidiary shall, and prior to the 61st day following
the Closing Date, Buyer shall not, and shall cause the Company and all of the Company Subsidiaries not to, without fully complying with the notice and other requirements of the Worker Adjustment and Retraining Notification Act of 1988, as amended,
(the “WARN Act”), effectuate (i) a “plant closing” (as defined in the WARN Act) affecting any single site of employment or one or more facilities or operating units within any single site of employment of the
Company or any of the Company Subsidiaries or (ii) a “mass layoff” (as defined in the WARN Act) affecting a single site of employment of the Company or any of the Company Subsidiaries. 

(c) If Buyer takes any action within 180 days after the Closing Date that independently, or in connection with any reduction in the size
of the Company’s or any of the Company Subsidiaries’ work force occurring within the 90-day period prior to the Closing Date, could be construed as a “plant closing” or “mass layoff,” as those terms are defined in the
WARN Act, Buyer shall be solely responsible for providing any notice required by the WARN Act and for making payments, if any, and paying all penalties and costs, if any, which may result from any failure to provide such notice. 

7.10 No Other Representations; Non-Reliance. 
 (a) Buyer acknowledges and agrees that it has made its own inquiry and investigation into, and, based thereon, has formed an independent judgment concerning, the Company and the Company Subsidiaries and
its and their businesses and operations and Buyer has been furnished with or given full access to such material information about the Company and the Company Subsidiaries and its and their businesses and operations as Buyer and its representatives
have requested prior to the Agreement Date. In connection with Buyer’s investigation of the Company and the Company Subsidiaries and its and their businesses and operations, Buyer and its representatives have received from the Company or its
representatives certain projections and other forecasts for the Company and the Company Subsidiaries and certain estimates, plans and budget information. Buyer acknowledges and agrees that (i) there are uncertainties inherent in attempting to
make such projections, forecasts, estimates, plans and budgets, (ii) Buyer is familiar with such uncertainties and (iii) Buyer is taking full responsibility for making its own evaluations of the adequacy and accuracy of all estimates,
projections, forecasts, plans and budgets so furnished to Buyer or its representatives. 
 (b) Buyer agrees that, except for the
representations and warranties of the Company expressly set forth in ARTICLE IV and the representations and warranties of the Sellers made in Section 5.1, none of the Company, any Company Subsidiary, any Seller or any of their
respective Affiliates or representatives has made or will be deemed to have made to Buyer or its Affiliates or representatives any representation or warranty of any kind. Without limiting the generality of the foregoing, and notwithstanding any
otherwise express representations and warranties of the Company set forth in 

  
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ARTICLE IV and the representations and warranties of the Sellers made in Section 5.1, Buyer agrees that none of the Company, any Company Subsidiary, any Seller or any of their
respective Affiliates or representatives makes or has made any representation or warranty to Buyer or any of its representatives or Affiliates with respect to: 
 (i) any projections, forecasts, estimates, plans or budgets of future revenue, expenses or expenditures, future results of operations (or any component thereof), future cash flows (or any component
thereof) or future financial condition (or any component thereof) of the Company or any of the Company Subsidiaries or the future business, operations or affairs of the Company or any of the Company Subsidiaries heretofore or hereafter delivered to
or made available to Buyer or its representatives or Affiliates; or 
 (ii) any other information, statements or
documents heretofore or hereafter delivered to or made available to Buyer or its representatives or Affiliates, including the information contained in the Company’s online data room, with respect to the Company or the business, operations, or
affairs of the Company or any of the Company Subsidiaries, except as expressly covered by representations and warranties of the Company set forth in ARTICLE IV and the representations and warranties of the Sellers made in
Section 5.1. 
 (c) The Sellers and the Company acknowledge and agree that, except for the representations and
warranties of Buyer expressly set forth in Section 5.2, neither Buyer nor any of its Affiliates or representatives makes or has made to any of the Sellers, the Company, any Company Subsidiary or any of their respective Affiliates or
representatives any representation or warranty of any kind. 
 7.11 Waiver. Buyer hereby waives, and, following the
Closing, the Company agrees to waive, any conflicts that may arise in connection with (a) Fulbright & Jaworski L.L.P., counsel to the Company, representing all or any of the Sellers following the Closing in a dispute with Buyer or the
Company arising under this Agreement or any other Transaction Document and (b) the communication by such counsel to the Sellers in connection with any such representation any fact known to such counsel. 

7.12 Release. 
 (a) Sellers’ Release. In exchange for receipt of the Purchase Price and effective at the Closing, each of the Sellers hereby irrevocably and unconditionally releases, acquits and forever
discharges, without any additional consideration or the need for additional documentation, each of the Company and the Company Subsidiaries, their respective Affiliates, and each of their respective partners, members, managers, officers, directors,
employees, counsel, agents, contractors, successors, assigns, heirs and legal and personal representatives (collectively, the “Company Released Parties”) from any and all charges, complaints, claims, suits, judgments,
demands, actions, obligations or liabilities, damages, causes of action, rights, costs, loans, debts and expenses (including attorneys’ fees and costs actually incurred), of any nature whatsoever, known, unknown or presently unknowable,
contingent or absolute, whether asserted or not, now existing or which may subsequently accrue to them in the future, emanating from, in connection with, related to or arising out of the ownership, management or operation of the business of the
Company or the Company Subsidiaries prior to the Closing. In exchange for receipt of the Purchase Price and effective at the Closing, each of the Sellers hereby agrees that it shall not institute, pursue, solicit, encourage or assist any Proceeding
or Proceedings (at law or in equity), suits, or claims in state or federal court against or adverse to the Company Released Parties arising from or attributable to the business of the Company or the Company Subsidiaries in connection with the
foregoing. Notwithstanding anything contained in this Section 7.12(a), no release, acquittal or discharge shall be granted by any Seller to the extent such release arises out of or pertains to the obligations of Buyer or the Company
pursuant to this Agreement, including any and all matters for which any Seller is entitled to indemnity under ARTICLE XI of this Agreement. 

 

  
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 (b) Company Release. In exchange for good and valuable consideration, the receipt of
which is hereby acknowledged, effective at the Closing, the Company, on behalf of itself and on behalf of each Company Subsidiary, hereby irrevocably and unconditionally releases, acquits and forever discharges, without any additional consideration
or the need for additional documentation, each of the Sellers, their respective Affiliates, and each of their respective partners, members, managers, officers, directors, employees, counsel, agents, contractors, successors, assigns, heirs and legal
and personal representatives (collectively, the “Seller Released Parties”) from any and all charges, complaints, claims, suits, judgments, demands, actions, obligations or liabilities, damages, causes of action, rights,
costs, loans, debts and expenses (including attorneys’ fees and costs actually incurred), of any nature whatsoever, known, unknown or presently unknowable, contingent or absolute, whether asserted or not, now existing or which may subsequently
accrue to them in the future, emanating from, in connection with, related to or arising out of the ownership, management or operation of the business of the Company or the Company Subsidiaries prior to the Closing, except to the extent arising out
of or relating to (i) the obligations of any Seller pursuant to this Agreement, including any and all matters for which the Buyer Indemnified Persons are entitled to indemnity under ARTICLE XI of this Agreement, (ii) the actual or
alleged tortious, bad faith, fraudulent or willful misconduct of any Seller or (iii) the breach by any Seller of any fiduciary duty owed by such Seller to the Company or any Company Subsidiary under the General Corporation Law of the State of
Delaware, the Texas Business Organizations Code or the Oklahoma General Corporation Act and the respective judicial interpretations thereof, as applicable. In exchange for good and valuable consideration, the receipt of which is hereby acknowledged,
effective at the Closing, the Company, on behalf of itself and on behalf of each Company Subsidiary, hereby agrees that neither it nor any Company Subsidiary shall institute, pursue, solicit, encourage or assist any Proceeding or Proceedings (at law
or in equity), suits, or claims in state or federal court against or adverse to the Seller Released Parties arising from or attributable to the ownership, management or operation of the business of the Company or the Company Subsidiaries in
connection with the foregoing. 
 7.13 Waiver of Certain Rights. Each Seller hereby irrevocably waives any right such
Seller presently has or has had as a “Non-Control Seller” (as such term is defined in the Company Stockholders Agreement) pursuant to the drag-along provisions set forth in Section 2 of the Company Stockholders Agreement, including
any right to require strict adherence to such provisions and any notice period applicable thereunder, and hereby forever releases and discharges the Company and each other Seller from any obligation or liability to the extent arising from or
relating to the rights waived hereunder, other than the obligations set forth in the penultimate paragraph of Section 2(a) of the Company Stockholders Agreement. 
 7.14 Developments. Each Party shall give prompt written notice to the other Party of any development occurring after the Agreement Date and prior to the Closing that is reasonably likely to cause
any of such Party’s representations and warranties in ARTICLE IV or V to be inaccurate as of the Agreement Date or the Closing Date. 
 7.15 Repayment of Certain Obligations and Liens on Certain Shares. 
 (a)
Effective at Closing, that certain Promissory Note dated March 24, 2010, made by Don Gawick in favor of the Company (the “Gawick Note”), shall be repaid through an equivalent reduction of the portion of the Closing Date
Payment to be paid to Don Gawick, which amount shall be $37,840 plus accrued and unpaid interest through the Closing Date pursuant to such note (the “Gawick Note Amount”). Accordingly, the Company and Don Gawick further agree
that, effective at the Closing, the Company releases any and all Encumbrances on any Shares held by Don Gawick, including the Encumbrances created pursuant to that certain Security and Pledge Agreement dated as of March 24, 2010. 

  
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 (b) Effective at Closing, that certain Promissory Note dated July 30, 2010, made by
John L. Dunn in favor of the Company (the “Dunn Note”) shall be repaid through an equivalent reduction of the portion of the Closing Date Payment to be paid to John L. Dunn, which amount shall be $37,993.98 plus accrued and
unpaid interest through the Closing Date pursuant to such note (the “Dunn Note Amount”). Accordingly, the Company and John L. Dunn further agree that, effective at the Closing, the Company releases any and all Encumbrances on
any Shares held by John L. Dunn, including the Encumbrances created pursuant to that certain Security and Pledge Agreement dated as of July 30, 2010. 
 ARTICLE VIII 
 CONDITIONS TO CLOSING 

8.1 Conditions to Obligations of Each Party to Effect the Acquisition. The respective obligations of each Party to consummate the
transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions: 
 (a) Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Acquisition shall be in effect, and no statute, rule, regulation or order shall have been enacted, entered, enforced or deemed applicable to the Acquisition, which makes the consummation of the
Acquisition illegal. 
 (b) Governmental Approvals. The Buyer and the Company shall have timely obtained from each
Governmental Entity all approvals, waivers and consents with respect to Legal Requirements relating to antitrust matters, if any, necessary for consummation of, or in connection with, the Acquisition and the other transactions contemplated hereby,
including the waiting period (and any extension thereof) applicable to the Acquisition under the HSR Act shall have been terminated or shall have expired. 
 8.2 Additional Conditions to Obligations of the Sellers. In addition to the conditions specified in Section 8.1, the obligations of the Sellers to consummate the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (it being understood that each such condition is solely for the benefit of the Sellers and may be waived by the Sellers’
Representative in writing in its sole discretion without notice or liability to any Person): 
 (a) Representations,
Warranties and Covenants. The representations and warranties made by Buyer in Section 5.2 of this Agreement shall be true and correct as of the Closing Date as if made on the Closing Date, except (i) for those representations
and warranties that address matters only as of a particular date (which representations and warranties shall have been accurate as of such date), and (ii) for such inaccuracies that do not have more than an immaterial adverse effect on
Buyer’s ability to consummate the Acquisition or pay the Purchase Price. Buyer shall have performed and complied in all material respects with the covenants and agreements required to be performed and complied with by Buyer pursuant to this
Agreement at or prior to the Closing. 
 (b) Receipt of Closing Deliveries. The Sellers and the other specified
recipients shall have received each of the payments, agreements, instruments and other documents set forth in Section 9.2(a). 

  
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 8.3 Additional Conditions to the Obligations of Buyer. In addition to the conditions
specified in Section 8.1, the obligations of Buyer to consummate the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (it being understood that each such
condition is solely for the benefit of Buyer and may be waived by Buyer in writing in its sole discretion without notice or liability to any Person): 
 (a) Representations, Warranties and Covenants. Each of the representations and warranties (i) made by the Company in ARTICLE IV and the representations and warranties of the Sellers
made in Section 5.1, in each case other than the Fundamental Representations, shall be true and correct as of the Closing Date, except (A) for those representations and warranties that address matters only as of a particular date
(which representations and warranties shall have been accurate as of such date), and (B) to the extent that the failures of any such representations and warranties to be true and correct would not be, in the aggregate, reasonably likely to
either (1) have a material effect on the business, assets, properties and operations of the Company and the Company Subsidiaries, taken as a whole, or (2) materially impede or delay any Seller’s ability to consummate the transactions
contemplated by this Agreement in accordance with its terms (and to the extent any such representation or warranty is qualified by its terms by materiality or Material Adverse Effect, such qualification in its terms shall be inapplicable for
purposes of this Section 8.3(a)) and (ii) made by the Company and the Sellers that are Fundamental Representations shall be true and correct as of the Closing Date, except (A) for those representations and warranties that
address matters only as of a particular date (which representations and warranties shall have been accurate as of such date), and (B) to the extent that the failure of any such representations and warranties to be true and correct would not be
reasonably likely to have more than an immaterial adverse impact on Buyer or its benefit of the transactions contemplated by this Agreement (and to the extent such representation or warranty is qualified by its terms by materiality or Material
Adverse Effect, such qualification in its terms shall be inapplicable for purposes of this Section 8.3(a)). The Company shall have performed and complied in all material respects with the covenants and agreements required to be performed
and complied with by the Company pursuant to this Agreement at or prior to the Closing. 
 (b) Receipt of Closing
Deliveries. Buyer shall have received each of the agreements, instruments and other documents set forth in Section 9.2(b). 
 (c) No Material Adverse Effect. Since the Interim Balance Sheet Date, no change, event, circumstance, development, state of facts, or condition has occurred, that would, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect on the Company and the Company Subsidiaries. 
 ARTICLE IX

 CLOSING 
 9.1 Closing. Unless this Agreement is terminated and the transactions herein contemplated are abandoned pursuant to ARTICLE X, and subject to the satisfaction or waiver of the conditions set
forth in ARTICLE VIII, the closing of the Acquisition (the “Closing”) will take place at 9:00 a.m., not later than the second Business Day after the Agreement Date, at the offices of Fulbright & Jaworski
L.L.P., Fulbright Tower, 1301 McKinney, Suite 5100, Houston, Texas 77010, unless another date, time, or place is mutually agreed to in writing by Buyer and the Sellers’ Representative. If any of the conditions set forth in ARTICLE VIII
are not satisfied or waived at the time the Closing is to occur pursuant to this Section 9.1 (other than any conditions to be satisfied through the making of payments or the delivery of documents at the Closing), Buyer or the
Sellers’ Representative may, by notice to the other, adjourn the Closing to a date specified in that notice (but not later than the earlier of the second Business Day after the conditions set forth in ARTICLE VIII have been so satisfied
or waived (other than any conditions to be satisfied through the making of payments or the delivery of documents at the Closing) and the Termination Date). 

  
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 9.2 Actions to Occur at Closing. 

(a) At the Closing, Buyer shall deliver or cause to be delivered to the Sellers or other party as listed below each of the following:

 (i) to the Sellers’ Representative, as paying agent for the Sellers, the Closing Date Payment by wire
transfer of immediately available funds to the accounts designated by the Sellers’ Representative, to be deposited with the Sellers’ Representative for disbursement to the Sellers; provided that upon delivery of such payment by
Buyer to the Sellers’ Representative, Buyer’s obligation to pay the Closing Date Payment to the Sellers at Closing shall be fully satisfied; 
 (ii) to each lender under the Loan Agreements, to an account designated by such lender in writing, the amount of Debt specified in such lender’s Pay-Off Letter (collectively, the sum of such Debt
amounts for all such payees being hereinafter referred to as the “Debt Pay-Off Amount”); 

(iii) to the Sellers’ Representative, a certificate dated as of the Closing Date, executed on behalf of the Buyer by
a duly-authorized officer of the Buyer, to the effect that each of the conditions set forth in clause (a) of Section 8.2 has been satisfied; 
 (iv) to the Sellers’ Representative, an Escrow Agreement, substantially in the form of Exhibit 9.2(a)(iv) (the “Escrow Agreement”), duly executed by Buyer and the
Escrow Agent; 
 (v) to the Escrow Agent, payment of (A) the Indemnity Escrow Amount to an account
designated by the Escrow Agent (the “Indemnity Escrow Fund”) and (B) the Adjustment Escrow Amount to an account designated by the Escrow Agent (the “Adjustment Escrow Fund” and, together with the
Indemnity Escrow Fund, the “Escrow Funds”); and 
 (vi) the Unpaid Company Transaction
Costs to such account or accounts as are designated by the Company in writing prior to the Closing. 
 (b) At the Closing, the
Sellers shall deliver or cause to be delivered to Buyer the following: 
 (i) a stock certificate or stock
certificates evidencing all Shares held by each Selling Shareholder, duly endorsed or accompanied by duly executed stock powers in a form reasonably acceptable to Buyer; 

(ii) a certificate, dated as of the Closing Date, executed by an authorized officer of the Company and the Sellers’
Representative on behalf of all the Sellers, to the effect that each of the conditions set forth in clauses (a) and (c) of Section 8.3 has been satisfied; 

(iii) a certificate, duly executed by an authorized officer of the Company, dated as of the Closing Date, to the effect
that the authorized representative of the Company executing this Agreement and the other Transaction Documents to be executed and delivered by the Company pursuant to this Agreement is duly authorized to execute the same; 

  
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 (iv) the Approvals for the consummation of the transactions contemplated by
this Agreement set forth in Schedule 7.3 of the Company Disclosure Schedules; 
 (v) final Pay-Off Letters
from each of the lenders under the Loan Agreements; 
 (vi) evidence, reasonably satisfactory to Buyer, that the
letter Agreement dated June 25, 2008, between the Company and Intervale Capital, LLC has been terminated and is of no further force and effect; 
 (vii) resignation letters, effective as of the Closing Date, from each of the directors of the Company and the Company Subsidiaries, duly executed by such Persons; 

(viii) a certificate, dated as of the Closing Date and executed on behalf of the Company by its Secretary, certifying
(A) that the Company’s certificate of incorporation and bylaws made available to the Buyer in the Data Room as of the Agreement Date have not been amended or modified since such date, and (B) as to the Company’s board resolutions
approving the Acquisition and adopting this Agreement; 
 (ix) a certificate from each of the Company
Subsidiaries, dated as of the Closing Date and executed on behalf of each Company Subsidiary by its Secretary, certifying that such Company Subsidiary’s certificate of incorporation and bylaws made available to the Buyer in the Data Room as of
the Agreement Date have not been amended or modified since such date; 
 (x) the Escrow Agreement duly executed
by the Sellers’ Representative on behalf of all the Sellers; and 
 (xi) a certificate of non-foreign status
of each Seller that meets the requirements of Treasury Regulation Section 1.1445-2(b)(2) duly executed by such Seller in a form reasonably acceptable to Buyer. 
 ARTICLE X 
 TERMINATION, AMENDMENT AND WAIVER 

10.1 Termination. At any time prior to the Closing, this Agreement may be terminated and the Acquisition abandoned by authorized
action taken by the terminating Party: 
 (a) by mutual written consent duly authorized by Buyer and the Sellers’
Representative; 
 (b) by either Buyer or the Sellers’ Representative, if the Closing shall not have occurred on or before
June 30, 2012 or such other date that Buyer and the Sellers’ Representative may agree upon in writing (the “Termination Date”); provided, however, that the right to terminate this Agreement under this
Section 10.1(b) shall not be available to any Party whose breach (or whose Affiliate’s breach) of this Agreement has resulted in the failure of the Closing to occur on or before the Termination Date; 

(c) by either Buyer or the Sellers’ Representative, if any permanent injunction or other order of a Governmental Entity of competent
authority preventing the consummation of the Acquisition shall have become final and nonappealable; 

  
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 (d) by Buyer, if the Company, any Seller or the Sellers’ Representative shall have
materially breached any representation, warranty, covenant or agreement contained herein and such breach shall not have been cured within 15 Business Days after receipt by the Sellers’ Representative from Buyer of written notice of such breach
(provided, however, that no such cure period shall be available or applicable to any such breach that by its nature cannot be cured) and if not cured within the timeframe above and, at or prior to the Closing, such breach would result
in the failure of any of the conditions set forth in Section 8.1 or Section 8.3 to be satisfied; or 

(e) by the Sellers’ Representative, if Buyer shall have materially breached any representation, warranty, covenant or agreement
contained herein and such breach shall not have been cured within 15 Business Days after receipt by Buyer from the Sellers’ Representative of written notice of such breach (provided, however, that no such cure period shall be
available or applicable to any such breach that by its nature cannot be cured) and if not cured within the timeframe above and, at or prior to the Closing, such breach would result in the failure of any of the conditions set forth in
Section 8.1 or Section 8.2 to be satisfied. 
 10.2 Effect of Termination. In the event of
termination of this Agreement as provided in Section 10.1, written notice thereof shall be given by Buyer or the Sellers’ Representative (as applicable) specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall forthwith become void and there shall be no liability or obligation on the part of any Party except with respect to this Section 10.2, Section 7.1 and ARTICLE XII, which shall remain in full force
and effect; provided, however, that a party may seek to recover Damages caused by a Willful and Material Breach of this Agreement by another Party of any of its representations, warranties, covenants or other agreements set forth in
this Agreement that occurred prior to termination. 
 10.3 Amendment. This Agreement may only be amended by an instrument
in writing signed by Buyer and the Sellers’ Representative, on behalf of all of the Sellers. 
 10.4 Extension;
Waiver. At any time at or prior to the Closing, Buyer or the Sellers’ Representative may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other Parties,
(b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, and (c) waive compliance with any of the agreements or conditions for the benefit of such Party contained
herein. Any agreement on the part of such Party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Person. Without limiting the generality or effect of the preceding sentence, no
delay in exercising any right under this Agreement shall constitute a waiver of such right, and no waiver of any breach or default shall be deemed a waiver of any other breach or default of the same or any other provision in this Agreement.

 ARTICLE XI 
 INDEMNIFICATION 
 11.1 Survival of Representations and Warranties.

 (a) Each representation and warranty of the Sellers contained in Sections 5.1(a) (Representations and Warranties of the
Sellers) and 5.1(b) (Ownership of the Shares) (collectively, the “Seller Fundamental Representations”) and any certificate with respect to such representations and warranties will survive the Closing indefinitely.
Each representation and warranty of the Company contained in ARTICLE IV and of the Sellers contained in Section 5.1, other than the Seller Fundamental Representations, and any certificate with respect to such representations and
warranties will survive the Closing and continue in full force and effect for 12 months thereafter, except for (i) the representations 

  
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and warranties set forth in Sections 4.1 (Organization and Standing), 4.2 (Subsidiaries), 4.3 (Organizational Documents), 4.4 (Authority and Enforceability),
4.8 (Capital Structure) and 4.26 (Finders’ Fees) (collectively, the “Company Fundamental Representations”), which will survive the Closing indefinitely, (ii) the representations and warranties set
forth in Section 4.17 (Environmental Matters), which will survive the Closing for three years, and (iii) the representations and warranties set forth in Sections 4.18 (Taxes) and 4.19 (Employee Benefit Plans), which
will survive the Closing for five years. 
 (b) Each representation and warranty of Buyer contained in Section 5.2
and any certificate with respect to such representations and warranties will survive the Closing indefinitely. 
 (c) The
obligations of the Parties under Sections 11.2 and 11.3 shall not terminate at the end of the applicable survival period with respect to any claims for indemnifiable Damages as to which the Indemnitee shall have given timely notice
(stating in reasonable detail, to the extent practicable, the basis of the claim for indemnification) to the Indemnitor before the termination of the applicable survival period. 

(d) The covenants of the Parties contained in this Agreement to be performed after the Closing shall survive the Closing until performed
in full. 
 (e) The indemnification obligations of the Sellers under Section 11.2(b)(iii) shall survive the Closing
for five years. 
 11.2 Indemnification Provisions for Buyer’s Benefit. 

(a) Subject to the other provisions of this ARTICLE XI, after the Closing, each of the Sellers, severally and not jointly, will
defend, indemnify, and hold Buyer and its Affiliates and any officers, directors, employees or agents thereof (“Buyer Indemnified Persons”) harmless from and pay any and all Damages, directly or indirectly, to the extent
resulting from, caused by, in connection with, relating to, arising out of, or attributable to any breach of any representation or warranty such Seller has made in Section 5.1 or in any certificate with respect to any such representation
or warranty that the Sellers’ Representative has delivered pursuant to this Agreement. 
 (b) Subject to the other
provisions of this ARTICLE XI, after the Closing, each of the Sellers, jointly and severally, will defend, indemnify, and hold the Buyer Indemnified Persons harmless from and pay any and all Damages, directly or indirectly, to the extent
resulting from, caused by, in connection with, relating to, arising out of, or attributable to any one of the following: 
 (i) any breach of any representation or warranty the Company has made in ARTICLE IV or in any certificate with respect to any such representation or warranty that the Sellers’ Representative
has delivered pursuant to this Agreement; 
 (ii) any breach by any Seller or the Company of any covenant or
obligation of any Seller or the Company in this Agreement; or 
 (iii) any and all (1) Taxes imposed on the
Company or any Company Subsidiary for any Pre-Closing Tax Period (as determined in accordance with Sections 7.7(c) and 7.7(d)), and (2) Taxes imposed on the Company for any Tax period (or portion of a Straddle Period) beginning
after the Closing Date that relates to and is in conflict with the determination to deduct and withhold Taxes at Closing on the entire amount of the Option Payments in the manner prescribed by Section 2.2(b) (i.e., by reference to the
entire amount of the Option Payments (including the portion of the Option Payments that constitutes part of the Escrow Amounts deposited into the Escrow Funds at Closing)). 

  
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 (c) Other than (i) as set forth in Section 12.7 (Remedies; Specific
Performance), (ii) any breach of the Company Fundamental Representations or Seller Fundamental Representations (collectively, the “Fundamental Representations”), (iii) any breach by the Company of the
representations and warranties contained in Sections 4.18 (Taxes) or 4.19 (Employee Benefit Plans), (iv) Taxes imposed on the Company or any Company Subsidiary for any Pre-Closing Tax Period (as determined in accordance with
Sections 7.7(c) and 7.7(d)), or (v) Fraud by the Sellers or the Company in the negotiation or execution of this Agreement (collectively, the “Exclusivity Exceptions”), recourse to the Indemnity Escrow Fund
in accordance with the provisions hereof and the Escrow Agreement shall be the Buyer Indemnified Persons’ sole and exclusive remedy available for Damages under Section 11.2(b). 

(d) For the avoidance of doubt, no Buyer Indemnified Person will be entitled to be indemnified pursuant to this Section 11.2
for any amount of Damages to the extent such amount is reflected in the Closing Debt, Closing Cash, Unpaid Company Transaction Costs or Net Working Capital used to determine the Purchase Price. 

(e) For purposes of determining Damages subject to indemnification pursuant to this ARTICLE XI, but not whether a breach of a
representation or warranty has occurred that would be subject to this ARTICLE XI, the representations and warranties of the Company contained in this Agreement shall be deemed to have been made without any qualifications as to materiality or
Material Adverse Effect. 
 11.3 Indemnification Provisions for the Sellers’ Benefit. Subject to the other
provisions of this ARTICLE XI, after the Closing, Buyer will defend, indemnify, and hold the Sellers (the “Seller Indemnified Persons”) harmless from and pay any and all Damages, directly or indirectly, to the extent
resulting from, caused by, in connection with, relating to, arising out of, or attributable to any of the following: 
 (a) any
breach of any representation or warranty Buyer has made in Section 5.2 or in any certificate with respect to any such representation or warranty that Buyer has delivered pursuant to this Agreement; or 

(b) any breach by Buyer of any covenant or obligation of Buyer in this Agreement. 

11.4 Limitations. 
 (a) Several Liability. The Buyer Indemnified Persons shall be entitled to recover Damages pursuant to Section 11.2(a) from (i) the Seller liable for such Damages directly and/or
(ii) the Indemnity Escrow Fund in an amount not to exceed the portion of the Indemnity Escrow Amount equal to the Pro Rata Percentage of such Seller liable for such Damages. 

(b) Cap. 
 (i) The Sellers’ aggregate liability under this Agreement to indemnify the Buyer Indemnified Persons pursuant to Section 11.2(b) shall be limited to the amount then remaining in the
Indemnity Escrow Fund; provided, however, that such limitation on the Sellers’ indemnification liability shall not apply to Damages resulting from any of the Exclusivity Exceptions; provided, further, in the event
the Indemnity Escrow Fund is finally and fully disbursed to the Sellers’ Representative in accordance with the Escrow Agreement, the Sellers 

  
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shall remain obligated to indemnify the Buyer Indemnified Persons for Damages pursuant to Section 11.2(b) in an amount not to exceed the amount of the Indemnity Escrow Fund so finally
and fully disbursed to the Sellers’ Representative with respect to matters for which the applicable survival period set forth in Section 11.1 has not expired. 

(ii) Until such time as the amounts held in the Indemnity Escrow Fund have been fully disbursed in accordance with this
Agreement and the Escrow Agreement, if a Buyer Indemnified Person asserts a claim for indemnifiable Damages pursuant to Section 11.2(b), other than with respect to any claim for Fraud by the Sellers or the Company in the negotiation or
execution of this Agreement, such Buyer Indemnified Person must first seek to satisfy such claim solely from the Indemnity Escrow Fund; provided, that to the extent the actual liability of the Sellers for such indemnification claim exceeds
the aggregate amount remaining in the Indemnity Escrow Fund, such Buyer Indemnified Person may seek to satisfy the remaining portion of such claim from the Sellers, jointly and severally, subject to the limitations set forth in this ARTICLE
XI. 
 (iii) Buyer shall only be entitled to recover directly from a Seller pursuant to
Section 11.2(b) an amount equal to such Seller’s Pro Rata Percentage of the Damages. 
 (iv) No
Seller’s individual liability pursuant to Section 11.2 shall exceed an aggregate amount equal to the portion of the Purchase Price actually received by such Seller. 

(c) Minimum Loss. The Buyer Indemnified Persons shall not be entitled to be indemnified for Damages pursuant to this Agreement
unless and until: 
 (i) the amount of such Damages for any single event or occurrence or any aggregated claims
arising out of the same or related facts, events or circumstances exceeds $50,000 (the “Per Claim Limitation”); and 
 (ii) the aggregate Damages so determined to be due for which the Buyer Indemnified Persons seek or have sought indemnification hereunder exceeds a cumulative aggregate of $2,725,000 (the
“Basket”), in which event the Buyer Indemnified Persons shall, subject to the other limitations herein, be indemnified for all such Damages in excess of the Basket, but excluding any claims that do not meet the Per Claim
Limitation; 
 provided, however, that such limitations on the Sellers’ indemnification liability shall not apply to Damages
resulting from the Exclusivity Exceptions. 
 11.5 Exclusive Remedy; Non-Recourse. Other than as set forth in
Section 12.7 (Remedies; Specific Performance) or with respect to any claim for Fraud in the negotiation or execution of this Agreement, indemnification pursuant to this ARTICLE XI shall be the sole and exclusive remedy for the
Parties with respect to matters arising under this Agreement of any kind or nature, including for any misrepresentation or breach of any warranty, covenant, or other provision contained in this Agreement, and the Parties hereby waive and release any
other rights, remedies, causes of action, or claims that they have or that may arise against any other Party with respect thereto. 
 11.6 Other Limitations. 
 (a) NOTWITHSTANDING ANYTHING CONTAINED
TO THE CONTRARY IN ANY OTHER PROVISION OF THIS AGREEMENT, THE PARTIES AGREE THAT THE INDEMNIFICATION OBLIGATIONS OF THE PARTIES, AND THE RECOVERY BY A 

  
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PARTY OR INDEMNITEE OF ANY DAMAGES SUFFERED OR INCURRED BY IT AS A RESULT OF ANY BREACH OR NONFULFILLMENT BY A PARTY OF ANY OF ITS REPRESENTATIONS, WARRANTIES, COVENANTS, AGREEMENTS OR OTHER
OBLIGATIONS UNDER THIS AGREEMENT, SHALL, EXCEPT IN THE CASE OF FRAUD, BE LIMITED TO ACTUAL DAMAGES AND SHALL NOT INCLUDE OR APPLY TO, NOR SHALL ANY PARTY OR INDEMNITEE BE ENTITLED TO RECOVER, ANY INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL,
EXEMPLARY OR PUNITIVE DAMAGES (INCLUDING ANY DAMAGES ON ACCOUNT OF LOST PROFITS OR OPPORTUNITIES, BUSINESS INTERRUPTION OR DIMINUTION IN VALUE) SUFFERED OR INCURRED BY A PARTY OR INDEMNITEE. 

(b) For purposes of the foregoing, actual damages may, however, include indirect, consequential, special, incidental, exemplary or
punitive damages to the extent (i) the injuries or losses resulting in or giving rise to such damages are incurred or suffered by a third party who is not an Affiliate of Buyer or the Company, and (ii) such damages are recovered against an
Indemnitee by a Person that is a third party who is not an Affiliate of Buyer or the Company. This Section 11.6 shall operate only to limit a Party’s liability and shall not operate to increase or expand any contractual obligation
of a Party hereunder. 
 11.7 Appointment of Sellers’ Representative. 

(a) The Sellers hereby appoint, as of the Agreement Date, Intervale Capital Fund, L.P. as the representative of the Sellers as described
in this Section 11.7 and elsewhere in this Agreement (in such capacity, the “Sellers’ Representative”). The Sellers’ Representative is designated as the attorney-in-fact and agent for and
on behalf of each Seller and their respective heirs, personal representatives, successors and assigns with respect to the post-Closing adjustments contemplated by ARTICLE III, claims for indemnification under this ARTICLE XI and the
taking by the Sellers’ Representative of any and all actions and the making of any decisions required or permitted to be taken by the Sellers’ Representative under this Agreement or the Escrow Agreement, including the exercise of the power
to: (i) act as paying agent of the Sellers for purposes of receiving and distributing all amounts paid by Buyer to the Sellers under this Agreement, including the Closing Date Payment and any payments made pursuant to ARTICLE III, or
disbursed by the Escrow Agent to the Sellers under the Escrow Agreement, (ii) authorize the release or delivery to Buyer of all or any portion of the Escrow Amounts in satisfaction of the obligations (if any) with respect to the post-Closing
adjustments contemplated by ARTICLE III and indemnification claims by any Buyer Indemnified Person pursuant to this ARTICLE XI; (iii) agree to, negotiate, enter into settlements and compromises of, and comply with orders of courts
with respect to, such indemnification claims; (iv) litigate, arbitrate, resolve, settle or compromise any claim for indemnification made pursuant to this ARTICLE XI; (v) withhold from any amounts otherwise payable to a Seller
hereunder, or pursue and seek payment from a Seller of, any Damages arising out of or resulting from a breach of any representation or warranty that specifically relates to such Seller’s ownership of Company Common Stock or Company Options;
(vi) seek and pursue any claims against third parties that any of the Sellers may have in respect of any Damages recovered by a Buyer Indemnified Person hereunder and (vii) take all actions necessary in the judgment of the Sellers’
Representative for the accomplishment of the foregoing. The Sellers’ Representative shall have authority and power to act on behalf of the Sellers with respect to the disposition, settlement or other handling of the adjustments contemplated by
ARTICLE III and all claims under this ARTICLE XI and all rights or obligations arising under ARTICLE III and this ARTICLE XI or otherwise as contemplated by this Agreement. The Sellers shall be bound by all actions taken
and documents executed by the Sellers’ Representative in connection with ARTICLE III and this ARTICLE XI, and Buyer shall be entitled to rely on any action or decision of the Sellers’ Representative. In performing the
functions specified in this Agreement, the Sellers’ Representative may act upon any instrument or other writing believed by the 

  
 - 41 -

 
Sellers’ Representative in good faith to be genuine and to be signed or presented by the proper Person and shall not be liable in connection with the performance of its duties pursuant to
the provisions of this Agreement and the Escrow Agreement. The Sellers’ Representative shall be indemnified and held harmless by the Sellers (out of funds that otherwise are to be distributed from the Indemnity Escrow Fund to the Sellers, if
any, upon termination of the Escrow Agreement or other amounts paid to the Sellers’ Representative on behalf of the Sellers pursuant to ARTICLE III, as described in this Section 11.7) from and against any loss, liability or
expense incurred on the part of the Sellers’ Representative and arising out of or in connection with the acceptance or administration of its duties hereunder, except to the extent a loss, liability or expense arises from the bad faith, fraud or
gross negligence of the Sellers’ Representative in the administration of its duties hereunder. Except to the extent of the bad faith, fraud or gross negligence of the Sellers’ Representative, each Seller hereby releases, waives and agrees
not to sue the Sellers’ Representative or any of its equityholders, officers, Affiliates, employees, agents or representatives for any and all Damages, including, without limitation, statutory or common law rights of contribution or cost
recovery, judgments or expenses which may now exist or which may hereafter arise in connection with the Company, any Company Subsidiary or any matter addressed by this Agreement or any Transaction Document. Any out-of-pocket costs and expenses
incurred by the Sellers’ Representative in connection with actions taken by the Sellers’ Representative pursuant to the terms of ARTICLE III or this Section 11.7 or otherwise in connection with this Agreement, including
the hiring of legal counsel and the incurring of legal fees and costs (“Representative Expenses”), shall be the responsibility of the Sellers. Without limiting the generality of the foregoing, the Sellers’ Representative
shall have full power and authority to interpret all the terms and provisions of this Agreement and the Escrow Agreement, and to consent to any amendment hereof or thereof, on behalf of all the Sellers and their respective heirs, successors and
assigns. 
 (b) The Seller’s Representative shall keep the Sellers reasonably informed of any (i) post-Closing
adjustments contemplated by ARTICLE III and indemnification claims by any Buyer Indemnified Person pursuant to this ARTICLE XI, including any suits, actions, arbitrations, settlements or compromises of, and orders of courts with
respect to, such indemnification claims, and (ii) claims against third parties that the Sellers’ Representative becomes aware any of the Sellers may have in respect of any Damages recovered by a Buyer Indemnified Person hereunder. At the
written request of any Seller, and to the extent not prohibited from doing so by Contract, Legal Requirement or order of a Governmental Entity, the Sellers’ Representative shall make available to such Seller copies of any pleadings, notices,
demands, claims and similar written instruments with respect to any of the matters described in clauses (i) and (ii) above. 
 (c) The Sellers hereby appoint the Sellers’ Representative the true and lawful attorney-in-fact of the Sellers, with full power in their name and on their behalf to act according to the terms of this
Agreement and the Escrow Agreement, to reimburse themselves, to pay to the Sellers any amounts paid to the Sellers’ Representative from the Escrow Funds or other amounts paid to the Sellers’ Representative pursuant to ARTICLE III,
and in general to do all things and to perform all acts including executing and delivering the Escrow Agreement and any other agreements, certificates, receipts, instructions, notices or instruments contemplated by or deemed advisable in connection
with the Escrow Agreement. This power of attorney is coupled with an interest and all authority hereby conferred is granted and shall be irrevocable and shall not be terminated or affected by subsequent disability or incapacity of any Seller or by
any act of any Seller or by operation of law, whether by such person’s death (unless the Sellers’ Representative has actual knowledge of such person’s death), disability, protective supervision or any other event. Without limiting the
foregoing, this power of attorney is to ensure the performance of a special obligation and, accordingly, each Seller shall be deemed to have waived and renounced its, his or her right to renounce this power of attorney unilaterally any time before
the six month anniversary following the termination of the Escrow Agreement. Each Seller shall be deemed to have waived any and all defenses that may be available to contest, negate or disaffirm the action of the

  
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Sellers’ Representative taken in good faith under this Agreement or the Escrow Agreement. Notwithstanding the power of attorney granted in this Section 11.7, no agreement,
instrument, acknowledgement or other act or document shall be ineffective solely by reason of a Seller (instead of the Sellers’ Representative) having signed or given the same directly. 

(d) The provisions of this Section 11.7 shall in no way impose any obligations on Buyer. In particular, notwithstanding any
notice received by Buyer to the contrary, Buyer shall be fully protected in relying upon and shall be entitled to rely upon, and shall have no liability to the Sellers with respect to actions, decisions or determinations of the Sellers’
Representative. Buyer shall be entitled to assume that all actions, decisions and determinations of the Sellers’ Representative are fully authorized. 
 11.8 Defense of Third-Party Claims. 
 (a) Subject to the provisions hereof,
the Indemnitor on behalf of the Indemnitee shall have the right, but not the obligation, to elect to defend any Third-Party Claim, and the costs and expenses incurred by the Indemnitor in connection with such defense (including attorneys’ fees,
other professionals’ and experts’ fees and court or arbitration costs) shall be paid by the Indemnitor. 
 (b) The
Indemnitee shall give prompt written notice of any Third-Party Claim to the Indemnitor; provided that the failure to timely give the Notice of Claim shall not limit or reduce the Indemnitee’s right to indemnity hereunder unless (and then
only to the extent that) the Indemnitor is actually prejudiced thereby. The Indemnitor shall be entitled to assume the defense thereof, including to settle such Third-Party Claim subject to the requirements of Section 11.8(d), utilizing
legal counsel reasonably acceptable to the Indemnitee. 
 (c) If the Indemnitor has the right to and does elect to defend any
Third-Party Claim, the Indemnitor shall: (i) notify Indemnitee within 15 days of receipt of the Notice of Claim that it will defend such Third-Party Claim; (ii) conduct the defense of such Third-Party Claim with reasonable diligence and
act affirmatively to keep the Indemnitee reasonably informed of material developments in the Third-Party Claim at all stages thereof; (iii) promptly submit to the Indemnitee copies of all pleadings, responsive pleadings, motions and other
similar legal documents and papers received or filed in connection therewith; (iv) promptly respond to all reasonable requests by Indemnitee relating thereto and otherwise permit the Indemnitee and its counsel to participate in, but not
control, the conduct of the defense thereof; and (v) to the extent practicable in the circumstances, permit the Indemnitee and its counsel an opportunity to review and comment upon all legal papers to be submitted prior to their submission.
Buyer, the Company and the Sellers’ Representative will make available to each other and each other’s counsel and accountants, without charge (other than any applicable third party costs) all of its or their books and records (or portions
thereof) that relate to the Third-Party Claim, and each Party will render to the other Party such assistance as may be reasonably required in order to insure the proper and adequate defense thereof and shall furnish such records, information and
testimony and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested by the other Party in connection therewith. The Indemnitor and the Indemnitee shall use their reasonable best efforts, at the
sole cost and expense of the Indemnitor, to avoid production of confidential information (consistent with applicable Legal Requirements and subject to a Party’s right to waive its own privilege), and seek to cause all communications among
employees, counsel and others representing any Party to a Third-Party Claim to be made so as to preserve any applicable attorney-client or work-product privileges. Once the Indemnitor has made the election to defend as set forth above, the
Indemnitee shall have the right to participate in any such defense and to employ separate counsel of its choosing at its sole cost and expense; provided, that if (i) the Indemnitee shall have been advised by counsel in writing that there
are legal defenses available to the Indemnitee that are not available to, or in conflict with, those of the Indemnitor, (ii) the Indemnitor shall authorize the Indemnitee in writing to employ separate counsel at the

  
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Indemnitor’s expense, or (iii) Indemnitor is not actively and reasonably diligently defending such Third Party Claim with legal counsel reasonably acceptable to Indemnitee, then the
expenses of such counsel shall be considered Damages. The assumption of the defense of any such Third-Party Claim by the Indemnitor shall be an acknowledgement of the obligation of the Indemnitor to indemnify the Indemnitee with respect to such
claim hereunder. If the Indemnitor fails or refuses to provide the defense notice within 15 days after receipt of a Notice of Claim, the Indemnitee shall have the sole and exclusive right to undertake the defense, compromise and settlement of such
claim with counsel of its own choosing and the reasonable attorneys’ fees and expenses incurred by the Indemnitee for such counsel will be included in the Indemnitee’s Damages; provided, however, that the Indemnitee’s
Damages shall not, in connection with any Proceeding or separate but substantially similar Proceedings arising out of the same allegations, include the fees and expenses of more than one separate firm of attorneys at any time for all Indemnitees,
except to the extent that local counsel, in addition to its regular counsel, is required in order to effectively defend against such Proceeding. No compromise or settlement of such claim by the Indemnitee shall be binding on the issue of whether, or
the extent to which, the Indemnitee may be entitled to indemnification hereunder, and the Indemnitee shall not consent to the entry of any judgment or settle any claim without the written consent of Indemnitor, such consent not be unreasonably
withheld, conditioned or delayed. 
 (d) If the Indemnitor has the right to and does elect to defend any Third-Party Claim, the
Indemnitor shall not have the right to enter into any settlement of a Third-Party Claim on the Indemnitee’s behalf without the consent of the Indemnitee, which will not be unreasonably withheld, conditioned or delayed unless (i) in the
case of a claim by a Buyer Indemnified Person, the amount to be paid by the Indemnitee as a result of such settlement does not exceed the balance of the funds then on deposit in the Indemnity Escrow Fund (after taking into account any other
outstanding claims) from which such claim shall be paid, (ii) such settlement does not involve any finding or admission of any violation of law or any injunctive or other form of non-monetary relief binding upon the Indemnitee or any of its
Affiliates, officers, directors and agents, other than reasonable confidentiality obligations related to the terms of such settlement, and (iii) such settlement expressly and unconditionally releases the Indemnitee and its Affiliates and such
other Persons from all liabilities and obligations with respect to such claim, and includes the giving by the claimant to the Indemnitee of a release in respect thereof, in form and substance reasonably satisfactory to the Indemnitee, of any further
liability, at law, in equity or otherwise. 
 (e) The provisions of this Section 11.8 shall not apply to Tax
Contests, which shall be governed by the provisions of Section 7.7(g). 
 11.9 Mitigation. Each Indemnitee
shall be obligated in connection with any claim for indemnification under this ARTICLE XI to use commercially reasonable efforts to obtain any insurance proceeds available to such Indemnitee with regard to the applicable claims under the
Indemnitee’s insurance policies or pursue any Tax benefits with regard to the applicable claims. The amount of Damages paid by an Indemnitor to an Indemnitee pursuant to this ARTICLE XI shall be reduced (or reimbursed, if already paid)
in the amount of (a) any insurance proceeds actually received by the Indemnitee with respect to such Damages (net of any costs and expenses, self-insured retentions and retroactive premium adjustments incurred in connection with the realization
or receipt of such payment) under any applicable insurance policies of the Indemnitee, but only to the extent the receipt of such insurance proceeds does not result in any additional insurance premium or cost to the Indemnitee, or (b) any Tax
benefits realized by the Indemnitee with respect to such Damages. Nothing in this Agreement shall in any way limit the Indemnitor’s ability to defend against the Indemnitee’s recovery of Damages that are caused or exacerbated by or
attributable to (i) the actions of the Indemnitee or (ii) the failure of the Indemnitee to mitigate any Damages in accordance with applicable Legal Requirements. 

  
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 ARTICLE XII 
 GENERAL PROVISIONS 
 12.1 Notices. All notices and other
communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile or e-mail (with confirmation
of receipt) to the Parties at the following address (or at such other address for a Party as shall be specified by like notice): 

if to Buyer, to: 

C&J Spec-Rent Services, Inc. 10375 Richmond Ave., Suite 2000 
 Houston, TX 77042 
 Attention: General Counsel 

Facsimile No.: (713) 260-9981 
 Telephone No.: (713) 260-9900 
 with a copy (which shall not constitute
notice) to: 
 Locke Lord LLP 
 600 Travis, Suite 2800 
 Houston, TX 77002 

Attention: Kevin N. Peter 
 Facsimile No.: (713) 229-2666 
 Telephone No.: (713) 226-1235 

if to the Company, to: 
 Casedhole Holdings, Inc. 
 1160 S. Dairy Ashford Rd. 

Houston, TX 77079 

Attention: Chief Executive Officer 
 Facsimile No.: (281) 496-2965 
 Telephone No.: (281) 496-2962

 if prior to the Closing, with a copy (which shall not constitute notice) to: 

Fulbright & Jaworski L.L.P. 
 Fulbright Tower 
 1301 McKinney, Suite 5100 

Houston, TX 77010-3095 
 Attention: Efren A. Acosta 
 Facsimile No.: (713) 651-5246 

Telephone No.: (713) 651-5373 

  
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 if to the Sellers’ Representative, to: 

Intervale Capital Fund, L.P. 
 20 University Road, Suite 360 
 Cambridge, MA 02138 

Attention: Erich Horsley 
 Facsimile No.: (617) 497-8453 
 Telephone No.: (617) 497-8282 

with a copy (which shall not constitute notice) to: 
 Fulbright & Jaworski L.L.P. 
 Fulbright Tower 

1301 McKinney, Suite 5100 
 Houston, TX 77010-3095 
 Attention: Efren A. Acosta 

Facsimile No.: (713) 651-5246 
 Telephone No.: (713) 651-5373 
 12.2 Company Disclosure Schedules. For
the purposes of the Company Disclosure Schedules, any information, item or other disclosure set forth in any part of the Company Disclosure Schedules shall be deemed to have been set forth in all other applicable parts of the Company Disclosure
Schedules and disclosed not only in connection with the representation and warranty specifically referenced on a given part of the Company Disclosure Schedules but for all purposes relating to the representations and warranties set forth in
ARTICLE IV and Section 5.1 of this Agreement and shall be deemed to be disclosed and incorporated by reference in any other part of the Company Disclosure Schedules as though fully set forth in such part of the Company Disclosure
Schedules for which applicability of such information and disclosure is relevant; provided, that the relevance of such disclosure is reasonably apparent from the face and terms of such disclosure. Inclusion of information in any part of the
Company Disclosure Schedules shall not be construed as an admission that such information is material to the business, properties, financial condition or results of operations of the Company or any of the Company Subsidiaries. Matters reflected in
the Company Disclosure Schedules are not necessarily limited to matters required by this Agreement to be reflected therein and the inclusion of such matters shall not be deemed an admission that such matters were required to be reflected in the
Company Disclosure Schedules. Such additional matters are set forth for informational purposes only and do not necessarily include other matters of a similar nature. 
 12.3 Counterparts. 
 (a) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. 

(b) A signature page to this Agreement, any Transaction Document or any other document prepared in connection with the transactions
contemplated hereby that contains a copy of a Party’s signature and that is sent by such Party or its agent with the apparent intention (as reasonably evidenced by the actions of such Party or its agent) that it constitute such Party’s
execution and delivery of this Agreement, any Transaction Document or any such other document, including a document sent by facsimile transmission or by email in portable document format (pdf), shall have the same effect as if such Party had
executed and delivered an original of this Agreement, any such Transaction Document or any such other document. Minor variations in the form of the signature page, including footers from earlier versions of this Agreement, any Transaction Document
or any such other document, shall be disregarded in determining the Party’s intent or the effectiveness of such signature. 

  
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 12.4 Entire Agreement; Parties in Interest. This Agreement, the Confidentiality
Agreement and the documents and instruments and other agreements specifically referred to herein or delivered pursuant hereto, including all the Exhibits, the Schedules, and the Company Disclosure Schedules, (a) constitute the entire agreement
among the Parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the Parties with respect to the subject matter hereof and (b) are not intended to confer, and shall
not be construed as conferring, upon any Person other than the Parties any rights or remedies hereunder; provided, however, that (i) the Company officers, directors and employees are intended third-party beneficiaries of
Sections 7.8 and 7.9 and (ii) the Buyer Indemnified Persons and the Seller Indemnified Persons are intended third-party beneficiaries of ARTICLE XI. 
 12.5 Assignment. Prior to the Closing, neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned or delegated, in whole or in part, by operation of
law or otherwise by any of the Parties without the prior written consent of the Company, the Sellers’ Representative and Buyer, and any such assignment without such prior written consent shall be null and void. From and after the Closing,
neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned or delegated, in whole or in part, by operation of law or otherwise by any of the Parties without the prior written consent of the Buyer and
the Sellers’ Representative, and any such assignment without such prior written consent shall be null and void. Subject to the preceding sentences, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the
Parties and their respective successors and permitted assigns. 
 12.6 Severability. In the event that any provision of
this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement shall continue in full force and effect and shall be interpreted so as
reasonably to effect the intent of the Parties. The Parties shall use all reasonable efforts to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that shall achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision. 
 12.7 Remedies; Specific Performance.
The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Each Party agrees that, in the event of any breach
or threatened breach by any other Party of any covenant or obligation contained in this Agreement, the non-breaching Party shall be entitled (in addition to any other remedy that may be available to it whether in law or equity, including monetary
damages, except as limited by Section 10.2 and ARTICLE XI) to seek and obtain without interference or challenge from the other Party (a) a decree or order of specific performance to enforce the observance and performance of
such covenant or obligation and (b) an injunction restraining such breach or threatened breach. In circumstances where Buyer, the Company or any Seller is obligated to consummate the Acquisition and the Acquisition has not been consummated
(other than as a result of the other Party’s refusal to close in violation of this Agreement), each of Buyer, the Company and the Sellers expressly acknowledges and agrees that the other Parties and their equityholders shall have suffered
irreparable harm, that monetary damages will be inadequate to compensate such other Parties and equityholders and that such other Parties on behalf of themselves and their equityholders shall be entitled to enforce specifically Buyer’s, the
Company’s or the Sellers’, as the case may be, obligation to consummate the Acquisition. For the avoidance of doubt, under the terms of the immediately preceding sentence the Company and the Sellers shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement by Buyer or to enforce specifically the terms and 

  
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provisions of this Agreement to prevent breaches of or enforce compliance with those covenants of Buyer in any court in the United States or any state having jurisdiction, subject to
Section 12.9, this being in addition to any other remedy to which the Company and the Sellers may be entitled at law or in equity. Each of Buyer, the Sellers and the Sellers’ Representative hereby agrees not to raise any objection
to the availability of the equitable remedy of specific performance to prevent or restrain breaches of or threatened breaches of this Agreement by the other Parties and to specifically enforce the terms and provisions of this Agreement to prevent
breaches of or threatened breaches of, or to enforce compliance with, the covenants and obligations of the other Parties under this Agreement. Each Party further agrees that no other Party or any other Person shall be required to obtain, furnish or
post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this Section 12.7, and each Party irrevocably waives any right it may have to require the obtaining, furnishing or posting of
any such bond or similar instrument. 
 12.8 Choice of Forum. Any dispute, controversy, claim, or action arising
out of or relating to this Agreement and any documents contemplated hereby, each as amended from time to time, including regarding the validity or effect of this Agreement or the performance, breach, validity, interpretation, application, or
termination hereof, and any of the transactions contemplated hereunder, but excluding a dispute, controversy or claim governed by ARTICLE III, shall be brought in the federal or state courts located in the City of Houston, State of Texas.
Each of the Parties (a) irrevocably submits to the exclusive jurisdiction of each such court in any such dispute, controversy, claim, or action, (b) waives any objection it may now or hereafter have to venue or to an inconvenient forum,
(c) agrees that all such disputes, controversies, claims, and actions shall be heard and determined only in such courts, and (d) agrees not to bring any dispute, controversy, claim, or action arising out of or relating to this Agreement or
any documents contemplated hereby or any of the transactions contemplated hereunder in any other court. 
 12.9 Governing
Law. This Agreement and the legal relations between the Parties with respect hereto shall be governed by and construed in accordance with the domestic laws of the State of Texas without regard or giving effect to any choice or conflict of law
provision or rule (whether of such state or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than such state. 
 12.10 Interpretation. Unless expressly provided for elsewhere in this Agreement, this Agreement shall be interpreted in accordance with the following provisions: 

(a) Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. 
 (b) If a word or phrase is
defined, its other grammatical forms have a corresponding meaning. 
 (c) The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of this Agreement. 
 (d) All references in this
Agreement to articles, sections or subdivisions thereof shall refer to the corresponding article, section or subdivision of this Agreement unless specific reference is made to such articles, sections, or subdivisions of another document or
instrument. 

  
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 (e) A reference to any agreement or document (including without limitation a reference to
this Agreement) is to the agreement or document as amended, varied, supplemented, novated or replaced, except to the extent prohibited by this Agreement or that other agreement or document. 

(f) A reference to any party to this Agreement or another agreement or document includes the party’s permitted successors and
assigns. 
 (g) A reference to legislation or to a provision of legislation includes a modification or reenactment of it, a
legislative provision substituted for it and a regulation or statutory instrument issued under it. 
 (h) A reference to a
writing includes a facsimile or email transmission of it and any means of reproducing of its words in a tangible and permanently visible form. 
 (i) The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. 
 (j) The word “including,” “include,” “includes” and all variations
thereof shall mean “including, without limitation”. 
 (k) The Exhibits, Company Disclosure Schedules and Annexes
attached to this Agreement are incorporated herein by reference and made a part of this Agreement. 
 (l) The parties have
participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 

(m) The word “or” will have the inclusive meaning represented by the phrase “and/or”. 

(n) “Shall” and “will” have equal force and effect. 

(o) Unless otherwise specified, all references to a specific time of day in this Agreement shall be based upon Central Standard Time or
Central Daylight Savings Time, as applicable, on the date in question in Houston, Texas. 
 (p) References to “$” or to
“dollars” shall mean the lawful currency of the United States of America. 
 (q) No action shall be required of the
parties except on a Business Day and in the event an action is required on a day which is not a Business Day, such action shall be required to be performed on the next succeeding day which is a Business Day. 

(r) All references to “day” or “days” shall mean calendar days unless specified as a “Business Day.”

 (s) Time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the
day on which the time period commences and including the day on which the time period ends and by extending the period to the next Business Day following if the last day of the time period is not a Business Day. 

  
 - 49 -

 (t) The phrase “Material Adverse Effect on the Company and its Subsidiaries” or
“Material Adverse Effect on the Company and the Company Subsidiaries” means a Material Adverse Effect on the Company and the Company Subsidiaries taken together as a whole. 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS] 

  
 - 50 -

 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be signed, all as
of the date first written above. 
  

			
	 COMPANY:

	
	 CASEDHOLE HOLDINGS, INC.

		
	 By:
	 	 /s/ Don Gawick

	 Name:
	 	Don Gawick
	 Title:
	 	President and Chief Executive Officer
	
	BUYER:
	
	 C&J SPEC-RENT SERVICES, INC.

		
	 By:
	 	 /s/ Randall C. McMullen, Jr.

	 Name:
	 	Randall C. McMullen, Jr.
	 Title:
	 	Vice President, Chief Financial Officer and Treasurer

 SIGNATURE PAGE TO 

STOCK PURCHASE AGREEMENT 

 
					
	 SELLERS:

	
	 INTERVALE CAPITAL FUND, L.P.

		
	 By:
	 	 Intervale Capital GP, L.P.,

		 	 its general partner

			
		 	 By:
	 	 Intervale Capital Associates, LLC,

		 		 	 its general partner

		
	 By:
	 	 /s/ Erich Horsley

	 Name:
	 	 Erich Horsley

	 Title:
	 	 Partner
	 	
	
	 INTERVALE CAPITAL CO-INVESTMENT FUND,
L.P.

		
	 By:
	 	 Intervale Capital GP, L.P.,

		 	 its general partner

			
		 	 By:
	 	 Intervale Capital Associates, LLC,

		 		 	 its general partner

		
	 By:
	 	 /s/ Erich Horsley

	 Name:
	 	 Erich Horsley

	 Title:
	 	 Partner

	
	 BNY MELLON-ALCENTRA MEZZANINE III, L.P.

		
	 By:
	 	
BNY Mellon-Alcentra Mezzanine III (GP), L.P.,

its general partner

		
	 By:
	 	 /s/ Scott Gold

	 Name:
	 	 Scott Gold

	 Title:
	 	Authorized Person

 SIGNATURE PAGE TO 

STOCK PURCHASE AGREEMENT 

 
	
	 /s/ Blake F. Reynolds

	 Blake F. Reynolds

	
	 /s/ Brian S. Buffington

	 Brian S. Buffington

	
	 /s/ Cliff W. Edmunds

	 Cliff W. Edmunds

	
	 /s/ David B. Mecham

	 David B. Mecham

	
	 /s/ Don Gawick

	 Don Gawick

	
	 /s/ Dwayne D. Allen

	 Dwayne D. Allen

	
	 /s/ Ed Keppler

	 Ed Keppler

	
	 /s/ Everett Michael Hobbs

	 Everett Michael Hobbs

	
	 /s/ Frank L. Lezu

	 Frank L. Lezu

	
	 /s/ Harold Yoesel

	 Harold Yoesel

	
	 /s/ John D. Bartee

	 John D. Bartee

	
	 /s/ John L. Dunn

	 John L. Dunn

 SIGNATURE PAGE TO 

STOCK PURCHASE AGREEMENT 

 
	
	 /s/ John R. Harris

	 John R. Harris

	
	 /s/ Lyle G. Love

	 Lyle G. Love

	
	 /s/ Matthew L. Stark

	 Matthew L. Stark

	
	 /s/ Michael W. Dobrinski

	 Michael W. Dobrinski

	
	 /s/ Ron P. Haasl

	 Ron P. Haasl

	
	 /s/ Sanford E. Stark

	 Sanford E. Stark

	
	 /s/ Steven E. Green

	 Steven E. Green

	
	 /s/ Tom Wilkins

	 Tom Wilkins

	
	 /s/ Verlin L. Reed

	 Verlin L. Reed

	
	 /s/ Victor Jackson

	 Victor Jackson

	
	 /s/ Winston Eksund

	 Winston Eksund

	
	 /s/ Andy Stylianou

	 Andy Stylianou

 SIGNATURE PAGE TO 

STOCK PURCHASE AGREEMENT 

 
	
	 /s/ Bill Anthony

	 Bill Anthony

	
	 /s/ Burk McCurdy Jr.

	 Burk McCurdy Jr.

	
	 /s/ Eddie Perez

	 Eddie Perez

	
	 /s/ James Haest

	 James Haest

	
	 /s/ James Sparks

	 James Sparks

	
	 /s/ Joe League

	 Joe League

	
	 /s/ Keith Rabb

	 Keith Rabb

	
	 /s/ Ken Bell

	 Ken Bell

	
	 /s/ Kyle Wichert

	 Kyle Wichert

	
	 /s/ Matt Wilhite

	 Matt Wilhite

	
	 /s/ Paula Tharp

	 Paula Tharp

	
	 /s/ Poncho Lawrence Wilson

	 Poncho Lawrence Wilson

	
	 /s/ Jody Bartee

	 Jody Bartee

 SIGNATURE PAGE TO 

STOCK PURCHASE AGREEMENT 

 
					
	 SELLERS’ REPRESENTATIVE:

	
	 INTERVALE CAPITAL FUND, L.P.

		
	 By:
	 	Intervale Capital GP, L.P.,
		 	 its general partner

			
		 	By:	 	Intervale Capital Associates, LLC,
		 		 	its general partner
		
	 By:
	 	 /s/ Erich Horsley

	 Name:
	 	Erich Horsley
	 Title:
	 	Partner

 SIGNATURE PAGE TO 

STOCK PURCHASE AGREEMENT 

 EXHIBIT A 
 DEFINITIONS 
 “Accounting Firm” has the meaning set
forth in Section 3.2(d). 
 “Acquisition” has the meaning set forth in the recitals.

 “Adjustment Escrow Amount” means $2,000,000. 

“Adjustment Payment Date” has the meaning set forth in Section 3.4. 

“Affiliate” or “Affiliates” means, with respect to any Person, any other Person
controlling, controlled by, or under common control with such Person. For purposes of this definition, the term “control” (and correlative terms) means the power, whether by contract, equity ownership, or otherwise, to direct the policies
or management of a Person. 
 “Agreed Rate” means five percent per annum. 

“Agreement” has the meaning set forth in the preamble. 

“Agreement Date” has the meaning set forth in the preamble. 

“Approval” means all material notices, reports, filings, approvals, orders, authorizations, consents, licenses,
permits, qualifications or registrations or waivers of any of the foregoing, required to be obtained from or made with, or any notice, statement or other communications required to be filed with or delivered to, any Governmental Entity or any other
Person. 
 “Basket” has the meaning set forth in Section 11.4(c)(ii). 

“Business Day” means a day (A) other than Saturday or Sunday, and (B) on which commercial banks are
open for business in Houston, Texas. 
 “Business Facility” means any real property that the Company or
any of the Company Subsidiaries currently leases, operates or owns. 
 “Buyer” has the meaning set forth
in the preamble. 
 “Buyer Indemnified Persons” has the meaning set forth in
Section 11.2(a). 
 “CapEx Double Count Adjustment” means (i) a downward adjustment
equal to the “Amount Paid” (or portion thereof), as reflected in Schedule 2.2(a), for an item of Excluded Equipment to the extent that the “Amount Paid” (or portion thereof) for such item of Excluded Equipment is
determined to have actually been reflected in the Interim Balance Sheet as an account payable or reserved in the Interim Balance Sheet as an accrued liability, or (ii) an upward adjustment equal to the “Amount Paid” (or portion
thereof), as reflected in Schedule 2.2(a), for an item of Included Equipment to the extent that the “Amount Paid” (or portion thereof) for such item of Included Equipment is determined not to have been reflected in the Interim
Balance Sheet as an account payable or reserved in the Interim Balance Sheet as an accrued liability. 

 “CapEx Expenditures/Payments” means an amount equal to (i) the
actual and documented costs paid by the Company for purposes of acquiring the New Equipment, including payments made by the Company on or prior to the Closing Date under any Capitalized Lease Obligations related to the New Equipment, plus
(ii) the remaining amount of any Capitalized Lease Obligations related to the New Equipment as of the Closing Date. 

“Capital Expenditures Budget” has the meaning set forth in Section 4.10(j). 

“Capitalized Lease Obligation” means, as of any date of determination, any obligation that is required to be
classified and accounted for as a capitalized lease on the face of the consolidated balance sheet of the Company as of such date prepared in accordance with GAAP and the amount of Debt represented by any such obligation as of such date shall be the
capitalized amount of such obligation that would appear on the face of such consolidated balance sheet. 

“Cash” means the sum of cash, cash equivalents and liquid investments, plus all received but undeposited checks,
deposited but uncleared bank deposits and cash held by counterparties, and less all outstanding checks and cash posted by counterparties, in each case of the Company and the Company Subsidiaries. 

“CERCLA” has the meaning set forth in the definition of the term “Environmental Laws.” 

“Closing” has the meaning set forth in Section 9.1. 

“Closing Cash” means (i) the outstanding balance of Cash of the Company and the Company Subsidiaries as of
11:59 p.m. on the date immediately preceding the Closing Date, plus (ii) the Gawick Note Amount, plus (iii) the Dunn Note Amount. 
 “Closing Date” means the date on which the Closing occurs. 

“Closing Date Payment” means an amount equal to the (i) Pre-Adjustment Purchase Price, less
(ii) the Escrow Amounts. 
 “Closing Debt” means the total amount of the Debt of the Company and
the Company Subsidiaries (including principal amounts outstanding under the Loan Agreements, accrued and unpaid interest on Debt under the Loan Agreements, and all premiums, penalties, fees and other amounts included in the Debt Pay-Off Amount)
determined as of 11:59 p.m. on the date immediately preceding the Closing Date. 
 “Code” means the
Internal Revenue Code of 1986, as amended. 
 “Company” has the meaning set forth in the preamble.

 “Company Benefit Plans” has the meaning set forth in Section 4.19(a). 

“Company Common Stock” means the common stock, $0.001 par value per share, of the Company. 

“Company Disclosure Schedules” has the meaning set forth in ARTICLE IV. 

“Company Fundamental Representations” has the meaning set forth in Section 11.1(a). 

“Company Intellectual Property” means all Intellectual Property owned by the Company and all Intellectual
Property Rights applicable thereto. 

 “Company Option Plan” means the Amended and Restated Casedhole
Holdings, Inc. 2008 Equity Incentive Plan. 
 “Company Options” has the meaning set forth in the
recitals. 
 “Company Real Estate” has the meaning set forth in Section 4.12. 

“Company Released Parties” has the meaning set forth in Section 7.12. 

“Company Stockholders Agreement” means the Amended and Restated Stockholders Agreement of Casedhole Holdings,
Inc., dated as of June 25, 2008, as amended. 
 “Company Subsidiary” means any of the
Company’s Subsidiaries. 
 “Company Subsidiary Organizational Documents” has the meaning set forth
in Section 4.3(b). 
 “Company Transaction Costs” means (a) all of the documented
out-of-pocket fees and expenses (including all fees, expenses and disbursements of counsel, accountants, investment bankers, experts, Intervale Capital LLC or its Affiliates, and consultants to the Company and its Affiliates and representatives)
incurred by the Company or any of the Company Subsidiaries in connection with the preparation, negotiation, execution and consummation of the transactions contemplated hereby (including all expenses of the Company set forth in
Section 7.5) and (b) all payments to any employee of the Company or any Company Subsidiary that become due and payable by the Company or any Company Subsidiary upon the consummation of the Acquisition pursuant to an arrangement made
between the Company or any Company Subsidiary and such employee at or prior to the Closing. For the avoidance of doubt, Company Transaction Costs shall not include the cost of obtaining “tail” or similar coverage for current officers,
directors and executives of the Company under its current director and officer liability insurance policy. 

“Confidentiality Agreement” means that certain letter, dated as of March 1, 2012, delivered by C&J
Energy Services, Inc. to Harris Williams & Co. (on behalf of the Company). 
 “Contract” means
any contract, agreement, instrument, commitment or undertaking of any nature (including leases, licenses, mortgages, notes, guarantees, sublicenses, subcontracts, letters of intent and purchase orders), whether written or oral. 

“Current Assets” means, as of 11:59 p.m. on the date immediately preceding the Closing Date, the sum of all
current assets of the Company and the Company Subsidiaries as determined in accordance with this Agreement and GAAP applied on a basis consistent with the preparation of the Interim Balance Sheet; provided, that Current Assets shall not
include, in whole or in part, (a) Cash; (b) any Tax assets; (c) prepaid management fees; (d) costs and estimated earnings in excess of billings; or (e) the accounts receivable represented by the Gawick Note and the Dunn
Note. 
 “Current Liabilities” means, as of 11:59 p.m. on the date immediately preceding the Closing
Date, the sum of all current liabilities of the Company and the Company Subsidiaries as determined in accordance with this Agreement and GAAP applied on a basis consistent with the preparation of the Interim Balance Sheet; provided, that
Current Liabilities shall not include, in whole or in part, (a) Debt (including the current portion of Debt, lines of credit, accrued and unpaid interest on Debt and all premiums, penalties, fees and other amounts included in the Debt Pay-Off
Amount); (b) any Tax liabilities; (c) Company Transaction Costs; (d) accruals and reserves for unpaid management fees; (e) billings in excess of costs and estimated earnings; or (f) any unpaid amounts associated with
obtaining “tail” or similar coverage for current officers, directors and executives of the Company under its current director and officer liability insurance policy. 

 “Damages” means any and all claims, demands, suits, actions, causes
of actions, losses, costs, damages, penalties, assessments, liabilities (INCLUDING, WITHOUT LIMITATION, STRICT LIABILITIES ARISING UNDER ENVIRONMENTAL LAW) and out-of-pocket third party expenses incurred or paid, including reasonable
attorneys’ fees, costs of investigation, Remediation or settlement, other professionals’ and experts’ fees, and court or arbitration costs. 
 “Debt” means, without duplication, (A) all indebtedness of the Company and the Company Subsidiaries for borrowed money (including all principal, interest, premiums, penalties
and breakage fees, as well as any principal amounts outstanding under the Loan Agreements, accrued and unpaid interest on indebtedness under the Loan Agreements, and all premiums, penalties, fees and other amounts included in the Debt Pay-Off
Amount), (B) all obligations of the Company and the Company Subsidiaries evidenced by notes, bonds, debentures or similar instruments or pursuant to any guaranty, (C) all Capitalized Lease Obligations and (D) all reimbursement
obligations of the Company and the Company Subsidiaries in respect of any letter of credit, banker’s acceptance or similar credit transaction (but, for purposes of determining the amount of the Closing Debt, only those reimbursement obligations
that are due and payable as of 11:59 p.m. on the date immediately preceding the Closing Date). 
 “Debt Pay-Off
Amount” has the meaning set forth in Section 9.2(a)(ii). 
 “Disputed Items”
has the meaning set forth in Section 3.2(d). 
 “Dunn Note” has the meaning set forth in
Section 7.15(b). 
 “Dunn Note Amount” has the meaning set forth in
Section 7.15(b). 
 “Encumbrance” means, with respect to any asset, any mortgage, deed of
trust, lien, pledge, charge, security interest, title retention device, conditional sale or other security arrangement, collateral assignment, claim, charge, adverse claim of title, ownership or right to use, restriction or other encumbrance of any
kind in respect of such asset (including any restriction on (A) the voting of any security or the transfer of any security or other asset, (B) the receipt of any income derived from any asset, (C) the use of any asset and (D) the
possession, exercise or transfer of any other attribute of ownership of any asset). 
 “Environmental
Law” means all Legal Requirements relating to (i) pollution or protection of human health or the environment (including air, water or land), (ii) solid, gaseous or liquid waste generation, handling, management, treatment,
storage, disposal or transportation, (iii) worker protection as related to Hazardous Materials, (iv) a community’s right to know regarding Hazardous Materials, (v) facility security in relation to Hazardous Materials, or
(vi) exposure to or Release of Hazardous Materials or other materials or substances alleged to be harmful. The term “Environmental Law” shall include, but not be limited to, the following statutes and the regulations promulgated
thereunder in effect as of the Closing Date as amended from time to time: the Clean Air Act, 42 U.S.C. § 7401 et seq., the Clean Water Act, 33 U.S.C. § 1251 et seq., the Resource Conservation and Recovery Act
(“RCRA”), 42 U.S.C. § 6901 et seq., the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the Safe Drinking Water Act, 42
U.S.C. § 300f et seq., and the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. § 9601 et seq., the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq., and
any state or local laws and regulations similar thereto. 

 “Environmental Permit” means any permit, license, approval,
registration, notification, exemption, consent or other authorization required to be in compliance with Environmental Law. 

“ERISA” has the meaning set forth in Section 4.19(a). 

“ERISA Affiliate” has the meaning set forth in Section 4.19(b). 

“Escrow Agent” means Wells Fargo Bank, National Association. 

“Escrow Agreement” has the meaning set forth in Section 9.2(a)(iv). 

“Escrow Amounts” means the Adjustment Escrow Amount and the Indemnity Escrow Amount. 

“Escrow Funds” has the meaning set forth in Section 9.2(a)(v). 

“Estimated Net Working Capital” has the meaning set forth in Section 3.1. 

“Excluded Equipment” means an item of New Equipment the amount paid of which is indicated in Schedule
2.2(a) as not having been reflected in the Interim Balance Sheet as an account payable or reserved in the Interim Balance Sheet as an accrued liability. For the avoidance of doubt, an item is indicated in Schedule 2.2(a) as not having
been reflected in the Interim Balance Sheet as an account payable or reserved in the Interim Balance Sheet as an accrued liability if the right hand column of Schedule 2.2(a) (captioned “In 4/30 AP”) indicates “No” for
such item. 
 “Exclusivity Exceptions” has the meaning set forth in Section 11.2(c).

 “Final Balance Sheet” has the meaning set forth in Section 3.2(a). 

“Final Net Working Capital” has the meaning set forth in Section 3.2(a). 

“Financial Statements” has the meaning set forth in Section 4.9(a). 

“Fraud” means an intentional misrepresentation of a material fact or intentional omission of a material fact with
respect to a representation or warranty made in this Agreement, which is made with the intent to mislead. 

“Fundamental Representations” has the meaning set forth in Section 11.2(c). 

“GAAP” means United States generally accepted accounting principles consistently applied by the Company.

 “Gawick Note” has the meaning set forth in Section 7.15(a). 

“Gawick Note Amount” has the meaning set forth in Section 7.15(a). 

“Governmental Entity” means any supranational, national, state, municipal, local or foreign government, any
court, tribunal, arbitrator, administrative agency, commission or other governmental official, authority or instrumentality, in each case whether domestic or foreign. 
 “Hazardous Materials” means any (i) “hazardous wastes,” “hazardous substances,” “hazardous materials,” “extremely hazardous
substances,” “pollutant,” “contaminant,” or “regulated substance,” as defined, listed, or classified pursuant to Environmental Laws; (ii) solid wastes (as defined or regulated

 
pursuant to RCRA); (iii) asbestos; (iv) polychlorinated biphenyls; (v) mercury; (vi) flammable or explosive materials; (vii) radioactive materials; (viii) petroleum
or petroleum products (including crude oil); and/or (ix) any other chemical, pollutant, contaminant, substance, waste, or material that is regulated under any Environmental Law. 

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder. 
 “Included Equipment” means an item of New Equipment that is not
an item of Excluded Equipment. 
 “Indemnitee” or “Indemnitees” means,
individually and as a group, the Buyer Indemnified Persons and Seller Indemnified Persons, as applicable. 

“Indemnitor” means any Person having any liability to any Indemnitee under this Agreement. 

“Indemnity Escrow Amount” means $13,625,000. 

“Independent Accountant” has the meaning set forth in Section 3.2(d). 

“Infringed” has the meaning set forth in Section 4.16(c). 

“Intellectual Property” means algorithms, APIs, databases, data collections, diagrams, inventions, methods and
processes (whether or not patentable), know-how, notebooks, manuals, drawings, network configurations and architectures, proprietary information, protocols, schematics, specifications, software (in any form, including source code and executable
code), techniques, interfaces, URLs, web sites, works of authorship and all other forms of technology, whether in tangible or intangible form, in each case whether or not registered with a Governmental Entity. 

“Intellectual Property Rights” means all rights of the following types, whether registered or unregistered, which
may exist or be created under the laws of any jurisdiction: (A) rights associated with works of authorship, including exclusive exploitation rights, copyrights, and moral rights; (B) trademark, service mark and trade name rights and
similar rights; (C) trade secret rights; (D) patents and industrial property rights; (E) database rights; (F) any other proprietary rights applicable to Intellectual Property; (G) any and all rights pursuant to any
Intellectual Property laws of any Governmental Entity; and (H) rights in or relating to registrations, renewals, extensions, combinations, divisions, and reissues of, and applications for, any of the rights referred to in clauses
(A) through (G) above. 
 “Interim Balance Sheet” has the meaning set forth in
Section 4.9(a). 
 “Interim Balance Sheet Date” has the meaning set forth in
Section 4.9(a). 
 “Knowledge” means, with respect to the Company, the actual knowledge of
Don Gawick, Everett Michael Hobbs, John L. Dunn, Ed Keppler, or Tom Wilkins, after reasonable inquiry by each such person of those employee(s) of the Company or Company Subsidiaries directly reporting to that person, which employees shall include
Dwayne D. Allen, Winston Eksund, Steven E. Green, and Brian S. Buffington; provided, that such persons listed above shall not be obligated to conduct any further investigation or inquiry of any employees of the Company or Company Subsidiaries
of a lower rank than those employees directly reporting to such persons, in accordance with the internal organization of the Company. 
 “Lease” or “Leases” has the meaning set forth in Section 4.12. 

 “Legal Requirements” means any federal, state, foreign, local,
municipal or other law, statute, constitution, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity and any orders, writs,
injunctions, awards, judgments and decrees. 
 “Loan Agreements” means, collectively, the documents
evidencing Debt of the Company and the Company Subsidiaries set forth on Annex I. 
 “Material Adverse
Effect” with respect to any Person means any change, event, development, circumstance or effect (each, an “Effect”) that (A) is materially adverse to the condition (financial or otherwise), assets (including
intangible assets), liabilities (taken together), business or results of operations of such Person and its Subsidiaries, taken as a whole, or (B) materially prevents, impedes or otherwise adversely affects such Person’s ability to
consummate the transactions contemplated by this Agreement in accordance with its terms and applicable Legal Requirements, except to the extent any such Effect results from or arises out of (i) changes in general economic conditions,
(ii) changes affecting the industry or a segment of the industry or a geographic region generally in which such Person or its customers or suppliers operate, (iii) the announcement or pendency of the transactions contemplated by this
Agreement, (iv) the disclosure of the fact that Buyer is the prospective acquirer of the Company, (v) changes in laws, (vi) moratoriums, bans or other restrictions or prohibitions on drilling, (vii) changes in accounting
principles, (viii) acts of war or terrorism, (ix) actions taken by Buyer or any of its Affiliates or representatives or (x) compliance with the terms of, or the taking of any action required by, this Agreement or any other Transaction
Document, so long as, in the cases of clauses (i), (ii), (v), (vi) and (viii), the Company and Company Subsidiaries are not disproportionately affected by such conditions as compared with other businesses in the same industry as the Company.

 “Material Contract” has the meaning set forth in Section 4.7(a). 

“Net Working Capital” means the sum of all Current Assets minus the sum of all Current Liabilities. 

“New Equipment” means the equipment set forth in Schedule 2.2(a) that was delivered and paid for by the
Company prior to the Closing Date, in the related amounts set forth in Schedule 2.2(a). 
 “Notice of
Claim” has the meaning set forth in Escrow Agreement. 
 “Objection Notice” has the meaning
set forth in Section 3.2(c). 
 “Option Holders” has the meaning set forth in the preamble.

 “Option Payments” has the meaning set forth in Section 2.2(b). 

“Organizational Documents” has the meaning set forth in Section 4.3(a). 

“Other Tax Contest” has the meaning set forth in Section 7.7(g)(iii). 

“Party” and “Parties” has the meaning set forth in the preamble. 

“Pay-Off Letter” or “Pay-Off Letters” means the letters, and any updates thereto,
to be sent by each of the Company’s lenders under the Loan Agreements to the Company and Buyer prior to Closing, which letters shall specify the aggregate amount of Debt that will be outstanding as of the Closing Date under each Loan Agreement
and wire transfer information for each such lender to be paid at the Closing. 

 “Per Claim Limitation” has the meaning set forth in
Section 11.4(c)(i). 
 “Permits” means any permit, license, authorization or approval issued
by a Governmental Entity. 
 “Permitted Encumbrances” means (A) statutory liens for Taxes that are
not yet delinquent or liens for Taxes being contested in good faith by any appropriate proceedings, (B) statutory liens to secure obligations to landlords, lessors or renters under leases or rental agreements, (C) deposits or pledges made
in connection with, or to secure payment of, workers’ compensation, unemployment insurance or similar programs mandated by applicable law, (D) statutory liens in favor of carriers, warehousemen, mechanics and materialmen to secure claims
for labor, materials or supplies and other similar liens, (E) all matters that are disclosed on any survey of the Company Real Estate, in any title policy insuring the Company Real Estate or in any title commitment therefor, (F) zoning,
planning and other similar limitations and restrictions and all rights of any Governmental Entity to regulate the Company Real Estate that are not violated by the current use or occupancy of the Company Real Estate, (G) minor defects,
irregularities in title, easements, rights-of-way, servitudes, restrictions (including zoning restrictions and regulations), covenants, licenses, encroachments, protrusions and other similar charges or encumbrances (whether affecting fee interests,
a landlord’s interest in leased properties or a tenant’s interest in leased properties), none of which, individually or in the aggregate, materially adversely interfere with the use or occupancy for operations of the Company’s and
Company Subsidiaries’ business as currently conducted thereon, (H) liens arising by virtue of deposits made in the ordinary course of business to secure performance under leases, contracts and other similar obligations, (I) liens on
the assets or property of the Company or any Company Subsidiaries in favor of the Company or any of the Company Subsidiaries, and (J) all liens set forth in Schedule 13 of the Company Disclosure Schedules. 

“Person” means any natural person, company, corporation, limited liability company, general partnership, limited
partnership, trust, proprietorship, joint venture, other business organization or Governmental Entity. 
 “Personal
Property” has the meaning set forth in Section 4.13(a). 
 “Pre-Adjustment Purchase
Price” has the meaning set forth in Section 2.2(a). 
 “Pre-Adjustment Purchase Price
Statement” has the meaning set forth in Section 3.1. 
 “Pre-Closing Period”
has the meaning set forth in Section 6.1. 
 “Post-Closing Statement” has the meaning set
forth in Section 3.2(a). 
 “Pre-Closing Tax Contest” has the meaning set forth in
Section 7.7(g)(ii). 
 “Pre-Closing Tax Period” means any Tax period ending on or before the
Closing Date and the portion of any Straddle Period up to and including the Closing Date. 
 “Pre-Closing Tax
Return” has the meaning set forth in Section 7.7(a)(i). 
 “Pro Rata
Percentage” means, with respect to a Seller, the percentage set forth opposite such Seller’s name in Exhibit 2.1. 
 “Proceedings” means any claim, action, suit, proceeding, motion, complaint, demand, charge, inquiry, investigation, arbitration or mediation before or by a Governmental Entity or
any arbitrator or arbitration panel or any mediator or mediation panel. 

 “Property Tax” has the meaning set forth in
Section 7.7(c)(i). 
 “Purchase Orders” means any purchase orders or other similar
documents, whether written or oral, providing for the one-time future delivery of goods, products or services by or to the Company or any Company Subsidiary. 
 “Purchase Price” has the meaning set forth in Section 2.2. 
 “Release” means any release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the environment of any
Hazardous Materials. 
 “Remediation” means (i) any investigation of known or suspected
environmental conditions, (ii) any removal or remedial action or other response or corrective action required to comply with Environmental Laws, and (iii) the taking of all reasonably necessary actions to prevent and/or respond to, remove,
remediate or monitor the Release or threatened Release of Hazardous Materials in the environment. 
 “Representative
Expenses” has the meaning set forth in Section 11.7(a). 
 “Review Period” has
the meaning set forth in Section 3.2(c). 
 “Securities Act” means the Securities Act of
1933, as amended. 
 “Seller Fundamental Representations” has the meaning set forth in
Section 11.1(a). 
 “Seller Indemnified Persons” has the meaning set forth in
Section 11.3. 
 “Seller Released Parties” has the meaning set forth in
Section 7.12(b). 
 “Sellers” has the meaning set forth in the preamble. 

“Sellers’ Representative” has the meaning set forth in Section 11.7. 

“Selling Shareholders” has the meaning set forth in the preamble. 

“Shares” has the meaning set forth in the recitals. 

“Straddle Period” means any Tax period that begins on or before the Closing Date and ends after the Closing Date.

 “Straddle Tax Return” has the meaning set forth in Section 7.7(a)(ii). 

“Subsidiary” means, as of the applicable point in time, each corporation, partnership, limited liability company
or other entity of which a Person (other than a natural person) owns, directly or indirectly, more than 50% of the outstanding voting securities or voting equity interests or of which a Person has the power, directly or indirectly, whether through
ownership of equity securities, by contract or otherwise, to direct or manage its business or affairs. 

“Tax” (and, with correlative meaning, “Taxes” and “Taxable”)
means any net income, alternative or add-on minimum tax, gross income, estimated, gross receipts, sales, use, ad valorem, value added, transfer, franchise, capital stock, profits, license, registration, withholding, payroll, social security (or

 
equivalent), employment, unemployment, disability, excise, severance, stamp, occupation, premium, property (real, tangible or intangible), environmental or windfall profit tax, custom duty or
other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount (whether disputed or not) imposed by any Governmental Entity responsible for the
imposition of any such tax (domestic or foreign) (each, a “Tax Authority”). 
 “Tax
Authority” has the meaning set forth in the definition of the term “Tax.” 
 “Tax
Contest” has the meaning set forth in Section 7.7(g)(i). 
 “Tax Return” means
any return, statement, report or form (including estimated Tax returns and reports, withholding Tax returns and reports, any schedule or attachment and information returns and reports) required to be filed with a Tax Authority with respect to Taxes.

 “Termination Date” has the meaning set forth in Section 10.1(b). 

“Third-Party Claim” means the assertion, in writing, against any Indemnitee of a claim or Proceeding brought by a
third party against any Indemnitee that arises out of or results from any item indemnified pursuant to the terms of Section 11.2 or 11.3. 
 “Third-Party Intellectual Property” means all Intellectual Property owned by third parties that is either (A) licensed or provided to (i) the Company or the Company
Subsidiaries or (ii) customers of the Company or the Company Subsidiaries or (B) otherwise used by the Company or the Company Subsidiaries in the conduct of their businesses, including all Intellectual Property Rights thereto. 

“Transaction Documents” means, collectively, this Agreement, the Company Disclosure Schedules, and the Escrow
Agreement. 
 “Transfer Taxes” has the meaning set forth in Section 7.7(h). 

“Unpaid Company Transaction Costs” means the Company Transaction Costs to the extent unpaid as of as of 11:59
p.m. on the date immediately preceding the Closing Date. 
 “WARN Act” has the meaning set forth in
Section 7.9(a). 
 “Willful and Material Breach” means a material breach that is a
consequence of an act or failure to act by the breaching party with the knowledge (actual or constructive) after reasonable inquiry that the taking of, or failure to take, such act could, or could be reasonably expected to, cause a breach of this
Agreement. 
 “Withholding Party” has the meaning set forth in Section 2.2(b). 

“Working Capital Requirement” means $16,650,000.

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