Structure and Business Activities headline

(Part of the Management Report) The following section describes the legal and organizational structure of the Volkswagen Group and explains the material changes in 2007 with respect to equity investments. This is followed by the disclosures relating to takeover law in accordance with sections 289(4) and 315(4) of the HGB.

OUTLINE OF THE LEGAL STRUCTURE OF THE GROUP
 
Volkswagen AG is the parent company of the Volkswagen Group. It develops vehicles and components for the Group, but also produces and sells vehicles, in particular Volkswagen brand passenger cars and commercial vehicles. In its function as parent company, Volkswagen AG holds interests in AUDI AG, SEAT S.A., Volkswagen Financial Services AG and numerous other companies in Germany and abroad. An overview of the significant Group companies can be found in the Notes to the Consolidated Financial Statements.
 
The Volkswagen AG Board of Management is the ultimate body responsible for managing the Group. The Supervisory Board appoints, monitors and advises the Board of Management and is consulted directly on decisions that are of fundamental significance for the Company.
 
Information on the remuneration structure for the Board of Management and the Supervisory Board can be found in the Remuneration Report, in the Notes to the Volkswagen Consolidated Financial Statements and in the Notes to the Annual Financial Statements of Volkswagen AG.
 
 
ORGANIZATIONAL STRUCTURE OF THE GROUP
 
Volkswagen AG and the Volkswagen Group are managed by the Volkswagen AG Board of Management in accordance with the Volkswagen AG Articles of Association and the rules of procedure for the Volkswagen AG Board of Management issued by the Supervisory Board. Within the framework laid down by law, the Group Board of Management ensures that Group interests are taken into account in decisions relating to the Group’s brands and companies. This body consists of Board members and selected top managers with Group management functions.
 
Each brand in the Volkswagen Group is managed by a senior brand manager. The Group targets and requirements laid down by the Board of Management of Volkswagen AG or the Group Board of Management must be complied with in accordance with the applicable legal framework. Matters that are of importance to the Group as a whole are submitted to the Group Board of Management for approval. The rights and obligations of the statutory supervisory bodies of the relevant brand companies remain unaffected.
 
The companies of the Volkswagen Group are managed separately by their respective managements. In addition to the interests of their own companies, each individual company management takes into account the interests of the Group and of individual brands in accordance with the framework laid down by law.
 
 
MAJOR CHANGES IN EQUITY INVESTMENTS
 
Effective as of January 1, 2007, Autogerma S.p.A was renamed Volkswagen Group Italia S.p.A.
 
Volkswagen India Private Limited was established on February 6, 2007. The initial purpose of the company is to set up a plant in Pune, India, that will produce Volkswagen brand vehicles from 2008 onwards. On March 7, 2007, Volkswagen Group Sales India Private Limited, head–quartered in Mumbai, India, was also established. It will sell both locally manufactured and imported Group vehicles in India.
 
Svenska Volkswagen Aktiebolag has been operating under the name of Volkswagen Group Sverige Aktiebolag since June 20, 2007.
 
Effective as of January 1, 2008, Volkswagen of America, Inc. was renamed Volkswagen Group of America, Inc. Volkswagen Canada, Inc. was renamed Volkswagen Group Canada, Inc. as of the same date.
 
In 2007, Volkswagen AG increased its equity interest in MAN AG to 29.9% of the voting rights and its equity interest in Scania AB to 37.4% of the voting rights. These equity interests are designed to safeguard the Group's strategic interest in the commercial vehicles business. At the beginning of 2007, Volkswagen AG's Supervisory Board rejected MAN's offer to acquire Scania and instructed the Board of Management to work towards an amicable merger of MAN and Scania in order to leverage the potential synergies associated with this move.
 
 
DISCLOSURES REQUIRED UNDER TAKEOVER LAW
 
The disclosures required under takeover law as specified by sections 289(4) and 315(4) of the Handelsgesetzbuch (HGB – German Commercial Code) are presented in the following.
 
Capital structure
 
On December 31, 2007, the share capital of Volkswagen AG amounted to €1,015,233,400.32 (previous year: €1,004,078,968.32); it was composed of 291,337,267 ordinary shares and 105,238,280 preferred shares. Each share conveys a notional interest of €2.56 in the share capital.
 
Shareholder rights and obligations
 
Shareholders have pecuniary and administrative rights.
The pecuniary rights include in particular the right to participate in profits (section 58(4) of the Aktiengesetz (AktG – German Stock Corporation Act)), to participate in liquidation proceeds (section 271 of the AktG) and preemptive rights on shares in the event of capital increases (section 186 of the AktG).
 
Administrative rights include the right to attend the Annual General Meeting and the right to speak there, to ask questions, to propose motions and to exercise voting rights. Shareholders can enforce these rights in particular through actions seeking disclosure and actions for avoidance.
 
Each ordinary share grants the holder one vote at the Annual General Meeting. The Annual General Meeting elects shareholder representatives to the Supervisory Board and elects the auditors; in particular, it resolves the appropriation of net profit, formally approves the actions of the Board of Management and the Supervisory Board, resolves amendments to the Articles of Association, capitalization measures, authorizations to purchase treasury shares and, if required, the conduct of a special audit; it also resolves premature removal of Supervisory Board members and the winding-up of the Company.
 
Preferred shareholders generally have no voting rights. However, in the exceptional case that preferred shareholders are granted voting rights by law (for example, when preferred share dividends were not paid in one year and not compensated for in full in the following year), each preferred share also grants the holder one vote at the Annual General Meeting. Furthermore, preferred shares entitle the holder to a €0.06 higher dividend than ordinary shares (further details on this right to preferred dividends are specified in Article 28(2) of the Articles of Association).
 
The Gesetz über die Überführung der Anteilsrechte an der Volkswagenwerk Gesellschaft mit beschränkter Haftung in private Hand (VW-Gesetz – Act on the Privatization of Shares of Volkswagenwerk Gesellschaft mit beschränkter Haftung) of July 21, 1960, as amended in 1970, and Volkswagen AG’s Articles of Association include provisions in derogation of the Aktiengesetz (AktG – German Stock Corporation Act), for example on exercising voting rights by proxy (section 3 of the VW-Gesetz), on majority requirements (section 4(3) of the VW-Gesetz) and on restrictions on voting rights (section 2(1) of the VW-Gesetz) when resolutions are adopted by the Annual General Meeting. Furthermore, it includes provisions governing the right of the German federal government and the State of Lower Saxony to appoint shareholder representatives (section 4(1) of the VW-Gesetz).
 
On October 23, 2007, the European Court of Justice (ECJ) ruled that the Federal Republic of Germany had breached its obligations under Article 56(1) of the EC Treaty (restrictions on the movement of capital) by retaining section 4(1) and section 2(1) in conjunction with section 4(3) of the VW-Gesetz of July 21, 1960, in the version applicable to the legal dispute.
 
Following the ruling by the ECJ, the Federal Republic of Germany is obliged in accordance with Article 228 of the EC Treaty to remedy its breach of Community law. The German federal government has announced that it will amend the VW-Gesetz in line with the ruling in the near future. The current status of the legislative process can be ascertained from the publications by the legislature.
 
Shareholdings exceeding 10% of voting rights
 
Shareholdings in Volkswagen AG that exceed 10% of voting rights are shown in the Notes to the Annual Financial Statements of Volkswagen AG and the Notes to the Volkswagen Consolidated Financial Statements.
 
Composition of the Supervisory Board
 
The Supervisory Board consists of 20 members, half of whom are shareholder representatives. In accordance with section 4 of the VW-Gesetz in conjunction with Article 12 of the Articles of Association, two of the shareholder representatives are appointed by the State of Lower Saxony. The remaining shareholder representatives are elected by the Annual General Meeting. The other half of the Supervisory Board consists of employee representatives elected by the employees in accordance with the Mitbestimmungsgesetz (German Codetermination Act). Seven of these employee representatives are Company employees; the other three employee representatives on the Supervisory Board represent the trade unions. The Chairman of the Supervisory Board, generally a shareholder representative on the Supervisory Board who is elected by his Supervisory Board colleagues, has a casting vote in the Supervisory Board, in accordance with the Mitbestimmungsgesetz (German Codetermination Act).
 
Statutory requirements and requirements of the Articles of Association with regard to the appointment and removal of Board of Management members and to amendments to the Articles of Association
 
The appointment and removal of Board of Management members are governed by sections 84 and 85 of the AktG, whereby Board of Management members are appointed by the Supervisory Board for a maximum of five years. Board of Management members may be reappointed or have their term of office extended for a maximum of five years in each case. In addition, Article 6 of the Articles of Association states that the number of Board of Management members is stipulated by the Supervisory Board and that the Board of Management must consist of at least three persons.
 
Powers of the Board of Management, in particular concerning the issue of new shares and the repurchase of treasury shares
 
According to German stock corporation law, the Annual General Meeting can, for a maximum of five years, authorize the Board of Management to issue new shares. It can also authorize the Board of Management, for a maximum of five years, to issue convertible bonds on the basis of which new shares are to be issued. The Annual General Meeting also decides the extent to which shareholders have preemptive rights for the new shares. The highest amount of authorized share capital or contingent capital available for these purposes is determined by Article 4 of the Articles of Association of Volkswagen AG, as amended.
 
The acquisition of treasury shares is governed by section 71 of the AktG. At the most recent Annual General Meeting in Hamburg on April 19, 2007, the Board of Management was authorized, in accordance with section 71(1) no. 8 of the AktG and with the consent of the Supervisory Board, to acquire ordinary shares and/or non-voting preferred shares of Volkswagen AG on one or more occasions, up to a maximum of 10% of the share capital – i.e. up to a maximum of 39,247,877 shares – via the stock market or by way of a public purchase offer to all shareholders. This authorization came into effect on November 4, 2007, and will apply until October 19, 2008, insofar as no other resolution is adopted by the Annual General Meeting prior to this date. Details on the issue of new shares and the retirement of treasury shares are shown in the Notes to the Consolidated Financial Statements
 
Material agreements of the parent company that take effect in the event of a change of control following a takeover bid
 
On June 14, 2005, a banking syndicate granted Volkswagen AG a syndicated credit line of €12.5 billion, which was reduced to €10.0 billion in 2007. The credit line runs until June 2012. In the event of a change in control of Volkswagen AG (as defined in the EU Merger Regulation), the lenders may individually and independently terminate their proportion of the credit line with immediate effect, and if required, demand repayment of amounts lent. Such a termination entitlement is standard for the industry (see recommendation of the Loan Market Association).

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Annual Report 2007 Pages 104-107
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