Agenda. 1. Speech President. 2. Annual Report 2012, distribution to shareholders and discharge. 3. Composition of the Supervisory Board

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1 Agenda Agenda for the Annual General Meeting of Shareholders of Royal Philips Electronics (Koninklijke Philips Electronics N.V.) to be held at the Hotel Okura Amsterdam, Ferdinand Bolstraat 333, Amsterdam on Friday, May 3, 2013, beginning at hours. 1. Speech President 2. Annual Report 2012, distribution to shareholders and discharge a. Proposal to adopt the 2012 financial statements b. Explanation of policy on additions to reserves and dividends c. Proposal to adopt a dividend of EUR 0.75 per common share, in cash or shares at the option of the shareholder, to be charged against the net income for 2012 and retained earnings of the Company d. Proposal to discharge the members of the Board of Management for their responsibilities e. Proposal to discharge the members of the Supervisory Board for their responsibilities 3. Composition of the Supervisory Board a. Proposal to re-appoint Ms C.A. Poon as a member of the Supervisory Board of the Company with effect from May 3, 2013 b. Proposal to re-appoint Mr J.J. Schiro as a member of the Supervisory Board of the Company with effect from May 3, 2013 c. Proposal to re-appoint Mr J. van der Veer as a member of the Supervisory Board of the Company with effect from May 3, Long-Term Incentive a. Proposal to amend the Long-Term Incentive Plan for the Board of Management b. Proposal to adopt the Accelerate! Grant for the Board of Management 5. Change of Company name to Koninklijke Philips N.V. Proposal to amend the Articles of Association of the Company to change the name of the Company to Koninklijke Philips N.V.

2 2 6. Authorization of the Board of Management to (i) issue shares or grant rights to acquire shares and (ii) restrict or exclude pre-emption rights a. Proposal to authorize the Board of Management for a period of 18 months, effective May 3, 2013, as the body which is authorized, with the approval of the Supervisory Board, to issue shares or grant rights to acquire shares within the limits laid down in the Articles of Association of the Company b. Proposal to authorize the Board of Management for a period of 18 months, effective May 3, 2013, as the body which is authorized, with the approval of the Supervisory Board, to restrict or exclude the pre-emption rights accruing to shareholders The authorization referred to above under a. will be limited to a maximum of 10% of the number of issued shares as of May 3, 2013, plus 10% of the issued capital as of that same date in connection with or on the occasion of mergers and acquisitions and strategic alliances. 7. Authorization of the Board of Management to acquire shares in the Company Proposal to authorize the Board of Management for a period of 18 months, effective May 3, 2013, within the limits of the law and the Articles of Association, to acquire, with the approval of the Supervisory Board, for valuable consideration, on the stock exchange or otherwise, shares in the Company at a price between, on the one hand, an amount equal to the par value of the shares and, on the other hand, an amount equal to 110% of the market price of these shares on the Official Segment of Euronext Amsterdam; the market price being the average of the highest price on each of the five days of trading prior to the date of acquisition, as shown in the Official Price List of Euronext Amsterdam. The maximum number of shares the Company may hold, will not exceed 10% of the issued share capital as of May 3, 2013, which number may be increased by 10% of the issued capital as of that same date in connection with the execution of share repurchase programs for capital reduction purposes. 8. Cancellation of shares Proposal to cancel common shares in the share capital of the Company held or to be acquired by the Company. The number of shares that will be cancelled shall be determined by the Board of Management. 9. Any other business Agenda items indicated as Proposal are voting items

3 3 Explanatory notes to the agenda 1. Speech President In his speech the President will look back on the financial year 2012, including the Company s financial performance, and will explain the strategic direction of the Philips Group going forward. 2. Annual Report 2012, distribution to shareholders and discharge These agenda items include the proposals to adopt the 2012 financial statements and an optional dividend in cash or shares, as well as to discharge the members of the Board of Management and the Supervisory Board, in accordance with Dutch law, for the performance of their respective duties in the financial year Such discharge only covers matters that are known to the Company and the General Meeting of Shareholders when the resolution to discharge is adopted. Furthermore, these agenda items include an explanation of the Company s policy on additions to reserves and dividends. It is proposed to distribute a dividend of EUR 0.75 per common share in cash or shares, at the option of the shareholder in accordance with the Company s present dividend policy to sustainably distribute dividends based on a pay-out ratio of 40 to 50% of continuing net income. Shareholders will be given the opportunity to make their choice between cash and shares between May 10, 2013 and May 31, If no choice is made during this election period the dividend will be paid in shares. On May 31, 2013 after close of trading, the number of share dividend rights entitled to one new common share will be determined based on the volume-weighted average price of all traded common shares Koninklijke Philips Electronics N.V. at Euronext Amsterdam on 29, 30 and 31 May The Company will calculate the number of share dividend rights entitled to one new common share (the ratio ), such that the gross dividend in shares will be approximately 1.5% higher than the gross dividend in cash. On June 4, 2013 the ratio and the number of shares to be issued will be announced. Payment of the dividend and delivery of new common shares, with settlement of fractions in cash, if required, will take place from June 5, The new issued common shares rank for the dividend for the 2013 financial year and following financial years. If the above dividend proposal is adopted by the shareholders, the shares will be traded exdividend as of May 7, 2013 and the dividend record date will be May 9, Dividend in cash is in principle subject to 15% Dutch dividend withholding tax, which will be deducted from the dividend in cash paid to the shareholders. Dividend in shares paid out of net income and retained earnings is subject to 15% dividend withholding tax, but only in respect of the par value of the shares (which value amounts to EUR 0.20 per share). This withholding tax in the case of dividend in shares will be borne by the Company. Some shareholders may be eligible to claim a refund of the tax withheld, if certain conditions are met. Shareholders are advised to consult their own tax advisor on the applicable situation both with respect to withholding tax, and the possibility to claim a tax credit or a refund for the tax withheld, as well as the tax due (such as corporate income tax, personal income tax) on the dividend received.

4 4 3. Composition of the Supervisory Board In accordance with the Articles of Association of the Company, the Supervisory Board has made binding recommendations regarding nominees for reappointment as members of the Supervisory Board. A nominee for each vacancy has been made and the curriculum vitae of each nominee is available for inspection at the offices of the Company and at ABN AMRO Bank N.V. (Gustav Mahlerlaan 10 (HQ 3130), 1082 PP Amsterdam) as well as on the Company s website ( and at the meeting. The following persons are proposed for reappointment: a. Ms C.A. Poon Ms Poon was born in 1952 and has American nationality. She has been a member of the Supervisory Board since Ms Poon is former Vice Chairman of Johnson & Johnson s Board of Directors and Worldwide Chairman of the Pharmaceuticals Group. Currently she is dean of Ohio State University s Fisher College of Business and member of the Board of Directors of Prudential and Regeneron. In view of her experience, in particular in the healthcare and pharmaceuticals business, and the way she fulfils her role as a member of the Supervisory Board and as a member of the Remuneration Committee and Corporate Governance and Nomination & Selection Committee, the Supervisory Board proposes to reappoint Ms Poon as a member of the Supervisory Board. b. Mr J.J. Schiro Mr Schiro was born in 1946 and has American nationality. He has been a member of the Supervisory Board since Mr Schiro is former CEO of Zurich Financial Services and Chairman of the Group Management Board. He also serves on various boards of private and listed companies including Goldman Sachs as Lead Director and member of the audit committee, PepsiCo as presiding director of the Supervisory Board and Reva Medical as member of the Supervisory Board and audit committee. Mr Schiro is also Senior Advisor of CVC Capital Partners Ltd. In view of the knowledge and experience in financial and economic aspects of international businesses of Mr Schiro, and the way he fulfils his role as Vice-Chairman of the Supervisory Board and Chairman of the Remuneration Committee and member of the Corporate Governance and Nomination & Selection Committee, the Supervisory Board proposes to reappoint Mr Schiro as a member of the Supervisory Board. c. Mr J. van der Veer Mr Van der Veer was born in 1947 and has Dutch nationality. He has been a member of the Supervisory Board since Mr Van der Veer is former Chief Executive and currently Non-executive Director of Royal Dutch Shell and Chairman of the Supervisory Board of ING Group. He is also member of the Supervisory Board of Concertgebouw N.V. In view of his broad management experience and his knowledge and experience of the financial and economic aspects of international businesses, and the way he fulfils his role as Chairman of the Supervisory Board, as Chairman of the Corporate Governance and Nomination & Selection Committee and as member of the Remuneration Committee, the Supervisory Board proposes to reappoint Mr Van der Veer as a member of the Supervisory Board.

5 5 4. Long-Term Incentive a. Proposal to amend the Long-Term Incentive Plan for the Board of Management Introduction For many years Philips has operated a long-term incentive plan consisting of a mix of options and restricted share rights. The long-term incentive plan serves to align the interests of the members of the Board of Management with the shareholders interests and to attract, motivate and retain executives of the highest caliber. Several internal and external developments have encouraged the Supervisory Board to design a new longterm incentive plan consisting of performance shares only. The main rationale behind this is the desire to link pay and performance more closely. The concept of performance shares with a three year post-grant performance measurement (replacing the current pre-grant performance measurement) and a steeper performance incentive-zone, increasing the potential benefit for superior performance and reducing the payments for the lower levels of performance, is consistent with the strategy of encouraging a more performance orientated culture. The extreme volatility of stock markets in recent years could lead to undesirable reward consequences for option holders, both upwards as well as downwards. Prolongation of a long-term incentive plan consisting for an important part of options would sustain these potential consequences and could result in a relatively high overhang (i.e. the total number of options and restricted share rights granted as a percentage of the total number of outstanding shares). Part of this proposal to adopt the new long-term incentive plan is to amend the references (including the long-term incentive paragraph) in the Remuneration Policy for the Board of Management accordingly. No changes are being made to the other elements of the Remuneration Policy. The Supervisory Board will closely monitor the trends in the market. Features of the proposed long-term incentive plan Type of plan The long-term incentive plan ( LTI Plan ) allows for the award of performance-related shares ( performance shares ), without the facility to grant options. Eligibility Under the LTI Plan members of the Board of Management will be eligible. A similar plan will apply to senior management and key employees. Size of awards The annual award size is set by reference to a multiple of base salary (compared to a fixed number of options and restricted share rights in previous years under the current LTI Plan). For the CEO the annual award size is set at 120% of base salary. For the other members of the Board of Management the annual award size is set at 100% of base salary 1. This is considered to be a mid-market level against leading European listed companies. 1 For members of the Board of Management from the United States of America, the size of the award can be doubled.

6 6 The actual number of performance shares to be awarded is determined by reference to the average closing price of the Philips share on the day of publication of the quarterly results and the four subsequent dealing days. Vesting schedule A cliff-vesting three years after the date of grant applies, dependent upon the achievement of the performance conditions (compared to a three-year tranched vesting for restricted share rights granted in previous years under the current LTI Plan). During the vesting period, the value of dividends will be added to the performance shares in the form of shares. These dividend equivalent shares will only be delivered to the extent that the award actually vests. Unlike the current LTI Plan, no premium shares will be awarded under the proposed LTI Plan. Performance conditions Vesting of the performance shares is based on two equally weighted performance conditions: 50% Relative Total Shareholder Return ( TSR ); and 50% Adjusted Earnings per Share growth ( EPS ). TSR A ranking approach to TSR applies with Philips itself excluded from the peer group to permit interpolation. The TSR peer group is extended from 11 to 21 companies 2. To the current 11 peer companies, 10 companies are added that together reflect the portfolio of Philips and are comparable in terms of industry, market capitalization, revenues and number of employees. The performance incentive-zone is outlined in the table below: TSR Philips Pay-out 0% 0% 0% 0% 0% 0% 0% 0% 60% 60% 100% 120% 140% 160% 180% 200% 200% 200% 200% 200% 200% For performance between 50 th percentile and 25 th percentile a ranking method with straight-line interpolation would apply. 200% 200% pay-out PAY-OUT % 150% 100% 50% 100% pay-out 60% pay-out 0% 0% pay-out 60 th 50 th percentile percentile 25 th percentile Company Company 13 & 12 Company 11-6 Company ABB, Covidien, Danaher, Eaton, Electrolux, Emerson Electric, General Electric, Hitachi, Honeywell International Inc, Johnson Control, Johnson & Johnson, Le Grand, LG Electronics, Matsushita, Medtronic, Procter & Gamble, Schneider Electric, Siemens, Toshiba Corp, Smiths Group, 3M.

7 7 The performance incentive-zone with zero vesting below the 60 th percentile and 200% vesting for performance levels above the 25 th percentile is considerably steeper than in the current LTI Plan. The Supervisory Board will review over time the possibility to further reduce the vesting for below median performance. EPS EPS growth is calculated applying the simple point-to-point method at year-end. Earnings are the income from continued operations attributable to shareholders as reported in the annual report. To eliminate the impact of any share buyback, stock dividend etcetera, the number of shares to be used for the purpose of the EPS realization will be the number of common shares outstanding (after deduction of treasury shares) on the day prior to the beginning of the performance period. Earnings are adjusted for changes in accounting policies during the performance period. The Supervisory Board has discretion to include further adjustments in extraordinary circumstances (e.g. impairments, restructuring activities, pension items) with a significant impact. The following performance incentive-zone applies for EPS: Adjusted EPS growth Philips Below threshold Threshold Target Maximum Pay-out 0% 40% 100% 200% The EPS targets will be set by the Supervisory Board annually. EPS targets are considered to be company sensitive therefore these will be disclosed retrospectively at the end of the performance period. EPS targets and the achieved performance will be published in the first annual report after the relevant performance period. The Supervisory Board will review over time the possibility to move to ex ante disclosure at the start of the performance period.

8 8 Example* In year 1 a member of the Board of Management receives X performance shares. At the end of the three year performance period Philips TSR performance is exactly equal to the TSR performance of the peer company ranking 10, resulting in a vesting of 120% for the TSR part. The EPS performance equals the target performance, resulting in 100% vesting for the EPS part. The total vesting for this award will be: 50% x 120% + 50% x 100% = 110% of the number of performance shares awarded in year 1 Year 1 Year 2 Year 3 Year 4 Award of X performance shares Delivery of 110% * X shares * Example is excluding the effect for stock dividend added during the performance period. Grant dates There are four dates of grant per year, which will be on the last day of the five-day averaging period after publication of the annual results and the quarterly results. The main grant will be once a year after publication of the first-quarter results; other dates of grant can be used in exceptional circumstances, for example in the event of initial grants to new employees. In 2013, as an exception the grant will be made on May 3 after approval of the LTI Plan by the Annual General Meeting of Shareholders. Claw-back As stated in the Corporate Governance section of the annual report, as of 2009 the so-called claw-back clause of the Dutch Corporate Governance Code is applicable to LTI grants to members of the Board of Management. For grants as of 2013, the claw-back clause will be extended to include cases of a serious violation of the Philips General Business Principles or applicable law. Change of control In the event of a change of control of the Company, the Supervisory Board at its sole discretion can decide to accelerate the vesting of any unvested awards, subject to the achievement of the performance conditions to the date of completion of the change of control in accordance with the performance incentive-zone in place, taking into account the principles of reasonableness and fairness and, unless the Supervisory Board determines otherwise, the shares which vest will in principle be reduced on a time prorated basis. Mandatory share ownership Simultaneously with the introduction of the proposed LTI Plan, the guideline for members of the Board of Management to hold a certain number of shares in the company is tightened, i.e. 300% of base salary for the CEO and 200% of base salary for the other members of the Board of Management. The guideline is to retain all after-tax shares and not to require own purchases. Annual pool size The maximum number of shares to be granted on a yearly basis in aggregate to all employees under LTI Plans will not exceed the current pool size of 17.5 million (excluding dividend equivalent shares or vesting above 100%) of which 3% is available for the members of the Board of Management.

9 9 Changes to the plan Substantial changes to the LTI Plan applicable to the Board of Management will be submitted to the General Meeting of Shareholders for approval, such as changes in the peer group - for reasons such as delisting of a peer company or a substantial change of its activities - exceeding two companies on an annual basis (for instance due to a merger of two peer companies) or four companies in total. Deviations on elements of this plan in extraordinary circumstances, when deemed necessary in the interests of the Company, will be disclosed in the annual report or, in case of an appointment, in good time prior to the appointment of the individual. b. Proposal to adopt the Accelerate! Grant for the Board of Management Introduction In 2011, we launched Accelerate! - our change and performance improvement program. The program is designed to unlock our full potential, and so make Philips an even stronger company capable of bringing meaningful innovations to market for many more years to come. Accelerate! aims to significantly boost profitable growth by stepping up meaningful innovation and competitiveness, expanding margins, driving productivity and reducing complexity and working capital. It is designed to ensure that we empower and strengthen our customer-facing teams to win profitable market share, that we reduce complexity and costs and deliver our innovations faster and more efficiently along the end-to-end chain to the customer, that we drive performance with transparency and accountability for granular business/market plans. And that we carry through our strategies with the resources and determination to win our critical market battles and achieve leadership in our chosen markets. Philips senior executives are crucial to the successful implementation of Accelerate! In January 2012, senior staff (approximately 500 people), other than the three members of the Board of Management, received a one-time long-term incentive award to launch the Accelerate! program. The purpose of the award of performance shares and performance options is to focus the key leaders on the delivery of the mid-term financial objectives to be achieved by the end of 2013, being: 4-6% Sales Growth CAGR, 10-12% Group Reported EBITA, and 12-14% Group ROIC. The 2011 Annual Report already commented that the Supervisory Board contemplated introducing similar awards for the three members of the Board of Management, with shareholder consent, in due course. The Supervisory Board feels that the Accelerate! Grant supports the change in performance culture and is a good bridge between the current LTI Plan and the proposed LTI Plan, as: it already has the characteristics of the proposed LTI Plan (performance-based and forward-looking); and the adapted ratio of 1 share : 1 option is a first step in the direction of complete abolishment of options. The Supervisory Board therefore considers it appropriate to make an Accelerate! Grant to the CEO and the two other Board of Management members. To enable such decision by the General Meeting of Shareholders a conditional grant has been made as on January 29, 2013 subject to the approval of the shareholders at the Annual General Meeting on May 3, 2013.

10 10 For completeness, it is not the intention to make one-time LTI grants going forward. Features of the Accelerate! Grant Type of award This special, one-time LTI grant consists of a mix of performance shares and performance options in a ratio 1 to 1. It is emphasized that this conditional grant is null and void and has no effect whatsoever, should the General Meeting of Shareholders not resolve to approve the grant. Size of award For the CEO the award consists of 55,000 performance shares and 55,000 performance options. For the other members of the Board of Management the award consists of 38,500 performance shares and 38,500 performance options. Vesting schedule The vesting of the Accelerate! Grant is based on the performance of Philips during Cliff vesting will apply for both the performance shares and performance options during the first quarter of 2014, when the 2013 financial results are published. Performance conditions The vesting of the performance shares and the performance options depends on the achievement of the following mid-term financial objectives for Performance conditions (based on 2013 targets) Philips Sales Growth CAGR 4% Philips Group Reported EBITA 10% Philips Group ROIC 12% The percentage of performance shares and performance options that will vest is determined as follows: 0 or 1 target achieved 0% vesting 2 targets achieved 50% vesting 3 targets achieved 100% vesting Performance shares Performance shares are Philips shares that the grantee will receive in the first quarter of 2014 provided the performance conditions are met. The shares have to be kept for a period of five years counted as of the date of grant. Performance options Performance options are the right to buy Philips shares at a fixed price which equals the price of a Philips share at the closing of Euronext Amsterdam on the date of grant, being January 29, 2013 (EUR 22.43). The performance options which have a total option term of 10 years will become exercisable on the 3 rd anniversary of the date of grant provided that the performance conditions over 2013 have been met. Claw-back As stated in the Corporate Governance section of the annual report, as of 2009 the so-called claw-back clause of the Dutch Corporate Governance Code is applicable to LTI grants to members of the Board of Management. For grants as of 2013, the

11 11 claw-back clause will be extended to include cases of a serious violation of the Philips General Business Principles or applicable law. 5. Change of Company name to Koninklijke Philips N.V. Following the changes in the Company s business portfolio in recent years, management believes that it is appropriate to change the Company s name to more adequately reflect its current business activities. Therefore it is proposed to change the Company s registered name from Koninklijke Philips Electronics N.V. to Koninklijke Philips N.V. as well as the official trade name from Royal Philips Electronics to Royal Philips. In view of this it is proposed to amend the Articles of Association of the Company as follows: Current text Name and seat Article 1 1. The name of the Company is: Koninklijke Philips Electronics N.V. 2. The Company is authorized to act as: Royal Philips Electronics. 3. Its registered office is situated in Eindhoven. Proposed text Name and seat Article 1 1. The name of the Company is: Koninklijke Philips N.V. 2. The Company is authorized to act as: Royal Philips. 3. Its registered office is situated in Eindhoven. 6. Authorization of the Board of Management to (i) issue shares or grant rights to acquire shares and (ii) restrict or exclude pre-emption rights The proposals to authorize the Board of Management to (i) issue shares or grant rights to acquire shares in the share capital of the Company and (ii) restrict or exclude pre-emption rights, are intended to give the Board of Management flexibility in financing the Company in the most efficient manner. Furthermore, such authorization gives the Board of Management flexibility in the context of mergers and acquisitions and strategic alliances. Adoption of these proposals by the General Meeting of Shareholders replaces the current authorization of the Board of Management to (i) issue shares or grant rights to acquire shares in the share capital of the Company and (ii) restrict or exclude pre-emption rights, which was granted by the General Meeting of Shareholders on April 26, Authorization of the Board of Management to acquire shares in the Company The proposal to authorize the Board of Management to repurchase shares in the share capital of the Company intends to allow the Board of Management to hedge the Company s obligations under the LTI Plans and any other employee stock purchase plan under which employees may acquire Philips securities and other obligations the Company may have. Shares repurchased for hedging purposes are intended to be re-issued to participants in the LTI Plans and any other employee stock purchase plan. The maximum number of shares the Company may hold, will not exceed 10% of the issued share capital per May 3, Furthermore, the proposal allows the Board of Management to repurchase shares for capital reduction purposes. In that case the number of shares that may be held will be increased with an additional 10% of the issued share capital. This allows the Board of Management to execute such share repurchase programs in an efficient and expedited manner.

12 12 Adoption of this proposal by the General Meeting of Shareholders replaces the current authorization of the Board of Management to repurchase shares which was granted by the General Meeting of Shareholders on April 26, Cancellation of shares It is proposed to the General Meeting of Shareholders to cancel any or all common shares in the share capital of the Company held or repurchased by the Company under the authorization referred to under agenda item 7 resulting in a reduction of the Company s issued common shares. The cancellation may be executed in one or more tranches. The number of shares that will be cancelled (whether or not in a tranche) shall be determined by the Board of Management, with a maximum of the number of shares that may be acquired pursuant to agenda item 7. Pursuant to the relevant statutory provisions, cancellation may not be effected earlier than two months after a resolution to cancel shares is adopted and publicly announced; this will apply for each tranche. The purpose of this proposal is cancellation of common shares held by the Company or that have been acquired in accordance with the proposal under agenda item 7, to the extent that such shares shall not be used to cover obligations under share-based compensation plans or for other purposes, and it includes common shares repurchased under the EUR 2 billion share buyback program announced on July 18, The Agenda, the Explanatory notes to the agenda and all relevant meeting documents have been published on the Company s website (