Corporate Governance

CORPORATE GOVERNANCE – STANDARDS FOR EFFECTIVE AND RESPONSIBLE CORPORATE MANAGEMENT

Infineon’s Management Board and Supervisory Board view Corporate Governance as a comprehensive concept for responsible, value-driven corporate management which includes all values, processes, and goals that are part of our corporate mission. Infineon recognized the importance of good Corporate Governance early on and adopted the company’s own Infineon Corporate Governance Code in December 2002, which was regularly reevaluated and adapted to changes in the German Corporate Governance Code. As a result of the successive development of the German Corporate Governance Code, however, there is no further need for an additional company-specific code. The Management Board and the Supervisory Board have thus decided to set Infineon’s own Corporate Governance Code aside in the future. The Management Board, the Supervisory Board and other persons bearing managerial responsibility ensure that the German Corporate Governance Code is actively “lived” in the company. Beyond the German Corporate Governance Code, Corporate Governance at Infineon encompasses internal controlling standards, compliance, in particular the ”Business Conduct Guidelines”, and regulations on the company’s organizational and supervisory tasks. Moreover, Infineon has appointed a Corporate Governance Officer who reports directly to the Management and Supervisory Boards.

 
INFINEON MAINTAINS HIGH GERMAN AND INTERNATIONAL STANDARDS

GENERAL CONDITIONS IN GERMANY

As a market-listed company headquartered in Germany, Infineon Technologies AG follows, in particular, the requirements of the German Stock Corporation Act (Aktiengesetz) and the German Corporate Governance Code. With one exception related to efficiency, Infineon has adopted all the recommendations and nearly all the suggestions of the German Corporate Governance Code. It is our goal to continue to provide our shareholders and the general public with open and comprehensive information on our company. We intend to support our shareholders as far as possible in the exercise of their rights. Shareholders, for example, can register for our Annual General Meeting electronically, can participate in votes by sending online messages to their voting representatives, and can follow the general debate via the Internet.



CAPITAL MARKET REGULATIONS IN THE UNITED STATES
Infineon Technologies AG is also listed on the New York Stock Exchange (NYSE). The company is thus also subject to certain U.S. capital market laws, to the rules of the U.S. Securities and Exchange Commission (SEC), and to the NYSE corporate governance regulations. Since July 2002, U.S. legislators, the SEC, and the NYSE have issued various rules for the improvement of investor protection and Corporate Governance for U.S. corporations. Most of these rules, such as the Sarbanes-Oxley Act, also apply to non-U.S. corporations listed on U.S. stock exchanges. An overview of the significant differences between our corporate governance and NYSE standards is available on the Internet at www.infineon.com, under “About Infineon / Investor / Corporate Governance”. These differences are primarily based on our dual management system, the employee representation on the Supervisory Board, and further different legal regulations and standards applicable in Germany.
 
To implement the U.S. regulations, we have set up a Disclosure Committee, which reviews and approves the publications of certain financial and other material information. Furthermore, a procedure was introduced that allows employees to anonymously disclose information about violations of internal guidelines and statutory accounting rules. The CEO and CFO are obliged under U.S. law to provide the SEC with certain certifications with regard to the financial statements. The required information must be confirmed internally vis-à-vis the Management Board by senior executives bearing managerial responsibility.


MANAGERIAL STRUCTURE AND CORPORATE CONTROL
Infineon Technologies AG as a German stock corporation is subject to German Stock Corporation Law, which stipulates a two-tier administrative system, with the Management Board being responsible for management, and the Supervisory Board for corporate oversight. We are convinced that this separation of the two functions is an important precondition for good Corporate Governance.


MANAGEMENT BOARD
The Infineon Technologies AG Management Board currently consists of four members, for whom the Supervisory Board has set an age limit in accordance with the German Corporate Governance Code; thus, the members of the Management Board may not be older than 65 years.
The Management Board is the company’s executive body; it is solely bound to serve the company’s interests and shall thereby pursue the goal of sustainably increasing the company’s value. In compliance with mandatory German Stock Corporation Law, it bears the overall responsibility for the management of the company. In accordance with the rules of procedure of the Management Board, all members of the board manage the company jointly.
 

SUPERVISORY BOARD
The Supervisory Board advises and monitors the Management Board in running the company. The Management Board reports to the Supervisory Board regularly, comprehensively and in a timely manner on all matters of relevance to business development, planning, and risk management, and agrees with the Supervisory Board on corporate strategy and its implementation. The Supervisory Board discusses the quarterly reports, and reviews and approves both the individual financial statements and the consolidated financial statements of Infineon Technologies AG. Major decisions of the Management Board, such as large acquisitions, divestitures, and financial measures, are subject to the approval of the Supervisory Board. Further details are stipulated in the rules of procedure of the Management Board and the Supervisory Board. The Supervisory Board, moreover, decides about the appointment and dismissal of Management Board members. The Supervisory Board comprises 16 members who, in accordance with the German Co-Determination Act (Mitbestimmungsgesetz), are divided equally among shareholder and employee representatives. Shareholder representatives are elected at the Annual General Meeting; the last election took place in the 2005 fiscal year. Employee representatives are elected by employee delegates at Infineon’s German facilities in accordance with the regulations of the German Co-Determination Act. The next election will take place in the 2009 fiscal year. When Supervisory Board votes end in ties, the Chairman of the Supervisory Board has the deciding vote if voting is carried out a second time and again results in a tie.
The regular term of office for the Supervisory Board is five years. The duties of the Supervisory Board and its committees are regulated in the rules of procedure of the Supervisory Board.
 

SUPERVISORY BOARD COMMITTEES
The rules of procedure of the Supervisory Board provide for the formation of three committees: The Mediation Committee, the Executive Committee, and the Investment, Finance and Audit Committee. The Supervisory Board has also set up a Strategy and Technology Committee, and, at the beginning of the 2008 fiscal year, a Nomination Committee has been established as recommended by the German Corporate Governance Code.
The Executive Committee, composed of the Chairman of the Supervisory Board, the Vice-Chairman, and one shareholder representative, prepares the appointment and dismissal of members of the Management Board, is responsible for the conclusion, alteration, and termination of contracts with Management Board members, and determines the structure and amount of the Management Board members’ compensation. It also decides on the amounts of stock-based compensation.
The Investment, Finance, and Audit Committee (“Audit Committee”) consists of the Chairman of the Supervisory Board, one shareholder representative, and one employee representative. The Audit Committee performs the tasks of an audit committee under U.S. law. The members of our Audit Committee are all independent in terms of the applicable U.S. regulations. The Supervisory Board has appointed Max Dietrich Kley and Dr. Siegfried Luther as the Audit Committee financial experts.
The Audit Committee monitors the company’s financial reporting, discusses and examines the quarterly and the annual financial statements prepared by the Management Board, and, based on the independent auditor’s report, gives recommendations with respect to the approval of the annual financial statements by the Supervisory Board. The committee also oversees the company’s system of internal control, and the procedures for risk assessment, risk control, and risk management. For this purpose, it is entitled to refer directly to all company employees and to call in external support. Internal Audit reports regularly to the committee, which can also determine the audit plan and its key areas of auditing. In consideration of the newly introduced stipulations of the German Corporate Governance Code, the responsibility for compliance was also transferred to the Audit Committee; the Corporate Compliance Officer regularly reports to the committee on the compliance system, and, if necessary, on particular compliance issues. The committee, furthermore, commissions the independent auditor selected at the Annual General Meeting to audit the individual financial statements and the consolidated financial statements, determines the audit’s areas of focus, and is responsible for determining the independent auditor’s compensation. We have also decided that the auditor may be entrusted with consulting work only when so approved by the Audit Committee.
The Mediation Committee, which consists of the Chairman of the Supervisory Board, the Vice-Chairman, one shareholder representative, and one employee representative, submits recommendations to the Supervisory Board concerning the appointment of new members of the Management Board if the first round of the election does not result in the required majority of two thirds of the members of the Supervisory Board.
The Nomination Committee, which consists exclusively of shareholder representatives, shall propose to the Supervisory Board suitable candidates for recommendation to the Annual General Meeting.
 

SHAREHOLDERS AND THE ANNUAL GENERAL MEETING
Infineon shareholders take their decisions at the Annual General Meeting, which is held at least once a year. Every share carries one vote. Shareholders can attend the Annual General Meeting as long as they are registered in the share register and have signed up for the meeting in time. The Annual General Meeting decides on all issues assigned to it, most notably on the discharge of the Management Board and the Supervisory Board, the election of an auditor, amendments to the Articles of Incorporation, and measures affecting the capital structure. In the interest of best Corporate Governance, German law has always stipulated that all measures affecting the company’s capital be strictly subject to shareholders’ approval. This includes stock option plans served with shares out of conditional capital. Shareholders are entitled to make counterproposals to motions introduced by management and, under certain circumstances, have the right to challenge resolutions of the Annual General Meeting, to request an extraordinary judicial review, and to demand, on behalf of the company, damage compensation from corporate bodies of the company when they suspect misconduct or severe deficiencies in the company’s management or supervision.
 
In accordance with our financial calendar, we submit a regular quarterly report to our shareholders, covering our business developments and the company’s financial situation and financial results. The members of the Management Board regularly inform shareholders, analysts, and the general public about the quarterly and annual results. Our comprehensive investor relations service features regular meetings with analysts and institutional investors, as well as telephone conferences and annual analyst conferences.
  
FINANCIAL REPORTING AND AUDITING
Since 2005, capital-market-oriented European Union companies are strictly required to prepare their consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). Since Infineon is listed on the NYSE, we were able to claim exemption from this rule for the last time in the 2007 fiscal year, and prepare our consolidated financial statements solely in accordance with the United States Generally Accepted Accounting Principles (U.S.-GAAP). For the 2008 fiscal year, we will prepare our consolidated financial statements in accordance with IFRS for the first time. The individual financial statements will continue to follow HGB guidelines.
  
COMPENSATION REPORT
Details on the compensation of the Management Board and the Supervisory Board in the 2007 fiscal year are provided in our comprehensive compensation report, which follows on pages 66 through 71 and is to be viewed as a part of the group operating and financial review.
  
THE 2006 INFINEON STOCK OPTION PLAN
The Annual General Meeting adopted the Infineon 2006 Stock Option Plan on February 16, 2006. The absolute performance target was increased to 20 percent from 5 percent in the previous Stock Option Plan. The new relative performance target requires that the Infineon share price exceeds the performance of a benchmark index on at least three consecutive days during the life of the option. The benchmark index used is the PHLX Semiconductor Index (SOX) of the Philadelphia Stock Exchange. The 2006 Infineon Stock Option Plan has a term of three years (in lieu of the former six-year-term). The plan is described in detail in note 28 to the consolidated financial statements and is available in full text on the Internet at www.infineon.com, under “About Infineon / Investor / Corporate Governance”.

INTEGRITY
 
BUSINESS CONDUCT GUIDELINES AND CODE OF ETHICS IN FINANCIAL MATTERS
We conduct our business responsibly and in compliance with legal requirements and administrative regulations – and we have established several guidelines for this purpose. The Infineon Business Conduct Guidelines, which can be viewed in their entirety on the company’s website, are binding for the Management Board and all Infineon employees. These guidelines, which are regularly reviewed and refined, include regulations on compliance with the law, interaction with business partners and third parties, the avoidance of conflicts of interest, interaction with company institutions, the treatment of data and information, and environmental protection, health and safety. The guidelines also contain regulations concerning the treatment of complaints and suggestions in case of violations of these guidelines. The Business Conduct Guidelines include, moreover, our Code of Ethics in Financial Matters, as is mandatory under the Sarbanes-Oxley Act.
 
CORPORATE COMPLIANCE OFFICER AND COMPLIANCE PANEL
A full-time Corporate Compliance Officer, reporting directly to the Management Board, is responsible for the coordination of the Infineon Compliance Program and the reception of complaints and suggestions, which may be submitted anonymously. The officer is supported by regional Compliance Officers. In the 2007 fiscal year, we also introduced a Compliance Panel, composed of experienced managerial members of the legal, human resources, audit, and security departments. The members of the Compliance Panel meet regularly and advise the Compliance Officer, in particular, on the issuance and revision of guidelines.
  
AVOIDANCE OF CONFLICTS OF INTEREST
The members of the Management Board and the Supervisory Board are to disclose any conflicts of interest to the Supervisory Board immediately. Major business transactions between the company and members of the Management Board and any persons in close association with them require the approval of the Supervisory Board. In the 2007 fiscal year, no conflicts of interest concerning the members of the Management Board and the Supervisory Board arose.
  
SHAREHOLDINGS OF MANAGEMENT AND SUPERVISORY BOARD MEMBERS
As of September 30, 2007, the entire holdings of shares in Infineon Technologies AG of all members of the Management Board and the Supervisory Board did not exceed 1 percent of the shares issued by the company.
 
DIRECTORS’ DEALINGS
The members of the Management Board and the Supervisory Board and certain other persons bearing managerial responsibility with regular access to inside information, as well as persons in close association with them are required pursuant to Section 15a of the German Securities Trading Act (Wertpapierhandelsgesetz) to notify the company as well as the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) of own transactions involving company shares. This only applies, however, if the total sum of the transactions made by one of the relevant persons bearing managerial responsibility, including those in close association with them, reaches a minimum of 5,000 euros within a single calendar year. These notifications are published on our Internet site at www.infineon.com, under “About Infineon / Investor / Corporate Governance” and are transmitted to the company register. The notification is also reported to the BaFin.

In the past fiscal year, the company was notified of the following transaction:

 
DECLARATION OF COMPLIANCE 2007 IN ACCORDANCE WITH SECTION 161 OF THE GERMAN STOCK CORPORATION ACT
In the 2007 fiscal year, Infineon Technologies AG complied with all recommendations of the German Corporate Governance Code (in the version of June 12, 2006) in accordance with Section 161 of the Securities Act, with the following exception:
The structure of the Management Board compensation system was not discussed and reviewed in the Supervisory Board plenum but in the Supervisory Board Executive Committee (divergence from Section 4.2.2).
Infineon Technologies AG will comply with all recommendations of the German Corporate Governance Code (in the version of June 14, 2007) with the following exception:
The structure of the Management Board compensation system will not be discussed and reviewed in the Supervisory Board plenum but in the Supervisory Board Executive Committee (divergence from Section 4.2.2).
Qimonda AG, a listed company which is part of the Infineon group, submitted its declaration of compliance in November 2007, which can be accessed via the Internet at www.qimonda.com.