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Koninklijke KPN NV (KPN)

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Monday 12 May, 2003

Koninklijke KPN NV

Additional shareholderinfo

Koninklijke KPN NV
12 May 2003

Additional Information to KPN shareholders

In a letter to KPN shareholders, the Supervisory Board of KPN has provided
information about the current remuneration and severance packages of the
Chairman and members of the KPN Board of Management, insofar as not already
disclosed in the Annual Report 2002 and the Form 20F. The disclosures already
made meet all requirements under prevailing legislation in the Netherlands and
the United States.

The Supervisory Board intends to introduce a new remuneration structure for the
top management of KPN as of 1st January 2004, including a defined link between
short-term and long-term remuneration components.

The following documents accompany this press release:

-   the letter to shareholders

-   a letter from the Minister of Finance to the Supervisory Board of KPN
    concerning this subject (enclosure I)

-   'Principles of Directors' Remuneration' (enclosure II)

-   remuneration and severance packages of the Chairman and members of
    the Board of Management (enclosure III)

The Hague, May 12, 2003

To all KPN shareholders

The Press has recently devoted considerable attention to the remuneration and
severance packages of certain directors and former directors of KPN. As
enclosure I shows, the Minister of Finance has also approached KPN on this
matter. For these reasons, the Supervisory Board now wishes to give you further
information about the content and background of these packages.

You will be aware that the KPN Supervisory Board has its own responsibility
under Dutch corporate law in determining the remuneration and severance packages
of individual directors. The Supervisory Board has a remuneration policy for
members of the Board of Management, as described in enclosure II to this letter.
This policy has resulted in the remuneration and severance packages for Board of
Management members summarised in enclosure III.

KPN has met all legal requirements through its disclosures in the most recently
published Annual Report and in Form 20F under US stock exchange rules.

Over the past few months, the current remuneration policy has been a subject of
renewed discussion within the Supervisory Board. The Supervisory Board will
listen carefully to any comments made on the current policy at the forthcoming
General Meeting of Shareholders and will similarly give due consideration in its
further decision-making to the letter from the Minister of Finance and to any
guidelines put forward by the Tabaksblat Committee, that is examining corporate
governance in the Netherlands.The Supervisory Board intends to introduce a new
remuneration structure for top management as of 1st January 2004 and it will be
stated in the Annual Report for 2003.

The severance package agreed with Mr Smits of EUR 2.8 million covers the bonus
for 2002, the lump sum payable for options expiring through his departure and
the compensation due for severance after more than 20 years of service with the
company. The total amount does not exceed the amount under the

* 'District Court Formula'

The severance payment of EUR 1.6 million for Mr Pieters is based on
contractually agreed arrangements and the 'Kantonrechtersformule'.* After
adoption of the annual statements, the bonus awardable for 2002 (payable in
2003) is expected to amount to approximately 111% of basic salary after the cut
of 15% in basic salary.

The remuneration package of the Chairman of the Board of Management was agreed
in the summer of 2001 under exceptional circumstances. KPN was on the verge of
collapse. Under these extreme conditions, the Supervisory Board was obliged
quickly to find an exceptional CEO who was additionally already sufficiently
familiar with the company to be able to set to work without delay. Mr
Scheepbouwer was willing to swap his lengthy and successful position as CEO of
TPG for the uncertain position of CEO at KPN only if KPN was prepared to agree
some substantial benefits, including a considerable performance-related variable
remuneration. This was reported at the time of Mr. Scheepbouwer's introduction.
The special circumstances existing at that time mean that the package agreed
with Mr Scheepbouwer is exceptional in KPN's remuneration policy.

With hindsight, now that KPN again finds itself in safe waters, it is easy to
contemplate a different and less generous remuneration package. The Supervisory
Board wants it to be known that it continues to consider the remuneration
package to be justified. The Supervisory Board was and remains of the opinion
that the appointment of Mr Scheepbouwer at that time was the right decision and
that the agreement reached with him served the interests of shareholders,
employees and other stakeholders.

It is now evident that this decision has resulted in a substantial improvement
of the situation at the company and has assured its continuity. Following Mr
Scheepbouwer's arrival, the net debt decreased from EUR 22.3 billion to EUR 11.2
billion at the end of the first quarter of 2003; the free cashflow that was EUR
384 million in the red at year-end 2001, was EUR 2.8 billion in the black at the
end of 2002. The margin has improved from 29.5% to 40.3% at the end of Q1, 2003.

The assessment of the rating agencies has gone up from a 'BBB- with   negative
outlook' to a 'BBB positive outlook' and from 'Baa3 with prospects of a further
downgrade' to 'Baa2 with prospects of a further upgrade'. This has resulted in a
recovery of shareholder value that compares favourably with similar companies in
the telecommunications industry. The closing price of the KPN share on the final
stock exchange day before Mr Scheepbouwer's appointment was EUR 2.38 compared
with a price of around EUR 6.00 now. The stock market value of the company on
7th September 2001 was barely EUR 3 billion. It is now EUR 14 to EUR 15 billion,
whereby it should be noted that a public offering of EUR 5 billion occurred
towards the end of 2001. The autonomous increase in value in the 'Scheepbouwer'
period amounts to approximately EUR 6.5 billion. KPN's situation, considered
hopeless in September 2001, has been turned around and the company now enjoys a
positive valuation in the financial world and among employees, customers,
analysts and credit rating agencies.

Yours faithfully,

Mr A.H.J. Risseeuw
Supervisory Board

Enclosure I


To Mr A.H.J Risseeuw
Chairman of the Supervisory Board of Koninklijke KPN N.V.
PO Box 30000
2500 GA The Hague

Date: 6th May 2003

Subject: remuneration policy

Dear Mr Risseeuw,

You will have heard that I expressed myself in critical terms in my answers to
questions in the Lower House of Parliament about the remuneration policy at the
top of KPN. While policy on the remuneration of directors of KPN is the
responsibility of the KPN Supervisory Board under the company's Articles of
Association, the shareholders have a significant interest in this matter.

I wish to make the following comments about the remuneration policy in general.
As a shareholder, I take the view that it is good for performance to be
rewarded. However, the structure and size of the rewards should in my opinion be
such that they form a balanced reflection of performance, scarcity and risk. I
consider the combination of substantial performance-related pay coupled to
generous severance schemes to be an element that upsets this balance. Directors
who perform poorly run hardly any financial risk. Compensation for the risk
factor has already been built into the high performance-related pay in my
opinion. Leaving aside the combination with severance schemes, the level of
performance-related remuneration requires careful sizing.

KPN has been through an exceptional period. Shortly before the arrival of Mr
Scheepbouwer, KPN was in a particularly precarious financial position, with
credit from banks and markets in danger of drying up, and the appointment of a
new top man was necessary to restore the essential confidence of the financial
markets in KPN. The crisis in which KPN found itself at that time made it
extremely difficult to find a competent top man. I recognise that Mr
Scheepbouwer's unusual remuneration package came about under extreme
circumstances. I wish to express my appreciation for the successful turnaround
brought about under the present management, which has resulted in a substantial
improvement of KPN's financial position and the price of the KPN share. This
improvement would obviously have been impossible had it not also been
accompanied by funding from shareholders and the effort of the entire
organisation, but the supplementing of these funds was dependent upon confidence
in the plans of the current management of KPN. Performance to date is in line
with the displayed confidence.

Nevertheless, I am surprised by the actual size and composition of the
remuneration components of Mr Scheepbouwer that I saw in the Annual Report. In
the Lower House of Parliament, I called Mr Scheepbouwer's overall package
disproportionate and overly generous. Let me add that I am of the opinion that
the other members of the Board of Management receive remuneration based on a
fitting policy.

The very ample severance packages of the former members of the Board of
Management in the year under review have also attracted attention. To the extent
that the size of the severance packages is based on contractually agreed
arrangements, I am of the opinion that the combination between these high
severance packages and generous remuneration packages is undesirable. Insofar as
those amounts are related to the 'Kantonrechtersformule' *, I feel that this is
an issue that arises in general - i.e. aside from KPN - and it will be one of
the subjects addressed by the recently appointed Tabaksblat Committee.

I understand that KPN will give the forthcoming General Meeting of Shareholders
a detailed explanation about its remuneration policy and the severance packages
of the directors, and also information about the severance packages of former
members of the Board of Management. I also gather from the Annual Report that
the Supervisory Board is examining how the present linkage between short-term
and long-term components of the remuneration policy requires adjustment from
2004 onwards. I trust that the Supervisory Board will address my comments during
the forthcoming General Meeting of Shareholders and will take them into account
in its announced examination.


Minister of Finance

* 'District Court Formula'

(Unauthorized translation by KPN
  Dutch is leading)

Enclosure II

                     Principles of directors' remuneration

The remuneration of the members of the Board of Management is determined by the
Supervisory Board, on the recommendation of the Remuneration and Nominating
Committee (further: 'the committee'). The committee consists of the chairman and
two members of the Supervisory Board. The committee considers the remuneration
levels. The tasks of the committee are described in the By-laws to the


Remuneration policy is aimed at creating the conditions that enable the company
to recruit and retain the necessary highly qualified executives and to focus
them on successfully implementing the business strategy. Remuneration policy is
based on the following:

  • an overall remuneration comparable to that of other Dutch and European
    companies of a similar size and complexity, in particular companies active
    in the Telecom sector;
  • a strong focus on performance and business results, to be achieved through
    a strong accentuation of 'at risk' remuneration;
  • recognition of the specific roles and responsibilities of individual
  • a coherent package with a balance between short- and long-term incentives.

The remuneration package for directors consists of a basic salary, a short-term
incentive in the form of a challenging bonus opportunity and a long-term
incentive in the form of share options and/or restricted shares.

Basic salary

Basic salaries will be set periodically, taking into account the responsibility
and overall performance growth of the directors individually.

Short-term incentive: the bonus

The objectives for the Board of Management and the individual targets will be
adjusted annually. Policy is aimed at creating a closer link between
remuneration and business results. For this reason a larger proportion of the
income becomes 'at risk', which further strengthens the result-oriented culture.
Bonuses are largely linked to financial targets.

Long-term incentive: share option plan

Share option rights are awarded on basis of the individual achievements, within
the framework of the management option plan approved by the Supervisory Board.
Options are awarded annually on the day after the General Meeting of


Directors participate in the general pension scheme which covers all senior
management staff and which is administered by the Stichting
Ondernemingspensioenfonds KPN. The company pays the contributions to the scheme.
At present the retirement age is 62 years, with a possibility of taking early
retirement at 60.

Enclosure III

Supplementary information about the employee
benefits of members of the Board of Management
of Koninklijke KPN N.V.(1)

As stated in the enclosed letter, KPN has completely met all legal requirements
concerning disclosure of the remunerations of its top company officers. Given
the significance of this subject in the public arena, the KPN Supervisory Board
has decided - without having any obligation to do so - also to disclose other
employee benefits of Board of Management members. Details are provided below in
so far as not already disclosed in the KPN Annual Report 2002.

Mr A.J. Scheepbouwer, Chairman of the Board of Management, was awarded a bonus
of EUR 2.667 million in 2002. The larger part of this amount - EUR 2 million -
concerns a turnaround bonus; EUR 0.5 million is the fixed component of the
annual performance bonus and EUR 0.167 is a bonus for the period of time in 2001
that Mr Scheepbouwer was in the employ of KPN. In the coming years Mr
Scheepbouwer will continue to receive an annual performance bonus that consists
of a fixed component (EUR 0.5 million) plus a variable component. The size of
the variable component will depend on the degree of achievement of targets set
by the KPN Supervisory Board. The targets for 2002 concerned improvement of
margins and cashflow, whereas the emphasis in 2003 is on improving margins,
customer satisfaction at the division Fixed and increasing the market share of
Mobile Telephony.

No bonus will be awarded if the targets are achieved for 80% or less. The
maximum bonus (for exceeding the targets by 20%) is 150% of basic salary for
2002 and 2003 after the current 15% cut in salary. After adoption of the annual
statements, the variable bonus awardable over 2002 (payable in 2003) is expected
to amount to approximately 130% of basic salary.

Provided that a bonus was awarded in the previous year, the Supervisory Board
can award options to Mr Scheepbouwer from year to year. The number is subject to
a maximum in that the underlying value at the time of any award will not exceed
EUR 2 million. (For example: if the share price is EUR 5.00, the maximum number
of options will be 400,000; if the share price is EUR 6.00, the number of
options will be 333,333, and so on).

The Supervisory Board wishes to provide the following information about the
severance package for Mr Scheepbouwer.

On retirement before reaching 65, Mr Scheepbouwer will receive compensation of
EUR 2.5 million if he leaves the company at 62. For every month later, this
amount will be reduced by 1/36th of EUR 2.5 million. If a change of control
occurs before Mr Scheepbouwer reaches 61, he will receive the same compensation
of EUR 2.5 million.

Additionally, if Mr Scheepbouwer leaves at the request of the company, he will
receive compensation based on the cash value of salary, including bonus, for the
remaining period up to age 62 and pre-pension entitlements between the ages of
62 and 65, with continued membership of the pension scheme until age 65, less
any payment made to him under the terms of the non-competition clause.

If the company invokes the non-competition clause on Mr Scheepbouwer's
departure, he will receive one year's salary, including bonus, by way of

The other members of the Board of Management further have a performance bonus
that to a large extent is the same as that of the Chairman and may for the year
2002 and 2003 amount to up to 150% of annual salary.  The agreed target
arrangements for Mr Henderson for 2002 and 2003 are similar to those agreed with
Mr Scheepbouwer.

In the case of Mr Roobol and Mr Demuynck, 50% of their performance bonus in 2003
will depend on KPN's performance as a whole and the other 50% on the performance
of their respective divisions. The targets set for Mr Roobol relate to customer
satisfaction, while those for Mr Demuynck concern market share of Mobile

After adoption of the annual statements, the bonus awardable to Mr Henderson and
Mr Roobol over 2002 (payable in 2003) is expected to amount to 150% of basic
salary after the current 15% cut in basic salary.

Options may also be awarded to the other members of the Board of Management. For
2003 it has been decided to award 45,000 options to each member of the Board of

The Supervisory Board wishes to provide the following information about the
severance packages for the other members of the Board of Management:

KPN will pay compensation if:

-         KPN terminates the contract of employment for reasons beyond the
control of the director concerned;

-         the director requests termination of the contract of employment
because he is no longer able to fulfil his position at the level he most
recently fulfilled it;

-         the director requests termination of the contract of employment
because of an irreconcilable difference of opinion regarding the policy to be
conducted, if and to the extent that the director's standpoint in the difference
of opinion is defensible by reasonable standards.

The compensation will be determined with due consideration of all relevant
circumstances, but will be at least equal to the amount that KPN paid to the
director concerned over the past 12 months in the form of salary and other
emoluments (including bonus), excluding  the notice period of six months.


(1) Additional to information provided in the KPN Annual Report 2002

                      This information is provided by RNS
            The company news service from the London Stock Exchange                                                                                                                                                                                       

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