ASML HOLDING NV FORM 20-F. (Annual and Transition Report (foreign private issuer)) Filed 02/13/13 for the Period Ending 12/31/12

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1 ASML HOLDING NV FORM 20-F (Annual and Transition Report (foreign private issuer)) Filed 02/13/13 for the Period Ending 12/31/12 Telephone CIK Symbol ASML SIC Code Special Industry Machinery, Not Elsewhere Classified Industry Semiconductor Equipment & Testing Sector Technology Fiscal Year 12/31 Copyright 2017, EDGAR Online, a division of Donnelley Financial Solutions. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, a division of Donnelley Financial Solutions, Terms of Use.

2 United States Securities and Exchange Commission Washington, D.C Form 20-F ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2012 Commission file number ASML HOLDING N.V. (Exact Name of Registrant as Specified in Its Charter) THE NETHERLANDS (Jurisdiction of Incorporation or Organization) DE RUN DR VELDHOVEN THE NETHERLANDS (Address of Principal Executive Offices) Craig DeYoung Telephone: Facsimile: South River Parkway, Tempe, AZ 85284, USA (Name, Telephone, , and / or Facsimile number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Ordinary Shares The NASDAQ Stock Market LLC (nominal value 0.09 per share) Securities registered or to be registered pursuant to Section 12(g) of the Act: None (Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None (Title of Class) Indicate the number of outstanding shares of each of the issuer s classes of capital or common stock as of the close of the period covered by the annual report. 407,165,221 Ordinary Shares (nominal value 0.09 per share) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (x) No ( ) If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of Yes ( ) No (x) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (x) No ( ) Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (x) No ( ) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer (x) Accelerated filer ( ) Non-accelerated filer ( ) Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP (x) International Financial Reporting Standards as issued by the International Accounting Standards Board ( ) Other ( ) If Other has been checked in response to the previous question, indicate by checkmark which financial statement item the registrant has elected to follow. Item 17 ( ) Item 18 ( ) If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ( ) No (x) Name and address of person authorized to receive notices and communications from the Securities and Exchange Commission: Richard A. Ely Skadden, Arps, Slate, Meagher & Flom (UK) LLP 40 Bank Street, Canary Wharf London E14 5DS England ASML ANNUAL REPORT 2012

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5 Form 20-F

6 ASML ANNUAL REPORT 2012

7 Contents Part I 1 Item 1 Identity of Directors, Senior Management and Advisors 1 Item 2 Offer Statistics and Expected Timetable 1 Item 3 Key Information A. Selected Financial Data B. Capitalization and Indebtedness C. Reasons for the Offer and Use of Proceeds D. Risk Factors 11 Item 4 Information on the Company A. History and Development of the Company B. Business Overview C. Organizational Structure D. Property, Plant and Equipment 20 Item 4A Unresolved Staff Comments 20 Item 5 Operating and Financial Review and Prospects A. Operating Results B. Liquidity and Capital Resources C. Research and Development, Patents and Licenses, etc D. Trend Information E. Off-Balance Sheet Arrangements F. Tabular Disclosure of Contractual Obligations G. Safe Harbor 40 Item 6 Directors, Senior Management and Employees A. Directors and Senior Management B. Compensation C. Board Practices D. Employees E. Share Ownership 48 Item 7 Major Shareholders and Related Party Transactions A. Major Shareholders B. Related Party Transactions C. Interests of Experts & Counsel 51 Item 8 Financial Information A. Consolidated Statements and Other Financial Information B. Significant Changes 51 Item 9 The Offer and Listing A. Offer and Listing Details B. Plan of Distribution C. Markets D. Selling Shareholders E. Dilution F. Expenses of the Issue 53 Item 10 Additional Information A. Share Capital B. Memorandum and Articles of Association C. Material Contracts D. Exchange Controls E. Taxation F. Dividends and Paying Agents G. Statement by Experts H. Documents on Display I. Subsidiary Information ASML ANNUAL REPORT 2012

8 63 Item 11 Quantitative and Qualitative Disclosures About Market Risk 65 Item 12 Description of Securities Other Than Equity Securities Part II 67 Item 13 Defaults, Dividend Arrearages and Delinquencies 67 Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds 67 Item 15 Controls and Procedures 67 Item 16 A. Audit Committee Financial Expert B. Code of Ethics C. Principal Accountant Fees and Services D. Exemptions from the Listing Standards for Audit Committees E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers F. Change in Registrant s Certifying Accountant G. Corporate Governance H. Mine Safety Disclosure Part III 73 Item 17 Financial Statements 73 Item 18 Financial Statements 73 Item 19 Exhibits ASML ANNUAL REPORT 2012

9 ASML ANNUAL REPORT 2012

10 Part I Special Note Regarding Forward-Looking Statements In addition to historical information, this Annual Report on Form 20-F ( Annual Report ) contains statements relating to our future business and/or results. These statements include certain projections and business trends that are forward-looking within the meaning of the Private Securities Litigation Reform Act of You can generally identify these statements by the use of words like may, will, could, should, project, believe, anticipate, expect, plan, estimate, forecast, potential, intend, continue and variations of these words or comparable words. They appear in a number of places throughout this report and include, without limitation, expected sales trends, expected shipments of tools, productivity of our tools, purchase commitments, intercircuit ( IC ) unit demand, financial results, statements about our co-investment program including potential funding commitments in connection with that program, statements about our agreement to acquire Cymer Inc. ( Cymer ) including the expected benefits of the acquisition and the development of EUV technology and volume production systems. These statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the business and future financial results of ASML and readers should not place undue reliance on them. Forward-looking statements do not guarantee future performance and involve risks and uncertainties. Actual results may differ materially from projected results as a result of certain risks and uncertainties. These risks and uncertainties include, without limitation, those described under Item 3.D. Risk Factors and those detailed from time to time in our other filings with the United States Securities and Exchange Commission (the Commission or the SEC ). These forward-looking statements are made only as of the date of this annual report on Form 20-F. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. Item 1 Identity of Directors, Senior Management and Advisors Not applicable. Item 2 Offer Statistics and Expected Timetable Not applicable. Item 3 Key Information A. Selected Financial Data The following selected consolidated financial data should be read in conjunction with Item 5 Operating and Financial Review and Prospects and Item 18 Financial Statements. ASML ANNUAL REPORT

11 Five-Year Financial Summary Year ended December 31 (in thousands, except per share data) Consolidated Statements of Operations data Net sales 4,731,555 5,651,035 4,507,938 1,596,063 2,953,678 Cost of sales 2,726,298 3,201,645 2,552,768 1,137,671 1,938,164 Gross profit on sales 2,005,257 2,449,390 1,955, ,392 1,015,514 Research and development costs 589, , , , ,128 Selling, general and administrative costs 259, , , , ,172 Income (loss) from operations 1,156,774 1,641,216 1,250,699 (163,125) 289,214 Interest income (expense), net (6,196) 7,419 (8,176) (8,425) 20,430 Income (loss) before income taxes 1,150,578 1,648,635 1,242,523 (171,550) 309,644 (Provision for) benefit from income taxes (4,262) (181,675) (220,703) 20,625 12,726 Net income (loss) 1,146,316 1,466,960 1,021,820 (150,925) 322,370 Earnings per share data Basic net income (loss) per ordinary share (0.35) 0.75 Diluted net income (loss) per ordinary share (0.35) 0.74 Number of ordinary shares used in computing per share amounts (in thousands) Basic 424, , , , ,620 Diluted 1 426, , , , ,205 1 The calculation of diluted net income per ordinary share assumes the exercise of options issued under ASML stock option plans and the issuance of shares under ASML share plans for periods in which exercises or issuances would have a dilutive effect. The calculation of diluted net income per ordinary share does not assume exercise of such options or issuance of shares when such exercises or issuance would be anti-dilutive. 2 As of January 1, 2011, we adopted Accounting Standards Update ( ASU ) , Revenue Arrangements with Multiple Deliverables which amended ASC The ASU was adopted prospectively and had an insignificant impact on timing and allocation of revenues. See Note 1 to the consolidated financial statements. ASML ANNUAL REPORT

12 Five-Year Financial Summary As of December (in thousands, unless otherwise indicated) Consolidated Balance Sheets data Cash and cash equivalents 1,767,596 2,731,782 1,949,834 1,037,074 1,109,184 Short-term investments 930, Working capital 2 3,745,559 3,473,767 2,787,220 1,704,714 1,964,906 Total assets 7,410,478 7,260,815 6,180,358 3,764,151 3,977,478 Long-term debt 3 759, , , , ,134 Total shareholders equity 4,066,893 3,444,154 2,773,908 1,774,768 1,988,769 Share capital 37,470 38,354 39,293 39,028 38,887 Consolidated Statements of Cash Flows data Depreciation and amortization 186, , , , ,423 Impairment 3,234 12,272 8,563 15,896 25,109 Net cash provided by operating activities 703,478 2,070, ,048 99, ,979 Purchase of property, plant and equipment (171,879) (300,898) (128,728) (104,959) (259,770) Purchase of available for sale securities (1,379,997) Maturity of available for sale securities 449, Acquisition of subsidiary (net of cash acquired) (10,292) Net cash used in investing activities (1,119,833) (300,898) (124,903) (98,082) (259,805) Net proceeds from issuance of shares 3,907,666 34,084 31,000 11,073 11,475 Capital repayment (3,728,324) Purchase of shares in conjunction with conversion rights of bondholders and share-based payments (87,605) Dividend paid (188,892) (172,645) (86,960) (86,486) (107,841) Deposits from customers - (150,000) 150, Purchase of shares (535,373) (700,452) Net cash provided by (used in) financing activities (545,583) (991,561) 92,702 (74,874) (186,471) Net increase (decrease) in cash and cash equivalents (964,186) 781, ,760 (72,110) (162,452) Ratios and other data Gross profit as a percentage of net sales Income (loss) from operations as a percentage of net sales (10.2) 9.8 Net income (loss) as a percentage of net sales (9.5) 10.9 Shareholders equity as a percentage of total assets Income taxes as a percentage of income (loss) before income taxes (4.1) Sales of systems (in units) Average selling price of system sales (in millions) Value of systems backlog excluding EUV (in millions) 4,5 1, , , , Systems backlog excluding EUV (in units) 4, Average selling price of systems backlog excluding EUV (in millions) 4, Value of booked systems excluding EUV (in millions) 4,5 3, , , , ,730.9 Net bookings excluding EUV (in units) 4, Average selling price of booked systems excluding EUV (in millions) 4, Number of payroll employees in FTEs 6 8,497 7,955 7,184 6,548 6,930 Number of temporary employees in FTEs 6 2,139 1,935 2,061 1,137 1,329 Increase (decrease) net sales in percentage (16.3) (46.0) (21.6) Number of ordinary shares issued and outstanding (in thousands) 407, , , , ,074 ASML share price in euro Volatility 260 days in percentage of ASML shares Dividend per ordinary share in euro Dividend per ordinary share in U.S. dollar , As of January 1, 2011, we adopted Accounting Standards Update ( ASU ) , Revenue Arrangements with Multiple Deliverables which amended ASC The ASU was adopted prospectively and had an insignificant impact on timing and allocation of revenues. See Note 1 to the consolidated financial statements. 2 Working capital is calculated as the difference between total current assets and total current liabilities. 3 Long-term debt includes the current portion of long-term debt. 4 Our systems backlog and net bookings include only orders for which written authorizations have been accepted and system shipment and revenue recognition dates within the following 12 months have been assigned. 5 From January 1, 2011, we value our net bookings and systems backlog at system sales value including factory options. Before January 1, 2011, we valued net bookings and systems backlog at full order value (i.e. including factory options, field options and services). The comparative figures for prior periods have not been adjusted because the impact on the comparative figures is insignificant (approximately 20.0 million negative impact on backlog value as of December 31, 2010). 6 Full-time employees ( FTEs ). 7 Closing price at year-end of our ordinary shares listed on NYSE Euronext Amsterdam ( NYSE Euronext Amsterdam ) (source: Bloomberg Finance LP). 8 Volatility represents the variability in our share price on NYSE Euronext Amsterdam as measured over the 260 business days of each year presented (source: Bloomberg Finance LP). 9 Subject to approval of the Annual General Meeting of Shareholders ( AGM ) to be held on April 24, The exchange rate used to convert the proposed dividend per ordinary share is the exchange rate at February 1, ASML ANNUAL REPORT

13 Exchange Rate Information We publish our consolidated financial statements in euros. In this Annual Report, references to euro or are to euros, and references to U.S. dollar or USD are to United States dollars. A portion of our net sales and expenses is, and historically has been, denominated in currencies other than the euro. For a discussion of the impact of exchange rate fluctuations on our financial condition and results of operations, see Item 5.A. Operating Results Foreign Exchange Management. The following are the Noon Buying Rates certified by the Federal Reserve Bank for customs purposes (the Noon Buying Rate ), expressed in U.S. dollars per euro. Calendar year 2013 (through February 1, 2013) Period End Period Average Period High Period Low The average of the Noon Buying Rates on the last business day of each month during the period presented. Months of February 2013 (through February 1, 2013) January 2013 December 2012 November 2012 October 2012 September 2012 August 2012 Period High Period Low B. Capitalization and Indebtedness Not applicable. C. Reasons for the Offer and Use of Proceeds Not applicable. D. Risk Factors In conducting our business, we face many risks that may interfere with our business objectives. Some of these risks relate to our operational processes, while others relate to our business environment. It is important to understand the nature of these risks and the impact they may have on our business, financial condition and results of operations. Some of the more relevant risks are described below. These risks are not the only ones that we face. Some risks may not yet be known to us and certain risks that we do not currently believe to be material could become material in the future. Risks Related to the Semiconductor Industry The Semiconductor Industry is Highly Cyclical and We May Be Adversely Affected by Any Downturn As a supplier to the global semiconductor industry, we are subject to the industry s business cycles, of which the timing, duration and volatility are difficult to predict. The semiconductor industry has historically been cyclical. Sales of our lithography systems depend in large part upon the level of capital expenditures by semiconductor manufacturers. These capital expenditures depend upon a range of competitive and market factors, including: the current and anticipated market demand for semiconductors and for products utilizing semiconductors; semiconductor prices; semiconductor production costs; changes in semiconductor inventory levels; general economic conditions; and access to capital. Reductions or delays in capital equipment purchases by our customers could have a material adverse effect on our business, financial condition and results of operations. In an industry downturn, our ability to maintain profitability will depend substantially on whether we are able to lower our costs and break-even level, which is the level of sales that we must reach in a year to achieve net income. If sales ASML ANNUAL REPORT

14 decrease significantly as a result of an industry downturn and we are unable to adjust our costs over the same period, our net income may decline significantly or we may suffer losses. As we need to keep certain levels of inventory on hand to meet anticipated product demand, we may also incur increased costs related to inventory obsolescence in an industry downturn. In addition, industry downturns generally result in overcapacity, resulting in downward pressure on prices and impairment of machinery and equipment, which in the past has had, and in the future could have, a material adverse effect on our business, financial condition and results of operations. The ongoing financial crises that have affected the international banking system and global financial markets since 2008 have been in many respects unprecedented. Concerns persist over the debt burden of certain Eurozone countries and their ability to meet future obligations, the overall stability of the euro, and the suitability of the euro as a single currency given the diverse economic and political circumstances in individual Eurozone countries. These concerns could lead to the re-introduction of the individual currencies in one or more Eurozone countries, or in more extreme circumstances, the possible dissolution of the euro currency entirely. These potential developments, or market perceptions concerning these and related issues, could adversely affect the value of our euro-denominated assets and obligations. In addition, remaining concerns over the effect of this financial crisis on financial institutions in Europe and globally, and the instability of the financial markets and the global economy in general could result in a number of follow-on effects on our business, including (i) declining business and consumer confidence resulting in reduced, or delayed purchase of our products or shorter-term capital expenditures for our products; insolvency of key suppliers resulting in product delays, (ii) an inability of customers to obtain credit to finance purchases of our products, delayed payments from our customers and/or customer insolvencies and (iii) other adverse effects that we cannot currently anticipate. If global economic and market conditions deteriorate, we are likely to experience material adverse impacts on our business, financial condition and results of operations. Conversely, in anticipation of periods of increasing demand for semiconductor manufacturing equipment, we must maintain sufficient manufacturing capacity and inventory and we must attract, hire, integrate and retain a sufficient number of qualified employees to meet customer demand. Our ability to predict the timing and magnitude of industry fluctuations is limited and our products require significant lead-time to successfully complete. Accordingly, we may not be able to effectively increase our production capacity to respond to an increase in customer demand in an industry upturn resulting in lost revenues, damage to customer relationships and we may lose market share. Our Business Will Suffer If We Do Not Respond Rapidly to Commercial and Technological Changes in the Semiconductor Industry The semiconductor manufacturing industry is subject to: rapid change towards more complex technologies; frequent new product introductions and enhancements; evolving industry standards; changes in customer requirements; and continued shortening of product life cycles. Our products could become obsolete sooner than anticipated because of a faster than anticipated change in one or more of the technologies related to our products or in market demand for products based on a particular technology. Our success in developing new products and in enhancing our existing products depends on a variety of factors, including the successful management of our research and development ( R&D ) programs and the timely completion of product development and design relative to competitors. If we do not develop and introduce new and enhanced systems at competitive prices and on a timely basis, our customers will not integrate our systems into the planning and design of new production facilities and upgrades of existing facilities, which would have a material adverse effect on our business, financial condition and results of operations. In particular, we are investing considerable financial and other resources to develop and introduce new products and product enhancements, such as Extreme Ultraviolet lithography ( EUV ) and 450mm wafer technology. If we are unable to successfully develop and introduce these products and technologies, or if our customers do not fully adopt the new technologies, products or product enhancements due to a preference for more established or alternative new technologies and products or for any other reasons, we would not recoup all of our investments in these technologies or products, which could have a material adverse effect on our business, financial condition and results of operations. The success of EUV remains particularly dependent on light source (laser) availability and continuing related technical advances by us and our suppliers, as well as infrastructure developments in masks and photoresists, without which the EUV tools cannot achieve the productivity and yield required to economically justify the higher price of these tools. A delay in the developments of these tools could discourage or result in much slower adoption of this technology. If the technologies that we pursue to assist our customers in producing smaller and more efficient chips, are not as effective ASML ANNUAL REPORT

15 as those developed by our competitors, or if our customers adopt new technological architectures that are less focused on lithography, this may adversely affect our business, financial condition and results of operations. We Face Intense Competition The semiconductor equipment industry is highly competitive. The principal elements of competition in our market are: the technical performance characteristics of a lithography system; the value of ownership of that system based on its purchase price, maintenance costs, productivity, and customer service and support costs; the exchange rate of the euro particularly against the Japanese yen which results in varying prices and margins; the strength and breadth of our portfolio of patents and other intellectual property rights; and our customers desire to obtain lithography equipment from more than one supplier. Our competitiveness increasingly depends upon our ability to develop new and enhanced semiconductor equipment that is competitively priced and introduced on a timely basis, as well as our ability to protect and defend our intellectual property rights. See Item 4.B. Business Overview, Intellectual Property, Note 10 and Note 18 to our consolidated financial statements. We compete primarily with Nikon Corporation ( Nikon ) and to a lesser degree with Canon Kabushiki Kaisha ( Canon ). Both Nikon and Canon have substantial financial resources and broad patent portfolios. Each continues to introduce new products with improved price and performance characteristics that compete directly with our products, which may cause a decline in our sales or a loss of market acceptance for our lithography systems. In addition, adverse market conditions, industry overcapacity or a decrease in the value of the Japanese yen in relation to the euro or the U.S. dollar, could further intensify price-based competition in those regions that account for the majority of our sales, resulting in lower prices and margins which could have a material adverse effect on our business, financial condition and results of operations. In addition, to competitors in lithography, we may face competition with respect to alternative technologies for the non-critical layers or for all layers. The failure to keep pace with Moore s law, which postulates that the number of transistors on a chip doubles approximately every 18 to 24 months at equivalent marginal costs, or in the event the delivery of new technology is delayed, our customers may opt for other solutions in IC manufacturing as a substitute for purchasing our products. Risks Related to ASML The Number of Systems We Can Produce Is Limited by Our Dependence on a Limited Number of Suppliers of Key Components We rely on outside vendors for the components and subassemblies used in our systems, each of which is obtained from a single supplier or a limited number of suppliers. Our reliance on a limited group of suppliers involves several risks, including a potential inability to obtain an adequate supply of required components and the risk of untimely delivery of these components and subassemblies. The number of lithography systems we are able to produce is limited by the production capacity of Carl Zeiss SMT AG ( Zeiss ). Zeiss is our single supplier of lenses and other critical optical components. If Zeiss were unable to maintain and increase production levels or if we are unable to maintain our business relationship with Zeiss in the future we could be unable to fulfill orders, which could damage relationships with current and prospective customers and have a material adverse effect on our business, financial condition and results of operations. If Zeiss were to terminate its relationship with us or if Zeiss were unable to maintain production of lenses over a prolonged period, we would effectively cease to be able to conduct our business. See Item 4.B. Business Overview Manufacturing, Logistics and Suppliers. In addition to Zeiss current position as our single supplier of lenses, the excimer laser illumination systems that provide the ultraviolet light source, used in our high resolution steppers and Step & Scan systems, and the extreme ultraviolet light source, used in our third-generation (NXE:3300B) EUV systems, are available from only a very limited number of suppliers. Manufacturing some of these components and subassemblies that we use in our manufacturing processes is an extremely complex process and could result in delays by our suppliers. A prolonged inability to obtain adequate deliveries of components or subassemblies, or any other circumstance that requires us to seek alternative sources of supply, could significantly hinder our ability to deliver our products in a timely manner, which could damage relationships with current and prospective customers and have a material adverse effect on our business, financial condition and results of operations. ASML ANNUAL REPORT

16 A High Percentage of Net Sales Is Derived from a Few Customers Historically, we have sold a substantial number of lithography systems to a limited number of customers. We expect customer concentration to increase because of continuing consolidation in the semiconductor manufacturing industry. Consequently, while the identity of our largest customers may vary from year to year, we expect sales to remain concentrated among relatively few customers in any particular year. In 2012, recognized sales to our largest customer accounted for 1,236.1 million, or 26.1 percent of net sales, compared with 1,311.7 million, or 23.2 percent of net sales, in The loss of any significant customer or any significant reduction in orders by a significant customer may have a material adverse effect on our business, financial condition and results of operations. Additionally, as a result of our limited number of customers, credit risk on our receivables is concentrated. Our three largest customers (based on net sales) accounted for 58.9 percent of accounts receivable and finance receivables at December 31, 2012, compared with 35.5 percent at December 31, As a result, business failure or insolvency of one of our main customers may have a material adverse effect on our business, financial condition and results of operations. We Derive Most of Our Revenues from the Sale of a Relatively Small Number of Systems We derive most of our revenues from the sale of a relatively small number of lithography equipment systems (170 units in 2012 and 222 units in 2011), with an average selling price ( ASP ) in 2012 of 22.4 million ( 24.8 million for new systems and 7.6 million for used systems) and an ASP in 2011 of 22.0 million ( 24.5 million for new systems and 3.8 million for used systems). As a result, the timing of recognition of revenue from a small number of system sales may have a significant impact on our net sales and operating results for a particular reporting period. Specifically, the failure to receive anticipated orders, or delays in shipments near the end of a particular reporting period, due, for example, to: a downturn in the highly cyclical semiconductor industry; unanticipated shipment rescheduling; cancellation or order push-back by customers; unexpected manufacturing difficulties; and delays in deliveries by suppliers may cause net sales in a particular reporting period to fall significantly below net sales in previous periods or below our expected net sales, and may have a material adverse effect on our results of operations for that period. In particular our published quarterly earnings may vary significantly from quarter to quarter and may vary in the future for the reasons discussed above. The Pace of Introduction of Our New Products Is Accelerating and Is Accompanied by Potential Design and Production Delays and by Significant Costs The development and initial production, installation and enhancement of the systems we produce is often accompanied by design and production delays and related costs of a nature typically associated with the introduction and transition to full-scale manufacturing of complex capital equipment. While we expect and plan for a corresponding learning-curve effect in our product development cycle, we cannot predict with precision the time and expense required to overcome these initial problems and to ensure full performance to specifications. Moreover, we anticipate that this learning-curve effect will continue to present increasingly difficult challenges with every new generation as a result of increasing technological complexity. In particular, the development of an EUV volume production system is dependent on, and subject to the successful implementation of, technology related to the light source and other technologies specific to EUV. There is a risk that we may not be able to introduce or bring to full-scale production new products as quickly as we anticipate in our product introduction plans, which could have a material adverse effect on our business, financial condition and results of operations. For the market to accept technology enhancements, our customers, in many cases, must upgrade their existing technology capabilities. Such upgrades from established technology may not be available to our customers to enable volume production using our new technology enhancements. This could result in our customers not purchasing, or pushing back or canceling orders for our technology enhancements, which could negatively impact our business, financial condition and results of operations. ASML ANNUAL REPORT

17 Failure to Adequately Protect the Intellectual Property Rights Upon Which We Depend Could Harm Our Business We rely on intellectual property rights such as patents, copyrights and trade secrets to protect our proprietary technology. However, we face the risk that such measures could prove to be inadequate because: intellectual property laws may not sufficiently support our proprietary rights or may change in the future in a manner adverse to us; patent rights may not be granted or construed as we expect; patents will expire which may result in key technology becoming widely available that may hurt our competitive position; the steps we take to prevent misappropriation or infringement of our proprietary rights may not be successful; and third parties may be able to develop or obtain patents for similar competing technology. In addition, litigation may be necessary to enforce our intellectual property rights, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement. Any such litigation may result in substantial costs and diversion of management resources, and, if decided unfavorably to us, could have a material adverse effect on our business, financial condition and results of operations. Defending Against Intellectual Property Claims Brought by Others Could Harm Our Business In the course of our business, we are subject to claims by third parties alleging that our products or processes infringe upon their intellectual property rights. If successful, such claims could limit or prohibit us from developing our technology and manufacturing our products, which could have a material adverse effect on our business, financial condition and results of operations. In addition, our customers may be subject to claims of infringement from third parties, alleging that our products used by such customers in the manufacture of semiconductor products and/or the processes relating to the use of our products infringe one or more patents issued to such parties. If such claims were successful, we could be required to indemnify customers for some or all of any losses incurred or damages assessed against them as a result of such infringement, which could have a material adverse effect on our business, financial condition and results of operations. We also may incur substantial licensing or settlement costs, which although potentially strengthening or expanding our intellectual property rights or limiting our exposure to intellectual property claims of third parties, may have a material adverse effect on our business, financial condition and results of operations. From late 2001 through 2004, ASML was party to a series of civil litigations and administrative proceedings in which Nikon alleged ASML s infringement of Nikon patents relating to lithography. ASML in turn filed claims against Nikon. Pursuant to agreements executed on December 10, 2004, ASML, Zeiss and Nikon agreed to settle all pending worldwide patent litigation between the companies. The settlement included an exchange of releases, a patent Cross-License agreement related to lithography equipment used to manufacture semiconductor devices (the Nikon Cross-License Agreement ) and payments to Nikon by ASML and Zeiss. Beginning on January 1, 2015, the parties may bring suit for infringement of patents subject to the Nikon Cross-License Agreement, including any infringement that occurred during the Cross-License Transition Period. Damages related to claims for patent infringement occurring during the Cross-License Transition Period are limited to three percent of the net sales price of products utilizing patents that are valid and enforceable. We Are Subject to Risks in Our International Operations The majority of our sales are made to customers outside Europe. There are a number of risks inherent in doing business in some of those regions, including the following: potentially adverse tax consequences; unfavorable political or economic environments; unexpected legal or regulatory changes; and an inability to effectively protect intellectual property. If we are unable to manage successfully the risks inherent in our international activities, our business, financial condition and results of operations could be materially and adversely affected. In particular, 31.3 percent of our 2012 net sales and 20.3 percent of our 2011 net sales were derived from customers in Taiwan. Taiwan has a unique international political status. The People s Republic of China asserts sovereignty over Taiwan and does not recognize the legitimacy of the Taiwanese government. Changes in relations between Taiwan and the People s Republic of China, Taiwanese government policies and other factors affecting Taiwan s political, economic or social environment could have a material adverse effect on our business, financial condition and results of operations. ASML ANNUAL REPORT

18 We Are Dependent on the Continued Operation of a Limited Number of Manufacturing Facilities All of our manufacturing activities, including subassembly, final assembly and system testing, take place in clean room facilities in Veldhoven, the Netherlands, in Wilton, Connecticut, the United States and in Linkou, Taiwan. These facilities may be subject to disruption for a variety of reasons, including work stoppages, fire, energy shortages, flooding or other natural disasters. We cannot ensure that alternative production capacity would be available if a major disruption were to occur or that, if it were available, it could be obtained on favorable terms. Such a disruption could have a material adverse effect on our business, financial condition and results of operations. In addition, some of our key suppliers, including Zeiss, have a limited number of manufacturing facilities, the disruption of which may significantly and adversely affect our production capacity. Because of Labor Laws and Practices, Any Workforce Reductions That We May Seek to Implement in Order to Reduce Costs Company-Wide May Be Delayed or Suspended The semiconductor market is highly cyclical and as a consequence we may need to implement workforce reductions in case of a downturn, in order to adapt to such market changes. In accordance with labor laws and practices applicable in the jurisdictions in which we operate, a reduction of any significance may be subject to formal procedures that can delay or may result in the modification of our planned workforce reductions. For example, ASML Netherlands B.V., our operating subsidiary in the Netherlands, has a Works Council, as required by Dutch law. If the Works Council renders contrary advice in connection with a proposed workforce reduction in the Netherlands, but we nonetheless determine to proceed, we must temporarily suspend any action while the Works Council determines whether to appeal to the Enterprise Chamber of the Amsterdam Court of Appeal. This appeal process can cause a delay of several months and may require us to address any procedural inadequacies identified by the Court in the way we reached our decision. Such delays could impair our ability to reduce costs company-wide to levels comparable to those of our competitors. Also see Item 6.D Employees. Fluctuations in Foreign Exchange Rates Could Harm Our Results of Operations We are exposed to currency risks. We are particularly exposed to fluctuations in the exchange rates between the U.S. dollar, Japanese yen and the euro as we incur manufacturing costs for our systems predominantly in euros while portions of our net sales and cost of sales are denominated in U.S. dollars and Japanese yen. In addition, a portion of our assets and liabilities and operating results are denominated in U.S. dollars, and a small portion of our assets, liabilities and operating results are denominated in currencies other than the euro and the U.S. dollar. Our consolidated financial statements are expressed in euros. Accordingly, our results of operations and assets and liabilities are exposed to fluctuations in exchange rates between the euro and various currencies. In general, our customers run their businesses in U.S. dollars and therefore a weakening of the U.S. dollar against the euro might impact the ability of our customers to purchase our products. Furthermore, a strengthening of the euro particularly against the Japanese yen could further intensify price-based competition in those regions that account for the majority of our sales, resulting in lower prices and margins and a material adverse effect on our business, financial condition and results of operations. See Item 5.A. Operating Results Foreign Exchange Management. We May Be Unable to Make Desirable Acquisitions or to Integrate Successfully Any Businesses We Acquire Our future success may depend in part on the acquisition of businesses or technologies intended to complement, enhance or expand our current business or products or that might otherwise offer us growth opportunities. Our ability to complete such transactions may be hindered by a number of factors, including potential difficulties in obtaining government approvals. Any acquisition that we do make would pose risks related to the integration of the new business or technology with our business. We cannot be certain that we will be able to achieve the benefits we expect from a particular acquisition or investment. Acquisitions may also strain our managerial and operational resources, as the challenge of managing new operations may divert our management from day-to-day operations of our existing business. Our business, financial condition and results of operations may be materially and adversely affected if we fail to coordinate our resources effectively to manage both our existing operations and any businesses we acquire. We have entered into an agreement to acquire all of the outstanding shares of Cymer Inc. ( Cymer ). However the Cymer acquisition is subject to closing conditions, including review by U.S. and international regulators. Although closing is expected to occur within the first half of 2013, there is no assurance that the transaction will be completed within the expected time period or at all. If our acquisition of Cymer is not completed, we may need to develop EUV light source technology ourselves, which could lead to significant costs and delays in the introduction of EUV systems. ASML ANNUAL REPORT

19 We expect that the acquisition of Cymer will make EUV technology more efficient, prevent additional delays in the introduction of EUV technology, and simplify the supply chain of EUV modules. However, achieving the benefits of the acquisition will depend in part on the integration of our development organization, operations and employees with those of Cymer in a timely and efficient manner, so as to minimize the risk that the transaction will result in a delay in the development of EUV as result of the loss of key employees of Cymer or the diversion of the attention of management. There can be no assurance that Cymer will be successfully integrated in our business or that any of the anticipated benefits will be realized. Even if we are able to successfully integrate Cymer, there is no assurance that this transaction will result in successful development of our EUV technology. Our Business and Future Success Depend on Our Ability to Attract and Retain a Sufficient Number of Adequately Educated and Skilled Employees Our business and future success significantly depend upon our employees, including a large number of highly qualified professionals, as well as our ability to attract and retain employees. Competition for such personnel is intense, and we may not be able to continue to attract and retain such personnel. The EUV and 450mm R&D programs associated with the non-recurring research and development ( NRE ) commitments under the Customer Co-Investment Program will require a significant number of qualified employees. If we are unable to attract sufficient numbers of qualified employees, this could affect our ability to conduct our EUV and 450mm research programs on a timely basis, which could adversely affect our business, financial condition and results of operations. In addition, the increasing complexity of our products results in a longer learning-curve for new and existing employees leading to an inability to decrease cycle times and may result in the incurrence of significant additional costs, which could adversely affect our business, financial condition and results of operations. See Item 4.B. Business Overview, Customer Co-Investment Program. Risks Related to Our Ordinary Shares We May Not Declare Cash Dividends at All or in Any Particular Amounts in Any Given Year We aim to pay an annual dividend that will be stable or growing over time. Annually, the Board of Management will, upon prior approval from the Supervisory Board, submit a proposal to the AGM with respect to the amount of dividend to be declared with respect to the prior year. The dividend proposal in any given year will be subject to the availability of distributable profits or retained earnings and may be affected by, among other factors, the Board of Management s views on our potential future liquidity requirements, including for investments in production capacity, the funding of our research and development programs and for acquisition opportunities that may arise from time to time; and by future changes in applicable income tax and corporate laws. Accordingly, the Board of Management may decide to propose not to pay a dividend or pay a lower dividend with respect to any particular year in the future, which could have a negative effect on our share price. The Price of Our Ordinary Shares is Volatile The current market price of our ordinary shares may not be indicative of prices that will prevail in the future. In particular, the market price of our ordinary shares has in the past experienced significant fluctuation, including fluctuation that is unrelated to our performance. This fluctuation may continue in the future. Restrictions on Shareholder Rights May Dilute Voting Power Our Articles of Association provide that we are subject to the provisions of Dutch law applicable to large corporations, called structuurregime. These provisions have the effect of concentrating control over certain corporate decisions and transactions in the hands of our Supervisory Board. As a result, holders of ordinary shares may have more difficulty in protecting their interests in the face of actions by members of our Supervisory Board than if we were incorporated in the United States or another jurisdiction. Our authorized share capital also includes a class of cumulative preference shares and we have granted Stichting Preferente Aandelen ASML, a Dutch foundation, an option to acquire, at their nominal value of 0.09 per share, such cumulative preference shares. Exercise of the preference share option would effectively dilute the voting power of our outstanding ordinary shares by one-half, which may discourage or significantly impede a third party from acquiring a majority of our voting shares. See Item 6.C. Board Practices and Item 10.B. Memorandum and Articles of Association. ASML ANNUAL REPORT

20 Participating Customers in our Customer Co-Investment Program Together Own a Significant Amount of our Ordinary Shares In the Customer Co-Investment Program, Intel Corporation ( Intel ), Taiwan Semiconductor Manufacturing Company Ltd. ( TSMC ) and Samsung Electronics Corporation ( Samsung ) (collectively referred to as participating customers ) through certain wholly-owned subsidiaries, acquired 15%, 5% and 3%, of our shares, respectively (such percentages give effect to our Synthetic Share Buyback in November 2012). The interests of the participating customers may not always coincide with the interests of other holders of our shares. The shares acquired by the participating customers are held by Dutch foundations which have issued depositary receipts in respect thereof and the participating customers may only vote those shares in General Meetings in exceptional circumstances, including the authorization of certain significant share issuances and share repurchases, the approval of a significant change in the identity or nature of ASML or its business, any amendment to the Articles of Association that would materially affect the specific voting rights of Intel, TSMC and Samsung or that would cause a significant change in the identity or nature of ASML or its business, the dissolution of ASML, and any merger or demerger which would result in a material change in the identity or nature of ASML or its business. When such exceptional circumstances occur, the participating customers, and in particular Intel, will be able to influence matters requiring approval by the General Meeting and may vote their ordinary shares in a way with which other shareholders may not agree. The participating customers have also agreed that they will not, without our prior written consent, transfer any of the ordinary shares they acquired in the Customer Co- Investment Program (or depositary receipts representing those shares) until two years and six months after the date they acquired such shares (September 12, 2012 for Intel and Samsung; October 31, 2012 for TSMC). Upon expiry of such period, the ordinary shares held by participating customers are freely transferable, subject to orderly market arrangements and certain other restrictions. Any sales of significant amounts of shares by participating customers in the program could have a negative effect on our share price. See Item 4.B. Business Overview, Customer Co-Investment Program. Item 4 Information on the Company A. History and Development of the Company We commenced business operations in ASM Lithography Holding N.V. was incorporated in the Netherlands on October 3, 1994 to serve as the holding company for our worldwide operations, which include operating subsidiaries in the Netherlands, the United States, Italy, France, Germany, the United Kingdom, Ireland, Belgium, Korea, Taiwan, Singapore, China (including Hong Kong), Japan, Malaysia and Israel. In 2001, we changed our name to ASML Holding N.V. Our registered office is located at De Run 6501, 5504 DR Veldhoven, the Netherlands, telephone number From time to time, we pursue acquisitions of businesses that we believe will complement or enhance our core lithography business. These have included amongst others the acquisition of MaskTools division in 1999, Silicon Valley Group ( SVG ) in 2001, Brion Technologies, Inc. ( Brion ) in 2007 and the acquisition of Wijdeven Motion Holding B.V. and Wijdeven Motion B.V. (hereafter jointly referred to as Wijdeven Motion ) in October On October 16, 2012, we entered into a merger agreement (the Merger Agreement ) with Cymer. Pursuant to the merger agreement, we will acquire each share of Cymer s common stock for consideration per Cymer share of USD in cash and ordinary shares of ASML equal to a fixed ratio of ASML ordinary shares per share of Cymer common stock. The Merger Agreement provides for the acquisition of all of the outstanding shares of Cymer by a wholly-owned subsidiary of ASML US Inc., an indirect wholly-owned subsidiary of ASML Holding N.V. Completion of the merger is subject to customary closing conditions, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act and receipt of approvals under other foreign competition laws. On february 5, 2013, the Cymer Stockholders approved the merger agreement. We expect the transaction to close in the first half of 2013, however there is no assurance that the transaction will be completed within the expected time period or at all. See Risk Factors, We May Be Unable to Make Desirable Acquisitions or to Integrate Any Businesses We Successfully Acquire. See Item 4.B. Business overview, Research and development and item 10.C. Material Contracts, Cymer Merger for more information on our agreements to acquire Cymer. ASML ANNUAL REPORT

21 Capital Expenditures and Divestures Our capital expenditures (purchases of property, plant and equipment) for 2012, 2011 and 2010 amounted to million, million and million, respectively. Our capital expenditures in these years mainly related to (i) the construction of our production facilities in Veldhoven, the Netherlands, for our latest technologies such as EUV and an improved version of the TWINSCAN platform, (ii) information technology investments, and (iii) leasehold improvements to our facilities. Capital expenditures are primarily financed through cash provided by operating activities. Divestures, mainly consisting of machinery and equipment, amounted to 2.3 million for 2012, 3.4 million for 2011 and 6.7 million for See Note 11 to our consolidated financial statements. B. Business Overview We are one of the world s leading providers (measured in revenue) of lithography systems for the semiconductor industry, manufacturing complex machines that are critical to the production of integrated circuits or chips. Headquartered in Veldhoven, the Netherlands, ASML is traded on Euronext Amsterdam and NASDAQ under the symbol ASML. ASML has approximately 8,500 employees on payroll (expressed in full time equivalents), serving chip manufacturers in more than 55 locations in 16 countries. Our business model Our business model is derived from our Value of Ownership concept which is based on the following principles: offering ongoing improvements in productivity, imaging and overlay by introducing advanced technology based on modular platforms and advanced applications outside the traditional lithography business, each resulting in lower costs or higher value per product for our customers; providing customer services that ensure rapid, efficient installation and superior support and training to optimize manufacturing processes of our customers and improve productivity; maintaining appropriate levels of R&D to offer the most advanced technology suitable for high-throughput and low-cost volume production at the earliest possible date enhancing/following Moore s law; enhancing the capabilities of the installed base of our customers through ongoing field upgrades of key value drivers (productivity, imaging and overlay) based on further technology developments; reducing the cycle time between a customer s order of a system and the use of that system in volume production; expanding operational flexibility in research and manufacturing by reinforcing strategic alliances with world class partners, including outsourcing companies; improving the reliability and uptime of our installed system base; and providing refurbishing services that effectively increase residual value by extending the life of equipment. Market and Technology Overview The chip-making business is focused on shrink or reducing the size of chip designs. The worldwide electronics and computer industries have experienced significant growth since the commercialization of ICs in the 1960s, largely due to the continual reduction in the cost per function performed by ICs. Improvement in the design and manufacture of ICs with higher circuit or packing densities has resulted in smaller and lower cost ICs capable of performing a greater number of functions at faster speeds and with reduced power consumption. We believe that these long-term trends will continue for the foreseeable future and will be accompanied by a continuing demand, subject to ongoing cyclical variation, for production equipment that can accurately produce advanced ICs in high volumes at the lowest possible cost. Lithography is used to print complex circuit patterns onto the wafers that are the primary raw material for ICs and is one of the most critical and expensive steps in their fabrication. It is therefore a significant focus of the IC industry s demand for cost-efficient enhancements to production technology. We primarily design, manufacture, market and service semiconductor processing equipment used in the fabrication of ICs. Our lithography equipment includes Step & Scan systems, which combine stepper technology with a photo-scanning method. Our systems use a mask to achieve the required chip pattern. A mask is a flat, transparent quartz plate containing an opaque microscopic pattern: an image of the electronic circuitry for one layer of a chip. The mask is placed in a scanner where intense light passing through it projects the pattern, via a series of reducing lenses, onto part of the wafer. Before exposure, the wafer is coated with photo resist and positioned so that the projected pattern aligns with existing features on the wafer. After exposure and developing, the pattern left on the wafer surface is used to selectively process and build up the next layer. ASML ANNUAL REPORT

22 Customer Roadmaps The four major customer sectors to which we sell our products are micro-processor manufacturers and Foundries (together Logic ), NAND-Flash memory and DRAM memory chipmakers (together Memory ). Supported by their technology roadmaps, IC manufacturers continue to show interest in shrinking resolution as a means to lower manufacturing costs per unit or adding value through more functional integration. We believe that the leading IC manufacturers have plans to migrate their production capabilities in the foreseeable future to resolutions beyond 10 nanometer ( nm ), for which they will require state-of-the-art lithography equipment. Products We develop lithography systems and related products for the semiconductor industry and related patterning applications. Our product development strategy focuses on the development of product families based on a modular, upgradeable design. Our older PAS 2500 and PAS 5000 lithography systems, which we no longer manufacture but continue to refurbish, are used for g-line and i-line processing of wafers up to 150 mm in diameter and are employed in manufacturing environments and in special applications for which design resolutions no more precise than 0.5 microns are required. Our PAS 5500 product family comprises advanced wafer steppers and Step & Scan systems suitable for i-line, Krypton Fluoride ( KrF ) and Argon Fluoride ( ArF ) processing of wafers up to 200 mm in diameter and are employed in volume manufacturing to achieve design nodes requiring resolutions down to 90 nm. We offer TWINSCAN systems, based on i-line, KrF and ArF processing of wafers up to 300 mm in diameter for manufacturing environments for which design resolutions down to 38 nm are required. The modular upgradeable design philosophy of the PAS 5500 product family has been further refined and applied in the design TWINSCAN. Introduced in 2000, the TWINSCAN platform, is the basis for our current and next-generation Step-and Scan systems, which are capable of extending shrink technology down to the 38 nm node and beyond. We are one of the world s leaders (measured in revenues) in the innovation of immersion technologies and we were the world s first producer of dual-stage design TWINSCAN systems. Wafer measurement, including focus and alignment, is completed on the dry stage, while the imaging process, using water applied between the wafer and the lens, is completed on the wet stage. The dual-stage advantage of TWINSCAN immersion systems enables our customers to benefit from the process enhancements of immersion while continuing to use familiar and proven metrology technology. Furthermore, we continuously develop and sell a range of product options and enhancements designed to increase productivity and improve imaging and overlay to optimize value of ownership over the entire life of our systems. The NXE platform ( NXE ) is based on a new platform utilizing the concepts of the TWINSCAN platform. NXE extends the industry proven modularity of our TWINSCAN NXT system ( NXT ) with new innovative technologies to support EUV imaging in several system critical areas, including the EUV light source, the reflective mirror optical system and all encompassed within a vacuum system. NXE is targeted for production of ICs down to 16 nm and beyond. It is equipped with EUV light source technology, based upon tin plasma, producing light at a wavelength of 13.5 nm. In addition, the NXE system has an innovative optical technology utilizing reflective mirrors rather than the traditional refractive optics with a numerical aperture ( NA ) of The light in NXE operates in a vacuum environment, through the entire optical train to wafer level. With the combination of these revolutionary technologies, EUV offers the potential to provide our customers a roadmap for future shrink, and we expect it to become the Lithography technology for the coming years. The success of EUV remains particularly dependent on light source (laser) availability and continuing related technical advances by us and our suppliers, as well as infrastructure developments in masks and photoresists. We are actively working with our suppliers to improve the availability and performance of the light source and to achieve these related technical advances. ASML ANNUAL REPORT

23 Cymer We have agreed to acquire Cymer, subject to certain closing conditions. We believe that the acquisition of Cymer, if completed, will help us achieving our strategic objective of delivering an economically viable EUV scanner to semiconductor manufacturers as soon as reasonably possible. We believe that combining Cymer s expertise in EUV light sources with our expertise in lithography systems design and integration will reduce the risks related to the successful development of and accelerate the introduction of EUV technology. Without the acquisition, we do not believe that Cymer would have sufficient resources to complete the development of the EUV source and as a result, the only way to make the EUV source development successful without additional delay is through the acquisition of Cymer. In addition we believe that the acquisition will allow us to more effectively partition responsibilities between Cymer, its suppliers and us with respect to EUV light source development, reducing risk and increasing development speed. Completion of the merger is subject to customary closing conditions, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act and receipt of approvals under other foreign competition laws. On february 5, 2013, the Cymer Stockholders approved the merger agreement. We expect the transaction to close in the first half of 2013, however there is no assurance that the transaction will be completed within the expected time period or at all. See Risk Factors, We May Be Unable to Make Desirable Acquisitions or to Integrate Any Businesses We Successfully Acquire. See also Item 10.C Material Contracts, Cymer Merger. Product Development In 2003, we introduced the second-generation of TWINSCAN ( XT ) systems with a 50 percent reduction in the main production area occupied by our system. In 2004, we shipped our first lithography systems based on immersion technology. These shipments marked the delivery of the industry s first high productivity immersion scanners for mainstream production. In 2006, we shipped the industry s first EUV Alpha Demo Tools to two research institutions, which work closely with most of the world s major IC manufacturers in developing manufacturing processes and materials. Also in 2006, we started volume production of the TWINSCAN XT:1700i ( XT:1700i ), a 193 nm immersion scanner capable of imaging at the 45 nm node in volume production environments. With a catadioptric lens design, this system featured a NA of 1.2, substantially higher than that of its predecessor, the XT:1400, which had a NA of 0.93, exceeding the non-immersion barrier of 1.0. The XT:1700i has enabled chipmakers to improve resolution by 30 percent and has been employed in the development and manufacturing of the latest advanced generation of ICs. The acquisition of Brion in 2007 enabled us to improve the implementation of optical proximity correction ( OPC ) technology and resolution enhancement techniques ( RET ) such as double patterning technology ( DPT ) and Source-Mask Optimization ( SMO ) for masks. These improvements are extending the practical resolution limits of our ArF immersion products. Brion s computational lithography capabilities have enabled us to offer products that further improve the set-up and control of our lithography systems. Our current computational lithography portfolio comprises both traditional products (such as RET/OPC/DPT/SMO), as well as solutions that directly interface with the numerous calibration controls in our scanner to optimize performance. Our computational lithography products capture detailed knowledge of scanner design and real performance, which enables them to accurately predict real-life manufacturing performance. These predictions are essential in addressing possible ramp-up and yield problems in advance, potentially avoiding months of delay in time-to-market for our customers. The same prediction capabilities allow our scanners to be optimally calibrated for improved performance in production, given specific chip designs or masks, thereby achieving improved yield. Once a scanner is optimally set-up for a given application, we also offer scanner control solutions that ensure that the performance of the lithographic process remains optimal and stable throughout production. These scanner control solutions leverage the scanner controls to compensate for potential performance drifts in the scanner itself, as well as in other steps of the device manufacturing process, such as mask deterioration, resist coating fingerprints, etching fingerprints, or chemical-mechanical polishing fingerprints. To provide a total solution for scanner control we offer our own advanced wafer metrology system ( Yieldstar ). In 2007, we began volume shipment of the XT:1900i, with a new industry benchmark of 1.35 NA, which is close to the practical limit for water-based immersion technology. This optical lithography system is capable of volume production of ICs down to 40 nm and below and is used for high volume IC manufacturing at multiple customers worldwide. ASML ANNUAL REPORT

24 In 2008, we partly discontinued research into optical maskless lithography due to the reduced market opportunity for this technology. Research studies on alternative technologies continue for both mask-based and maskless lithography. In 2009, we started shipments of XT:1950i systems, the enhanced version of the XT:1900i, with improved throughput of 148 wafers per hour, resolution of 38 nm and a scheduled overlay of 4 nm. This system extended the performance, imaging and overlay specifications of the successful XT:1900i system. In 2009, we announced Tachyon SMO, a new product that provides the industry with improved manufacturable imaging solutions and is a major advancement of our industry standard SMO technology, which was currently in use by leading logic and memory manufacturers. In 2009, we introduced FlexRay programmable illumination and BaseLiner scanner matching technology. Together, they offer scanner stability optimization and stabilize manufacturing process windows. Also in 2009, we announced an improved version of the TWINSCAN platform called NXT featuring new stage and position control technology, providing improved imaging and overlay performance for immersion. Initial shipments started in the third quarter of 2009 and volume production and shipments commenced in By the end of 2011, three TWINSCAN NXT systems with throughput of 200 wafers per hour had been shipped to customers. In 2010, we shipped the first second-generation EUV system called NXE:3100, and five more were shipped in EUV will provide a large process window and much greater shrink compared with current approaches and we expect it to become the lithography solution for the next decade. The NXE:3100 combine a wavelength of 13.5 nm and an optical system with a NA of 0.25 to provide imaging at a resolution of 27 nm. In 2011, we received 11 orders for the successor to the NXE:3100, the third-generation, high-volume EUV system ( NXE:3300B ). We expect to ship our first NXT:3300B in the second quarter of 2013 and we are targeting for a maximum of 11 potential shipments in The third-generation EUV systems combine a wavelength of 13.5 mm and an optical system with a numerical aperture of 0.33 to provide imaging at a resolution of 22 nm. The enhancements or extensions of the NXE:3300B enable the improved performance, in the same manner that upgrades to the NXT platform improve its productivity. Also in 2012, we delivered TWINSCAN NXT:19X0 immersion systems which enable our customers to increase the productivity to more than 200 wafers per hour. The table below outlines our current product portfolio of Stepper and Scanner Systems by resolution and wavelength. ASML lithography product portfolio of Step & Scan Systems System Resolution Wavelength Lightsource Numerical aperture PAS 5500 SYSTEMS PAS 5500/4X0 280 nm 365 nm i-line PAS 5500/ nm 248 nm KrF PAS 5500/ nm 248 nm KrF PAS 5500/ nm 193 nm ArF TWINSCAN SYSTEMS TWINSCAN XT: nm 365 nm i-line TWINSCAN XT: nm 365 nm i-line TWINSCAN XT:8X0 110 nm 248 nm KrF TWINSCAN XT: nm 248 nm KrF TWINSCAN XT: nm 193 nm ArF TWINSCAN XT:1700 immersion 45 nm 193 nm ArF TWINSCAN XT:1900 immersion 40 nm 193 nm ArF TWINSCAN XT:1950 immersion 38 nm 193 nm ArF TWINSCAN NXT:19X0 immersion 38 nm 193 nm ArF EUV NXE: nm 13.5 nm EUV 0.25 NXE:3300B 22 nm 13.5 nm EUV 0.33 ASML ANNUAL REPORT

25 The table above can be further explained by the following notes: This table does not include older (including pre-used) products sold on the PAS 2500, PAS 5000 and PAS 5500 platforms or system enhancements on steppers and scanners and other products (e.g. Yieldstar or computational lithography products). XT is a TWINSCAN system for 200 and 300 mm wafer sizes. Wavelength refers to the frequency of light going through projection lenses; the shorter the wavelength, the smaller the line-width and the finer the pattern on the IC. 1 nm is equal to one billionth of a meter. The X in the product number represents different models in the product portfolio within the same resolution. For example XT:8X0 can either represent XT:800 or XT:850. NXT is an improved version of the current TWINSCAN system, introducing new stages and stage position control technology, which enable improved imaging and overlay. NXE is a new platform utilizing the concepts of the TWINSCAN platform with complete new technologies in three areas: light source, lens system, and vacuum body. We have been developing Yieldstar for overlay and critical dimension (CD) measurements by using scatterometry technology. Yieldstar scatterometry provides high accuracy and low cost wafer metrology data that can be used for further improving the NXT/NXE performance. Sales, Customer Support and Customers We support our customers with a broad range of applications, services, and technical support products to maintain and maximize the performance of our systems at customer sites. We also offer refurbished and remanufactured tools, system upgrades and enhancements, and technical training. We market and sell our products through our direct sales force. Our field sales, field engineers and applications, service and technical support specialists are located throughout Asia, the United States and Europe. We have established the ASML Center of Excellence ( ACE ) in Taiwan, Asia. The primary goal of ACE is to serve as a supplementary engine to propel ASML s long-term growth. ACE features customer support, training, logistics, refurbishment, technology, application development and will also produce all Yieldstar systems. ACE also enables sourcing of selected equipment modules, components and services in the region. Finally, ACE is used as a training center to develop worldwide talent for our workforce. Customers and Geographic Regions In 2012, recognized sales to our largest customer accounted for 1,236.1 million, or 26.1 percent of net sales, compared with 1,311.7 million, or 23.2 percent of net sales, in 2011 (2010: 1,270.8 million or 28.2 percent of net sales). We expect that sales to a limited number of customers will continue to account for a high percentage of our net sales in any particular period for the foreseeable future. In 2012, we derived 70.7 percent of net sales from Asia, 23.9 percent from the United States and 5.4 percent from Europe (2011: Asia: 66.5 percent; US: 24.6 percent and Europe: 8.9 percent; 2010: Asia: 80.5 percent; US: 15.0 percent and Europe: 4.5 percent). See Note 20 to our consolidated financial statements. Manufacturing, Logistics and Suppliers Our business model is based on outsourcing production of a significant part of the components and modules that comprise our lithography systems, working in partnership with suppliers from all over the world. Our manufacturing activities comprise the subassembly and testing of certain modules and the final assembly and fine tuning/testing of a finished system from components and modules that are manufactured to our specifications by third parties and by us. All of our manufacturing activities (subassembly, final assembly and system fine tuning/testing) are performed in clean room facilities in Veldhoven, the Netherlands, in Wilton, Connecticut, the United States and in Linkou, Taiwan. We procure stepper and scanner system components and subassemblies from a single supplier or a limited group of suppliers in order to ensure overall quality and timeliness of delivery. We jointly operate a formal strategy with suppliers known as value sourcing, which is based on competitive performance in quality, logistics, technology and total cost. The essence of value sourcing is to maintain a supply base that is world class, globally competitive and globally present. Our value sourcing strategy is based on the following strategic principles: maintaining long-term relationships with our suppliers; sharing risks and rewards with our suppliers; dual sourcing of knowledge, globally, together with our suppliers; and single, dual or multiple sourcing of products, where possible or required. ASML ANNUAL REPORT

26 Value sourcing is intended to align the performance of our suppliers with our requirements on quality, logistics, technology and total costs. Zeiss is our sole external supplier of main optical systems and one of the suppliers of other components. In 2012, 28.0 percent of our aggregate cost of sales was purchased from Zeiss (2011: 28.7 percent; 2010: 31.4 percent). Zeiss is highly dependent on its manufacturing and testing facilities in Oberkochen and Wetzlar, Germany, and its suppliers. Moreover, Zeiss has a finite capacity for production of lenses and optical components for our systems. The expansion of this production capacity may require significant lead-time. From time to time, the number of systems we have been able to produce has been limited by the capacity of Zeiss to provide us with lenses and optical components. However, in 2012 our production was not limited by the deliveries from Zeiss. Our relationship with Zeiss is structured as a strategic alliance pursuant to several agreements executed in 1997 and subsequent years. These agreements define a framework in all areas of our business relationship. The partnership between ASML and Zeiss is focused on continuous improvement of operational excellence. Pursuant to these agreements, ASML and Zeiss have agreed to continue their strategic alliance until either party provides at least three years notice of its intent to terminate. In addition to Zeiss, we also rely on other outside vendors for the components and subassemblies used in our systems, each of which is obtained from a single supplier or a limited number of suppliers. See also Item 3.D. Risk Factors, The Number of Systems We Can Produce is Limited by Our Dependence on a Limited Number of Suppliers of Key Components. We have a flexible labor model with a mix of fixed and flexible contracted labor in its manufacturing and R&D facilities in Veldhoven, the Netherlands, and payroll employees compensated under a partly variable salary structure through ASML s profit sharing plan. This reinforces our ability to adapt more quickly to semiconductor market cycles, including support for potential 24-hour, seven days-a-week production activities. By maximizing the flexibility of our technically skilled workforce, we can shorten lead-times: a key driver of added value for customers. Flexibility also reduces our working capital requirements. Research and Development The semiconductor manufacturing industry is subject to rapid technological changes and new product introductions and enhancements. We believe that continued and timely development and introduction of new and enhanced systems are essential for us to maintain our competitive position. As a result, we have historically devoted a significant portion of our financial resources to R&D programs, and we expect to continue to allocate significant resources to these efforts. In addition, we have established sophisticated development centers in the Netherlands, the United States and Asia. We are also involved in joint R&D programs with both public and private partnerships and consortiums, involving independent research centers, leading chip manufacturers and governmental programs. We aim to own or license our jointly developed technology and designs of critical components. We apply for subsidy payments in connection with specific development projects under programs sponsored by the Dutch government, the European Union, the United States government and the Taiwanese government. These direct government grants are designed to stimulate high-risk research for the medium and long term future. R&D credits amounted to 17.9 million in 2012, compared with 25.1 million in 2011 and 29.5 million in Our innovative immersion lithography systems place a fluid between the wafer and a system s projection lens to enhance focus and enable circuit line-width to shrink to smaller dimensions than what is possible with dry lithography systems. ASML pioneered this wet technology and has experienced strong demand for immersion-based systems, which have been adopted by most of our customers. We have developed different immersion systems for different customer needs. We have optimized our TWINSCAN XT immersion systems for cost-effective imaging down to 38 nm and beyond patterning, and have developed a new dual wafer stage system called TWINSCAN NXT with improved positioning ( overlay ) and imaging. The TWINSCAN NXT platform enables next generations of semiconductors through the so-called double patterning technique which requires two exposures per layer on a chip, enabling precise imaging patterns and lines by using our TWINSCAN NXT planar wafer stage and breakthrough grid metrology. Our customers optimize their scanner performance by taking into account the entire chip creation process, from design to volume manufacturing we call this approach holistic lithography. We complement our scanner products with a rapidly expanding holistic lithography portfolio of software and metrology products to help our customers optimize ASML ANNUAL REPORT

27 semiconductor scanner performance, provide a faster start to chip production and achieve better imaging at higher resolutions. In 2012, the use of holistic lithography solutions continued to grow. Semiconductor manufacturers face increasingly smaller margins of error as they shrink chip features. Holistic lithography provides a way to shrink within these margins, offering significant revenue-generating and cost-saving opportunities to our customers. In 2010, we achieved a major milestone with EUV lithography when we shipped our first second-generation (NXE:3100) system to a customer s manufacturing site. In 2011 five additional EUV systems were shipped. These second generation-systems (NXE:3100) are used by our customers to develop their EUV manufacturing process before high-volume EUV systems will become available. In 2011, we received 11 orders for the successor to the NXE:3100, the third-generation, high-volume EUV system. We expect to ship our first NXT:3300B in the second quarter of 2013 and we are targeting for a maximum of 11 potential shipments in The third-generation EUV systems combine a wavelength of 13.5 mm and an optical system with a numerical aperture of 0.33 to provide imaging at a resolution of 22 nm. During 2012, our NXE:3100 pre-production systems have exposed a cumulative total of more than 30,000 wafers at customers sites, enabling successful recipe developments for the sub 14 nm Logic and 22 nm DRAM nodes. Imaging of the NXE:3300B continues to improve by showing results down to 14 nm. With respect to the EUV light source power, we have been able to show a stable full-field expose power of up to 40 Watts. Also in 2012, we delivered TWINSCAN NXT:19X0 immersion systems which enable our customers to increase the productivity to more than 200 wafers per hour. We invested million in R&D in 2012, compared with million in 2011 and million in We focused our R&D investments on EUV, immersion, and holistic lithography solutions and we accelerated our 450mm wafer size R&D investments, also as result of the Customer Co-Investment Program, announced July 9, See item 4.B. Research and Development, Customer Co-Investment Program. Customer Co-Investment Program On July 9, 2012, we announced our Customer Co-Investment program to accelerate our development of EUV technology beyond the current generation and our development of future 450mm silicon wafer technology. The participating customers agreed to fund 1.38 billion of our research and development projects from 2013 through This program creates risk sharing with some of our largest customers while the results of ASML s development programs will be available to every semiconductor manufacturer with no restrictions. The R&D funding program in the Customer Co-Investment Program consist of two funding projects: a 450mm technology development project and a next-generation EUV development project. ASML has entered into Non Recurring Engineering funding agreements with the participating customers. In addition, the participating customers also agreed to invest in ordinary shares equal to an aggregate for all participating customers of 23% of ASML s issued share capital (calculated giving effect to our Synthetic Share Buyback in November 2012) with the proceeds of the share issuance, 3.85 billion, being returned to the holders of ordinary shares (excluding the participating customers) through a Synthetic Share Buyback, executed in November See Item 10.C Material Contracts, Customer Co-Investment Program. Cymer We have agreed to acquire Cymer, subject to certain closing conditions. We believe that the acquisition of Cymer, if completed, will help us achieving our strategic objective of delivering an economically viable EUV scanner to semiconductor manufacturers as soon as reasonably possible. We believe that combining Cymer s expertise in EUV light sources with our expertise in lithography systems design and integration will reduce the risks related to the successful development of and accelerate the introduction of, EUV technology. Without the acquisition, we do not believe that Cymer would have sufficient resources to complete the development of the EUV source and as a result, the only way to make the EUV source development successful without additional delay is through the acquisition of Cymer. In addition we believe that the acquisition will allow us to more effectively partition responsibilities between Cymer, its suppliers and us with respect to EUV light source development, reducing risk and increasing development speed. Completion of the merger is subject to customary closing conditions, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act and receipt of approvals under other foreign competition laws. On February 5, 2013, the Cymer Stockholders approved the merger agreement. We expect the transaction to close in the first half of 2013, however there is no assurance that the transaction will be completed within the expected time ASML ANNUAL REPORT

28 period or at all. See Risk Factors, We May Be Unable to Make Desirable Acquisitions or to Integrate Any Businesses We Successfully Acquire. See also Item 10.C Material Contracts, Cymer Merger. Intellectual Property We rely on intellectual property rights such as patents, copyrights and trade secrets to protect our proprietary technology. We aim to obtain ownership rights on technology developed by or for us, alternatively, to have license rights in place with respect to such technology. In 2007, ASML and Zeiss signed an agreement with Canon for the global cross-license of patents in their respective fields of semiconductor lithography and optical components, used to manufacture ICs. There was no transfer of technology and no payment was made among the parties. From late 2001 through 2004, we were party to a series of civil litigations and administrative proceedings in which Nikon alleged ASML s infringement of Nikon patents relating to lithography. ASML in turn filed claims against Nikon. Pursuant to agreements executed on December 10, 2004, ASML, Zeiss and Nikon agreed to settle all pending worldwide patent litigation between the companies. The settlement included an exchange of releases and a patent cross-license agreement related to lithography equipment used to manufacture semiconductor devices (the Nikon Cross-License Agreement ) and payments to Nikon by ASML and Zeiss. In connection with the settlement, ASML and Zeiss made settlement payments to Nikon from 2004 to The license period for certain patents subject to the Nikon Cross-License Agreement, which were not perpetually licensed, ended on December 31, Pursuant to the terms of the Nikon Cross-License Agreement, the parties have agreed, from January 1, 2010 to December 31, 2014 (the Cross-License Transition Period ), not to bring suit for claims related to infringement of those patents or for claims related to infringement of patents issued during the Cross-License Transition Period. However, under the terms of the Cross-License Agreement, beginning on January 1, 2015, the parties may bring suit for infringement of patents subject to the Nikon Cross-License Agreement, including any infringement that occurred during the Cross-License Transition Period. Damages related to claims for patent infringement occurring during the Cross-License Transition Period are limited to three percent of the net sales price of products utilizing patents that are valid and enforceable. See Item 3.D. Risk Factors, Failure to Adequately Protect the Intellectual Property Rights Upon Which We Depend Could Harm Our Business and Risk Factors, Defending Against Intellectual Property Claims Brought by Others Could Harm Our Business. Competition The semiconductor equipment industry is highly competitive. The principal elements of competition in our market are: the technical performance characteristics of a lithography system; the value of ownership of that system based on its purchase price, maintenance costs, productivity, and customer service and support costs; the exchange rate of the euro particularly against the Japanese yen which results in varying prices and margins; the strength and breadth of our portfolio of patents and other intellectual property rights; and our customers desire to obtain lithography equipment from more than one supplier. We believe that the market segment for lithography systems and the investments required to be a significant competitor in this market segment have resulted in increased competition for market share through the aggressive prosecution of patents. Our competitiveness will increasingly depend upon our ability to protect and defend our patents, as well as our ability to develop new and enhanced semiconductor equipment that is competitively priced and introduced on a timely basis. Government Regulation Our business is subject to direct and indirect regulation in each of the countries in which our customers or we do business. As a result, changes in various types of regulations could affect our business adversely. The implementation of new technological, safety or legal requirements could impact our products, or our manufacturing or distribution processes, and could affect the timing of product introductions, the cost of our production, and products as well as their commercial success. Moreover, environmental and other regulations that adversely affect the pricing of our products could adversely affect our financial condition and our results of operations. The impact of these changes in regulation could adversely affect our business even where the specific regulations do not directly apply to us or to our products. ASML ANNUAL REPORT

29 C. Organizational Structure ASML Holding N.V. is a holding company that operates through its subsidiaries. Our major operating subsidiaries, each of which is a wholly-owned (direct or indirect) subsidiary, are ASML Netherlands B.V., ASML Systems B.V., ASML Hong Kong Limited and ASML US Inc. See Exhibit 8.1 for a list of our main subsidiaries. D. Property, Plant and Equipment We lease a number of our facilities under operating leases. We also own a number of buildings, mainly consisting of production facilities in the Netherlands, United States and Taiwan. The book value of land, buildings and constructions owned amounted to million as of December 31, 2012 compared with million as of December 31, See Note 11 to our consolidated financial statements. Subject to market conditions, we expect that our capital expenditures (purchases of property, plant and equipment) in 2013 will be approximately million (2012: million). These expenditures will mainly consist of investments used for the finalization of capacity expansion of EUV production facilities, which we plan to finalize by the end of 2014, and expansion of our facilities to support our 450mm activities. We expect to finance these capital expenditures through cash generated by operations and cash and cash equivalents. Facilities in Europe Our headquarters, main manufacturing facilities, applications laboratory and R&D facilities are located at a single site in Veldhoven, the Netherlands. This state-of-the-art facility includes 63 thousand square meter of office space and 42 thousand square meters of buildings used for manufacturing and R&D activities and 21 thousand square meters of warehouses. We lease the majority of these facilities through long-term operating leases that contain purchase options. Some of our office facilities at our headquarters in Veldhoven, the Netherlands, are financed through a special purpose vehicle that is a variable interest entity ( VIE ). We also lease several sales and service facilities at locations across Europe. Facilities in the United States Our United States head office is located in a 9 thousand square meter office building in Tempe, Arizona. We maintain lithography research, development and manufacturing operations in a 27 thousand square meter facility in Wilton, Connecticut, and a 5 thousand square meter facility in Santa Clara, California. We also lease several sales and service facilities at locations across the United States. Facilities in Asia Our Asian headquarters is located in a 425 square meter office space in Hong Kong, The People s Republic of China. In addition, our ACE facility in Linkou, Taiwan comprises clean room (approximately 3 thousand square meters) and office space (approximately 6 thousand square meters). The ACE facility supports customers in the Asia-Pacific region by focusing on technology and applications development, equipment support, training, logistics and refurbishment. ACE also enables local sourcing of equipment, components, services and will produce all Yieldstar systems. Our facility in Korea comprises a clean room (approximately 700 square meters) and office space (approximately 6 thousand square meters). The purpose of this facility is to support a closer working relationship with our customers in Korea. We also lease and own several sales, service and training facilities at locations across Asia. Item 4A Unresolved Staff Comments Not applicable. Item 5 Operating and Financial Review and Prospects Executive Summary Introduction ASML is one of the world s leading providers (measured in revenue) of lithography systems for the semiconductor industry, manufacturing complex machines that are critical to the production of ICs or chips. Headquartered in Veldhoven, the Netherlands, ASML is traded on NYSE Euronext Amsterdam and NASDAQ under the symbol ASML. As of December 31, 2012, we employed 8,497 payroll employees (2011: 7,955) and 2,139 temporary employees (2011: 1,935), measured in full-time equivalents. We provide services to our customers to optimize their manufacturing processes in more than 55 locations in 16 countries. ASML ANNUAL REPORT

30 In 2012, we generated net sales of 4,731.5 million and income from operations of 1,156.8 million, or 24.4 percent of net sales. Net income in 2012 amounted to 1,146.3 million, or 24.2 percent of net sales, representing basic net income per ordinary share of In the executive summary below we provide an update of the semiconductor equipment industry, followed by a discussion of our business strategy and our key performance indicators. All information disclosed in this section is provided as a supplement to, and should be read in conjunction with, our Financial Statements and the accompanying Notes to the Consolidated Financial Statements. Semiconductor equipment industry The chip-making business is focused on shrink, or reducing the size of chip designs. Historically the semiconductor industry has experienced significant growth largely due to the continual reduction of cost per function performed by ICs. Improvement in the design and manufacture of ICs with higher circuit densities resulted in smaller and cheaper ICs capable of performing a larger number of functions at higher speeds with lower power consumption. We believe that these long-term trends will continue for the foreseeable future and will be accompanied by a continuing demand for production equipment that is capable of accurate production of advanced ICs in high volumes at the lowest possible cost. Lithography equipment is used to print complex circuit patterns onto silicon wafers, which are the primary raw materials for ICs. The printing process is one of the most critical and expensive steps in wafer fabrication. Lithography equipment is therefore a significant focus of the IC industry s demand for cost-efficient enhancements to production technology. The costs to develop new lithography equipment are high. Accordingly, the lithography equipment industry is characterized by the presence of only a few primary suppliers: ASML and Nikon, and (to a lesser degree) Canon. In 2012, ASML was one of the world s leading providers of lithography equipment (measured in revenues). Total lithography equipment shipped by the industry as a whole in the six years ended December 31, 2012, is set out in the following table: Year ended December Total units shipped Total value (in millions USD) 1 6,451 8,186 6,416 2,485 5,388 7,144 1 Historical data and full-year 2012 estimates as reported by Gartner Dataquest in its fourth quarter 2012 report. For the year 2012, the latest indications of independent market analysts show a decrease in total lithography equipment shipped to the market by the industry of 28.2 percent in unit volume and 21.2 percent in value. Our net sales decreased by 16.3 percent compared to Despite lower net sales during 2012, it was our second best year ever based on total net sales and profitability. During 2012, the majority of the system sales was generated from Logic. Business strategy The long-term growth of the semiconductor industry is the result of the principle that the power, cost and time required for every computation on a digital electronic device can be reduced by shrinking the size of transistors on chips. In 2012, chip makers routinely produced electronic chip features with geometries of 32 nanometers, compared to typical geometries of 10,000 nanometers in the early 1970s, resulting in an increase in the number of transistors on leading chips from several thousand to over two billion. This trend was first observed by Intel co-founder Gordon Moore in 1965, and is referred to as Moore s Law. Moore s Law has resulted in our information society with fast wired and wireless communications built on affordable chips. Moore s Law also has an impact on the energy usage of chips. Smaller geometries allow for much lower electrical currents to operate the chip. This has helped to contain the world s energy consumption despite the proliferation of affordable computing. Using advanced semiconductors in industrial and consumer products often provides economic benefits, user-friendliness and increased safety. The technology revolution powered by semiconductors has brought many advantages: not only can information be more widely disseminated than ever before, affordable chip intelligence has also enabled industry and service sectors to create and distribute products and ideas at lightning speed. Smarter, smaller and more energy-efficient chips are made with increasingly sophisticated lithography systems produced by ASML. Lithography systems are crucial to the roadmaps of chipmakers to make smaller transistors on chips. Our business strategy is based on maintaining and further developing our position as a technology leader in semiconductor lithography. When executed, this strategy results in the delivery of lithography systems which enable customers to ASML ANNUAL REPORT

31 produce highest performance and lowest cost chips. The superior value of ownership offered to customers as a result of our strategy also maximizes our own financial performance, aligning the interests of ASML and our customers. Sustainability over the long term is essential in the relationship between ASML and its customers, because customers rely on us for their long-term roadmaps towards smarter and more energy efficient microchips. Sustainability Strategy Our customers want chip-making machines that produce more chips faster, using less energy and fewer natural resources, at a similar cost. They also want us, as their supplier, to operate according to the highest environmental, social and governance standards. Our sustainability strategy thus goes hand in hand with our business strategy, aimed at maintaining and further developing our position as a technology leader in the semiconductor industry. ASML s sustainability strategy focuses on four domains: sustainable operations, sustainable products, sustainable value chain and sustainable culture: Focusing on sustainable operations means we seek to reduce the environmental impact of both our manufacturing process and our research and development activities. Providing sustainable product means we continuously strive to make our chip-making machines more efficient, enabling our customers to reduce their energy and natural resources consumption per chip produced. Focusing on a sustainable value chain signifies our ambition to stimulate our suppliers to meet increasingly high sustainability standards and to enable our customers to positively influence their impact on environment and society. Focusing on a sustainable culture means we seek to provide a working environment that inspires our highly-skilled workforce and respects their cultural and individual differences. It also means we seek to make a positive contribution to the well-being of the communities in which we operate. Sustainability Governance In 2009, ASML decided to significantly strengthen its commitment in the area of sustainability by setting a number of stringent objectives to be reached by It is the mission of the Sustainability Board to monitor the realization of these objectives. The mandate given by the Board of Management to the Sustainability Board is to review and make recommendations on our sustainability management system and policies, authorize or recommend plans to the Board of Management, provide guidance to management on objectives and targets, monitor and provide guidance on sustainability performance and targets, monitor and oversee sustainability risk management review and monitor stakeholder relations, and review and make recommendations on sustainability impacts of major business decisions. The Sustainability Board also determines the scope, provides input, and recommends to the Board of Management adoption of the Sustainability Report. In 2010, the Sustainability Board established the Corporate Sustainability department to coordinate the implementation of the overall sustainability strategy and policies on a day-to-day basis. In 2011, senior management decided to expand the Sustainability Governance structure by nominating a domain owner for each of the four strategic focus areas. Domain owners are responsible for coordinating the implementation of the sustainability goals in their respective domains. In 2012, as result of the nomination of domain owners in 2011, the implementation of our sustainability strategy accelerated, leading to achievement of several of our targets earlier than anticipated. Customer focus Ensuring customers are served with the right products at the right time, supported by excellent service, is key to our commitment to a long-term relationship. With high-valued products, customers expect high-quality support customized to their specific requirements. This support includes service engineers, equipped with the latest technical information, to ensure the highest levels of system performance, as well as applications specialists who support optimal system processing and new product implementation. ASML aims to deliver lithography systems with the lowest cost of ownership and highest earnings. Customer satisfaction is a critical objective of ASML. We have account teams that are specifically dedicated to customer satisfaction throughout the lifecycle of our products. Through 2012, all of the top 10 chip makers worldwide, in terms of semiconductor capital expenditure, were our customers. We also have a significant share of customers outside the top 10. We strive for continued business growth ASML ANNUAL REPORT

32 with all our customers. We expect customer concentration to increase because of continuing consolidation in the semiconductor manufacturing industry. In 2012, our satisfaction ratings by customers surpassed every lithography competitor for the tenth successive year, according to VLSI Research, an independent industry research firm that surveyed customers representing 95.0 percent of the world s total semiconductor market. Technology leadership Our customers need lithography scanners that continuously improve performance in three areas: resolution, speed and precision. The image of the electronic chip circuit must be extremely small (currently the smallest features have a size of less than 30 nm), the system must be able to image billions of these features every second and it must be able to do that with extreme precision of just a few nm (one nm is four silicon atoms). To realize and improve this system performance for our customers, ASML needs to deliver the right technology at the right time to meet long-term roadmaps which often extend many years into the future. Therefore, ASML is committed to significant long-term investments in R&D that are not significantly impacted by short-term cyclical swings. In 2012, our R&D investments (net of credits) amounted to million (2011: million; 2010: million). A significant part of this budget was used for R&D jointly developed with our suppliers and technology partners. Our lithography scanners are based on our dual-stage wafer imaging platform the TWINSCAN system which we introduced in 2000 and which allows exposure of one wafer while simultaneously measuring the wafer which will be exposed next. Our strong leadership in this capability has allowed us to achieve the industry s highest productivity, enabling reduced cost-per-exposure per wafer. Dual-stage lithography also supports the required accuracy to position electronic features on the wafer, as it allows for more time to measure the wafer prior to exposure. We are the only lithography manufacturer that enables volume production based on dual-stage systems. In order to meet the resolution, speed and accuracy demands of our customers, we have focused our R&D investments on three core programs: EUV, Immersion and holistic lithography solutions. Our innovative immersion lithography systems place a fluid between the wafer and a system s projection lens to enhance focus and enable circuit line-width to shrink to smaller dimensions than what is possible with dry lithography systems. ASML pioneered this wet technology and has experienced strong demand for immersion-based systems, which have been adopted by most of our customers. We have developed different immersion systems for different customer needs. We have optimized our TWINSCAN XT immersion systems for cost-effective imaging down to 38 nm and beyond patterning, and have developed a new dual wafer stage system called TWINSCAN NXT with improved positioning ( overlay ) and imaging. The TWINSCAN NXT platform enables next generations of semiconductors through the so-called double patterning technique which requires two exposures per layer on a chip, enabling precise imaging patterns and lines by using our TWINSCAN NXT planar wafer stage and breakthrough grid metrology. In 2011, we shipped five second-generation (NXE:3100) EUV systems, in addition to one shipped in Our customers are using the NXE:3100 system to develop their EUV manufacturing processes before high-volume EUV systems will become available. As of December 31, 2011, we had received 11 orders for the successor to the NXE:3100, the third-generation (NXE:3300B) high-volume EUV systems. The NXE (EUV) system, utilizing an evolved TWINSCAN platform, enables our customers to extend their roadmap towards smaller chip features. EUV permits chip makers to expose a critical layer in just one single step as opposed to double patterning which requires multiple steps. EUV also has a roadmap from the initial 27 nm resolution down to 16 nm and beyond. We have published a roadmap to develop a range of EUV models, offering the greatest extendibility at the lowest cost of ownership for the future of lithography. During 2012, our NXE:3100 pre-production systems have exposed a cumulative total of more than 30,000 wafers at customers sites, enabling successful recipe developments for the sub 14-nm Logic and 22 nm DRAM nodes. Imaging of the NXE:3300B continues to improve by showing results down to 14 nm. With respect to the EUV light source power, we have been able to show a stable full-field expose power of up to 40 Watts. On October 16, 2012, we agreed to acquire Cymer, subject to certain closing conditions. The acquisition of Cymer, if completed, will help us to achieving our strategic objective of delivering an economically viable EUV scanner to semiconductor manufacturers as soon as reasonably possible. We believe that combining Cymer s expertise in EUV light sources with our expertise in lithography systems design and integration will reduce the risks related to the successful development of, and accelerate the introduction of, EUV technology. ASML ANNUAL REPORT

33 We complement our scanner products with a rapidly expanding holistic lithography portfolio of software and metrology products to help our customers optimize semiconductor scanner performance, provide a faster start to chip production and achieve better imaging at higher resolutions. In 2012 the use of holistic lithography solutions continued to grow. Semiconductor manufacturers face increasingly smaller margins of error as they shrink chip features. Holistic lithography provides a way to shrink within these margins, offering significant revenue-generating and cost-saving opportunities to our customers. Operational excellence We strive to sustain our business success based on our technological leadership by continuing to execute our fundamental operating strategy, including reducing lead-times while improving our cost competitiveness. Lead-time is the time from a customer s order to a tool delivery. Our business strategy includes outsourcing the manufacturing of the majority of components and subassemblies that make up our products. We work in partnership with suppliers, collaborating on quality, logistics, technology and total cost. By operating our strategy of value sourcing, we strive to attain flexibility and cost efficiencies from our suppliers through mutual commitment and shared risk and reward. Value sourcing also allows the flexibility to adapt to the cyclicality of the world market for semiconductor lithography systems. We have a flexible labor model with a mix of fixed and flexible contracted labor in its manufacturing and R&D facilities in Veldhoven, the Netherlands, and payroll employees compensated under a partly variable salary structure through ASML s profit sharing plan. This reinforces our ability to adapt more quickly to semiconductor market cycles, including support for potential 24-hour, seven days-a-week production activities. By maximizing the flexibility of our technically skilled workforce, we can shorten lead-times: a key driver of added value for customers. Flexibility also reduces our working capital requirements. In view of the economic volatility of the semiconductor industry, we continue to strive improving efficiencies in our operations: addressing our cost structure and strengthening our capability to generate cash. ASML ANNUAL REPORT

34 ASML operations update on key performance indicators The following table presents the key performance indicators used by our Board of Management and senior management to measure performance in our monthly operational review meetings. Year ended December 31 (in millions) 2012 % % 2 % 2 Sales Net sales 4, , ,507.9 Increase (decrease) in net sales (%) (16.3) Net system sales 3, , ,894.7 Net service and field option sales Sales of systems (in units) Average selling price of total system sales Average selling price of new system sales Average selling price of used system sales Value of systems backlog excluding EUV 3,4 1, , ,855.7 Systems backlog excluding EUV (in units) 3, Average selling price of systems backlog excluding EUV 3, Average selling price of systems backlog excluding EUV (New) 3, Average selling price of systems backlog excluding EUV (Used) 3, Immersion systems recognized (in units) NXE systems recognized (in units) Profitability Gross profit 2, , , Income from operations 1, , , Net income 1, , , Liquidity Cash and cash equivalents 1, , ,949.8 Short-term investments Operating cash flow , As of January 1, 2011, ASML adopted Accounting Standards Update ( ASU ) , Revenue Arrangements with Multiple Deliverables which amended ASC The ASU was adopted prospectively, and had an insignificant impact on timing and allocation of revenues. See Note 1 to the consolidated financial statements. 2 As a percentage of net sales. 3 Our systems backlog and net bookings include only orders for which written authorizations have been accepted and system shipment and revenue recognition dates within the following 12 months have been assigned. 4 From January 1, 2011, we value our net bookings and systems backlog at system sales value including factory options. Before January 1, 2011, we valued net bookings and systems backlog at full order value (i.e. including factory options, field options and services). The comparative figures for prior periods have not been adjusted because the impact on the comparative figures is insignificant (approximately 20.0 million negative impact on backlog value as of December 31, 2010). 5 Included in the total number of immersion system recognized in 2012 are 68 of our most advanced immersion technology NXT:19X0i systems (2011: 78 and 2010: 34). 6 Through December 31, 2012 a total of six NXE:3100 systems had been shipped. Three of these systems were recognized in net system sales in 2011, one was recognized in 2012, one was shipped under the condition of an operating lease contract and one is shipped to a research institute. Sales For the longer term, and based on industry analysts IC unit growth forecasts, we expect our sales level to grow. Our sales levels depend on multiple growth drivers: macroeconomic developments, technological developments, market development, market share development and a broadening of our product and services scope. Net sales decreased by million, or 16.3 percent, to 4,731.5 million in 2012 from 5,651.0 million in 2011 (2010: 4,507.9 million). The decrease in net sales mainly resulted from a decrease in net system sales of 1,082.3 million, or 22.2 percent, to 3,801.6 million in 2012 from 4,883.9 million in 2011 (2010: 3,894.7 million), partly offset by an increase in net service and field option sales of million or 21.2 percent to million in 2012 from million in 2011 (2010: million), mainly due the further expansion of Holistic Lithography, integrated metrology and feedback loops. The number of total systems sold decreased by 23.4 percent to 170 systems in 2012 from 222 systems in 2011 (2010:197), mainly caused by decreased demand in Memory, as its major driver, the PC business shrunk compared to During 2012, the majority of the system sales were generated from Logic. The ASP of our systems in million is in line with million (2010: 19.8 million). We started 2012 with a systems backlog excluding EUV of 71 systems. In 2012, we booked orders for 148 systems, received order cancellations for 4 systems and recognized sales for 169 systems. This resulted in a systems backlog of 46 as of December 31, ASML ANNUAL REPORT

35 As of December 31, 2012, our systems backlog excluding EUV was valued at 1,214.1 million and includes 46 systems with an ASP of 26.4 million. As of December 31, 2011, the systems backlog was valued at 1,732.5 million and included 71 systems with an ASP of 24.4 million. Profitability Our general strategy is to achieve annual income from operations to net sales of 13.0 to 18.0 percent at the trough of the industry s business cycle and 25.0 to 30.0 percent at the peak. However in exceptional circumstances, as evidenced by the financial and economic crisis in 2009, we could see periods with income from operations that are substantially below our minimum target level. Income from operations decreased to 1,156.8 million, or 24.4 percent of net sales, in 2012 from an income from operations of 1,641.2 million, or 29.0 percent of net sales, in 2011 (2010: 1,250.7 million, or 27.7 percent of net sales). The million decrease was mainly driven by the decrease of gross profit on the system sales of million. Gross profit on sales decreased to 2,005.2 million or 42.4 percent of net sales in 2012 from 2,449.4 million or 43.3 percent of net sales in 2011 (2010: 1,955.2 million or 43.4 percent of net sales). Lower gross profit was mainly driven by the decreased number of total systems sold. Gross profit as a percentage of net sales in 2012 decreased compared to 2011, mainly due to increased infrastructure and manufacturing cost, driven primarily by EUV production, lower utilization of our production capacity and higher cost incurred in relation to excess and obsolete inventory as result of technological developments and design changes. R&D costs (net of credits) in 2012 ( million) are in line with 2011 ( million). R&D spending remained stable and mainly related to our strategic programs, in particular EUV, immersion and holistic lithography. Selling, general and administrative ( SG&A ) costs increased by 41.4 million, or 19.0 percent, to million in 2012, or 5.5 percent of net sales, from million in 2011, or 3.9 percent of net sales. The increase was mainly driven by transaction costs incurred of 26.1 million related to the Customer Co-Investment Program and transaction costs related to the proposed acquisition of Cymer and costs to implement and support IT solutions of 10.2 million. The effective tax rate was 0.4 percent of income before income taxes in 2012, compared with 11.0 percent of income before income taxes in The change in the effective tax rate is mainly due to a release of our liability for unrecognized tax benefits of 92.5 million after successful conclusion of tax audits in different jurisdictions which almost completely offsets the tax expenses, resulting in an income tax expense of 4.3 million (2011: million). Net income in 2012 amounted to 1,146.3 million, or 24.2 percent of net sales, representing 2.70 basic net income per ordinary share, compared with net income in 2011 of 1,467.0 million, or 26.0 percent of net sales, representing 3.45 basic net income per ordinary share (2010: 1,021.8 million or 22.7 percent of net sales, representing 2.35 basic net income per ordinary share). Liquidity ASML seeks to ensure that cash generated from operations, together with the liquidity provided by existing cash and cash equivalents and short-term investments and its borrowing capability, will be sufficient to satisfy its liquidity requirements throughout every phase of the industry cycles. Our cash and cash equivalents decreased to 1,767.6 million as of December 31, 2012 from 2,731.8 million as of December 31, 2011 and our short-term investments increased to million (2011: nil). We generated net cash from operating activities of million in We used 1,119.8 million for investing activities in 2012 primarily relating to our purchased short-term investments in Dutch Treasury Certificates and our deposits with the Dutch government. Net cash used in financing activities was million in In 2012 net cash used in financing activities includes the net cash outflow of 3,728.3 million for the Synthetic Share Buyback, million for our regular share buyback programs and million for our annual dividend payment, to a large extent offset by the proceeds of 3,853.9 million from issuance of shares under the Customer Co-Investment Program and 53.8 million net proceeds from issuance of shares in connection with the exercise and purchase of employee stock options. ASML ANNUAL REPORT

36 The difference of million between the capital repayment of 3,728.3 million and the net proceeds from issuance of shares 3,853.9 million relates to the capital repayment on ASML s treasury shares which was also part of the Synthetic Share Buyback in November ASML s available credit facility amounts to million. No amounts were drawn or outstanding under this facility during 2012 (2011: nil). A. Operating Results Critical accounting policies using significant estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America ( US GAAP ). The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities on the balance sheet dates, and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates. We evaluate our estimates continually and we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates if the assumptions prove incorrect. To the extent there are material differences between actual results and these estimates, our future results of operations could be materially and adversely affected. We believe that the accounting policies described below require us to make significant judgments and estimates in the preparation of our consolidated financial statements. Revenue recognition ASML recognizes revenue when all four revenue recognition criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; seller s price to buyer is fixed or determinable; and collectability is reasonably assured. This policy generally results in revenue recognition from the sale of a system upon delivery. The revenue from the installation of a system is generally recognized upon completion of that installation at the customer site. Each system undergoes, prior to shipment, a Factory Acceptance Test in our clean room facilities, effectively replicating the operating conditions that will be present on the customer s site, in order to verify whether the system will meet its standard specifications and any additional technical and performance criteria agreed with the customer, if any. A system is shipped, and revenue is recognized, only after all contractual specifications are met and customer sign-off is received or waived. In case not all specifications are met and the remaining performance obligation is not essential to the functionality of the system but is substantive rather than inconsequential or perfunctory, a portion of the sales price is deferred. Although each system s performance is re-tested upon installation at the customer s site, we have never failed to successfully complete installation of a system at a customer s premises. In connection with the introduction of new technology, such as our second-generation EUV systems (NXE:3100), we initially defer revenue recognition until completion of installation and acceptance of the new technology based system at customer premises. As our systems are based largely on two product platforms that permit incremental, modular upgrades, the introduction of genuinely new technology occurs infrequently, and in the past 15 years, has occurred on only two occasions: 2010 (EUV) and 1999 (TWINSCAN). We have no significant repurchase commitments in our general sales terms and conditions. From time to time the we repurchase systems that we have manufactured and sold and, following refurbishment, resell those systems to other customers. This repurchase decision is driven by market demand expressed by other customers and not by explicit or implicit contractual arrangements relating to the initial sale. We consider reasonable offers from any vendor, including customers, to repurchase used systems so that we can refurbish, resell, and install these systems as part of our normal business operations. Once repurchased, the repurchase price of the used system is recorded in work-in-process inventory during the period it is being refurbished, following which the refurbished system is reflected in finished products inventory until it is sold to the customer. As of December 31, 2012 and 2011, ASML had no repurchase commitments. We offer customers discounts in the normal course of sales negotiations. These discounts are directly deducted from the gross sales price at the moment of revenue recognition. From time to time, we offer volume discounts to certain customers. In some instances these volume discounts can be used to purchase field options (system enhancements). The related amount is recorded as a reduction in revenue at time of shipment. From time to time, we offer free or discounted products or services (award credits) to our customers as part of a volume purchase agreement. The sales transaction that gives rise to these award credits is accounted for as a multiple element revenue transaction as the agreements involve the delivery of multiple products. The consideration received from the sales transaction is allocated between the award credits and the other elements of the sales transaction. The consideration allocated to the award credits is recognized as deferred revenue until award credits are delivered to the customer. The amount allocable to ASML ANNUAL REPORT

37 a delivered item is limited to the amount that is not contingent upon the delivery of additional items or meeting other specified performance conditions (the non-contingent amount). Revenues are recognized excluding the taxes levied on revenues (net basis). In the event that an arrangement with a customer becomes onerous, we recognize a liability for the amount that the cost of settling the arrangement exceeds the amount of the contract price. When we satisfy the onerous arrangement, we derecognize the related liability. Multiple element arrangements The main portion of our revenue is derived from contractual arrangements with our customers that have multiple deliverables, which mainly include the sale of our systems, installation and training services and prepaid extended and enhanced (optic) warranty contracts. As of January 1, 2011, we have adopted ASU , Revenue Arrangements with Multiple Deliverables which amended the guidance on arrangements with multiple deliverables in ASC The amended standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable to be based on the relative selling price. We apply this accounting guidance prospectively to arrangements originating or materially modified on or after January 1, The implementation resulted in additional qualitative disclosures that are included below, but did not result in additional units of accounting and only had an insignificant impact on timing and allocation of revenues. Each element in the arrangement is accounted for as a separate unit of accounting provided the following criteria are met: the delivered products or services have value to the customer on a standalone basis; and for an arrangement that includes a general right of return relative to the delivered products or services, delivery or performance of the undelivered product or service is considered probable and is substantially controlled by us. We consider a deliverable to have stand-alone value if the product or service is sold separately by us or another vendor or could be resold by the customer. Further, our revenue arrangements do not include a general right of return relative to the delivered products. Where the aforementioned criteria for a separate unit of accounting are not met, the deliverable is combined with the undelivered element(s) and treated as a single unit of accounting for the purposes of allocation of the arrangement consideration and revenue recognition. The hierarchy of evidence to determine a selling price in ASC is as follows: Vendor-Specific Objective Evidence ( VSOE ) the price at which we sell the element in a separate stand-alone transaction; Third-Party Evidence ( TPE ) evidence from us or other companies of the value of a largely interchangeable element in a transaction; Best Estimate of Selling Price ( BESP ) our best estimate of the selling price of an element in the transaction. To determine the selling price in multiple elements arrangements, we establish VSOE of the selling price for installation and training services and prepaid extended and enhanced (optic) warranty contracts. VSOE is determined based on the prices that we charge for installation and comparable services (such as relocating a system to another customer site) and prepaid extended and enhanced (optic) warranty contracts on a stand-alone basis, which are subject to normal price negotiations. Revenue from installation and training services is recognized when the services are completed. Revenue from prepaid extended and enhanced (optic) warranty contracts is recognized over the term of the contract. When we are unable to establish the selling price using VSOE or TPE, we use BESP. The objective of using estimated selling price-based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. Accordingly, we determine BESP considering several internal and external factors including, but not limited to, pricing practices, gross margin objectives, market conditions, competitive environment, internal costs and geographies. We review selling prices every reporting period and maintain internal controls over the establishment and updates of these estimates. For arrangements entered into through December 31, 2010, we primarily recognized revenue based on the previous guidance of ASC The revenue relating to the installation and training services and prepaid extended and enhanced (optic) warranty contracts was deferred at their fair value until delivery of these elements. When we were not able to determine the fair value for the system, but were able to determine the fair value for all other elements in the arrangement, revenue was allocated as the difference between the total arrangement consideration less the aggregate fair value of all other elements in the arrangement, and no revenue was recognized until all elements without fair value had been delivered. ASML ANNUAL REPORT

38 Warranty We provide standard warranty coverage on our systems for 12 months and on certain optic parts for 60 months, providing labor and parts necessary to repair systems and optic parts during the warranty period. The estimated warranty costs are accounted for by accruing these costs for each system upon recognition of the system sale. The estimated warranty costs are based on historical product performance and field expenses. Based upon historical service records, we calculate the charge of average service hours and parts per system to determine the estimated warranty costs. On a semi-annual basis, we assess, and update if necessary, our accounting estimates used to calculate the standard warranty reserve based on the latest actual historical warranty costs and expected future warranty costs. The actual product performance and/or field expense profiles may differ, and in those cases we adjust our warranty reserves accordingly. Future warranty costs may exceed our estimates, which could lead to an increase in our cost of sales. In 2012, 2011 and 2010, any reassessments of the warranty reserve, and resulting change in accounting estimate, did not have a material effect on our consolidated statements of operations and per share amounts. Evaluation of long-lived assets for impairment Long-lived assets include goodwill, other intangible assets and property, plant and equipment. Goodwill is tested for impairment annually on September 30 and whenever events or changes in circumstances indicate that the carrying amount of the goodwill may not be recoverable. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. The test is based on a two-step approach for each reporting unit (being an operating segment or one level below an operating segment) in which goodwill has been recorded. First, recoverability is tested by comparing the carrying amount of the reporting unit including goodwill with the fair value of the reporting unit. If the carrying amount of the reporting unit is higher than the fair value of the reporting unit, the second step should be performed. Goodwill impairment is measured as the excess of the carrying amount of the goodwill over its implied fair value. The implied fair value of goodwill is determined by calculating the fair value of the various assets and liabilities included in the reporting unit in the same manner as goodwill is determined in a business combination. Other intangible assets and property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. Other intangible assets and property, plant and equipment are tested for impairment based on a two-step approach. First, the recoverability is tested by comparing the carrying amount of the other intangible assets and property, plant and equipment with their fair value, being the sum of the related undiscounted future cash flows. Second, if the carrying amount of the other intangible assets and property, plant and equipment is higher than this fair value the assets are considered to be impaired. The impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the asset. In determining the fair value of a long-lived asset (other than goodwill), we make estimates about future cash flows. These estimates are based on our financial plan updated with the latest available projection of the semiconductor market conditions and our sales and cost expectations, which are consistent with the plans and estimates that we use to manage our business. We also make estimates and assumptions concerning Weighted Average Cost of Capital ( WACC ) and future inflation rates. It is possible that actual results may differ from our plans, estimates and assumptions, which may require impairment of certain long-lived assets. Future adverse changes in market conditions may also require impairment of certain long-lived assets, which could have a material adverse effect on our financial condition and results of operations. Inventories Inventories, including spare parts and lenses, are stated at the lower of cost (first-in, first-out method) or market value. Costs include net prices paid for materials purchased, charges for freight and customs duties, production labor cost and factory overhead. Allowances are made for slow moving, obsolete or unsellable inventory and are reviewed on a quarterly basis. Our methodology involves matching our on-hand and on-order inventory with our requirements based on the expected demand and resulting manufacturing forecast. In determining inventory allowances, we evaluate inventory in excess of our forecasted needs on both technological and economic criteria and make appropriate provisions to reflect the risk of obsolescence. This methodology is significantly affected by our forecasted needs for inventory. If actual requirements were to be lower than estimated, additional inventory allowances for excess or obsolete inventory may be required, which could have a material adverse effect on our business, financial condition and results of operations. ASML ANNUAL REPORT

39 Accounts receivable and finance receivables A majority of our accounts receivable and finance receivables are derived from sales to a limited number of large multinational semiconductor manufacturers throughout the world. In order to monitor potential credit losses, we perform ongoing credit evaluations of our customers financial condition. Respective allowances for credit losses on both accounts receivable and finance receivables are maintained based upon management s assessment of the expected collectability of all accounts receivable and finance receivables. The respective allowances for credit losses on accounts receivable and finance receivables are reviewed periodically to assess the adequacy of these allowances. In making this assessment, management takes into consideration (i) any circumstances of which we are aware regarding a customer s inability to meet its financial obligations; and (ii) our judgments as to potential prevailing economic conditions in the industry and their potential impact on our customers. Where we deem it prudent to do so, we may require some form of credit enhancement, such as letters of credit, down payments and retention of ownership provisions in contracts, before shipping systems to certain customers, which are intended to recover the systems in the event a customer defaults on payment. We have not incurred any material accounts receivable or finance receivable credit losses during the past three years. A business failure of one of our main customers could result in a substantial credit loss in respect to amounts owed to us by that customer, which could adversely affect our business, financial condition and results of operations. Income taxes We operate in various tax jurisdictions in Europe, Asia, and the United States and must comply with the tax laws and regulations of each of these jurisdictions. We use the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for tax consequences attributable to differences between the balance sheet carrying amounts of existing assets and liabilities and their respective tax bases. Furthermore tax assets are recognized for the tax effect of incurred net operating losses. If it is more likely than not that the carrying amounts of deferred tax assets will not be realized, a valuation allowance is recorded to reduce the carrying amounts of those assets. We recognize the tax benefit from an uncertain tax position in accordance with ASC 740. ASC 740 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. Judgment is required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial statements. Results of Operations The following discussion and analysis of results of operations should be viewed in the context of the risks that may interfere with our business objectives, described in Item 3.D. Risk Factors. Set out below our consolidated statements of operations data for the three years ended December 31, 2012, 2011 and 2010: Year ended December 31 (in millions) Total net sales 4, , ,507.9 Cost of sales 2, , ,552.7 Gross profit on sales 2, , ,955.2 Research and development costs Selling, general and administrative costs Income from operations 1, , ,250.7 Interest income (expense), net (6.2) 7.4 (8.2) Income before income taxes 1, , ,242.5 Provision for income taxes (4.3) (181.6) (220.7) Net income 1, , , As of January 1, 2011, ASML adopted Accounting Standards Update ( ASU ) , Revenue Arrangements with Multiple Deliverables which amended ASC The ASU was adopted prospectively and had an insignificant impact on timing and allocation of revenues. See Note 1 to the consolidated financial statements. ASML ANNUAL REPORT

40 Set out below are our consolidated statements of operations data for the three years ended December 31, 2012, 2011 and 2010 expressed as a percentage of our total net sales: Year ended December 31 (as a percentage of net sales) Total net sales Cost of sales Gross profit on sales Research and development costs Selling, general and administrative costs Income from operations Interest income (expense), net (0.1) 0.2 (0.1) Income before income taxes Provision for income taxes (0.1) (3.2) (4.9) Net income ASML ANNUAL REPORT

41 Results of operations 2012 compared with 2011 Net sales and gross profit The following table shows a summary of net sales (revenue and units sold), gross profit and ASP data on an annual and semi-annual basis for the years 2012 and First half year 2012 Second half year Full year First half year 2011 Second half year Net sales ( million) 2, , , , , ,651.0 Net system sales ( million) 2, , , , , ,883.9 Net service and field option sales ( million) Total sales of systems (in units) Total sales of new systems (in units) Total sales of used systems (in units) Gross profit as a percentage of net sales ASP of system sales ( million) ASP of new system sales ( million) ASP of used system sales ( million) Full year 1 As of January 1, 2011, ASML adopted Accounting Standards Update ( ASU ) , Revenue Arrangements with Multiple Deliverables which amended ASC The ASU was adopted prospectively, and had an insignificant impact on timing and allocation of revenues. See Note 1 to the consolidated financial statements. Net sales decreased by million, or 16.3 percent, to 4,731.5 million in 2012 from 5,651.0 million in 2011 (2010: 4,507.9 million). The decrease in net sales mainly resulted from a decrease in net system sales of 1,082.3 million, or 22.2 percent, to 3,801.6 million in 2012 from 4,883.9 million in 2011 (2010: 3,894.7 million), partly offset by an increase in net service and field option sales of million or 21.2 percent to million in 2012 from million in 2011 (2010: million), mainly due the further expansion of Holistic Lithography, integrated metrology and feedback loops. The number of total systems sold decreased by 23.4 percent to 170 systems in 2012 from 222 systems in 2011 (2010:197), mainly caused by decreased demand in Memory, as its major driver, the PC business shrunk compared to During 2012, the majority of the system sales were generated from Logic. The ASP of our new systems in million is in line with million. From time to time, we repurchase systems that we have manufactured and sold and, following factory-rebuild or refurbishment, resell those systems to other customers. This repurchase decision is mainly driven by market demand for capacity expressed by other customers and not by explicit or implicit contractual arrangements relating to the initial sale. The number of used systems sold in 2012 decreased to 24 from 27 in The ASP of our used systems increased by percent to 7.6 million in 2012 from 3.8 million in 2011, which was the result of a shift in the mix of used systems sold toward more high-end system types. Through 2012, all of the top 10 chipmakers worldwide, in terms of semiconductor capital expenditure, were our customers. In 2012, recognized sales to our largest customer accounted for 1,236.1 million, or 26.1 percent of our net sales. In 2011, recognized sales to our largest customer accounted for 1,311.7 million, or 23.2 percent of our net sales. Gross profit on sales decreased to 2,005.2 million or 42.4 percent of net sales in 2012 from 2,449.4 million or 43.3 percent of net sales in 2011 (2010: 1,955.2 million or 43.4 percent of net sales). Lower gross profit was mainly driven by the decreased number of total systems sold. Gross profit as a percentage of net sales in 2012 decreased compared to 2011, mainly due to increased infrastructure and manufacturing cost, driven primarily by EUV production, lower utilization of our production capacity and higher cost incurred in relation to excess and obsolete inventory as result of technological developments and design changes. Research and development costs R&D costs (net of credits) in 2012 ( million) are in line with 2011 ( million). R&D spending remained stable and mainly related to our strategic programs, in particular EUV, immersion and holistic lithography. Selling, general and administrative costs Selling, general and administrative ( SG&A ) costs increased by 41.4 million, or 19.0 percent, to million in 2012, or 5.5 percent of net sales, from million in 2011, or 3.9 percent of net sales. The increase was mainly driven by transaction costs incurred of 26.1 million related to the Customer Co-Investment Program and ASML ANNUAL REPORT

42 transaction costs related to the proposed acquisition of Cymer and costs to implement and support IT solutions of 10.2 million. Interest income (expense), net Net interest expense in 2012 was 6.2 million compared with a net interest income in 2011 of 7.4 million. Interest income relates to interest earned on our cash and cash equivalents and short-term investments; interest income declined in 2012 due to a lower yield earned on cash and cash equivalents and short-term investments, and was more than offset by the interest expense on our outstanding debt. Income taxes The effective tax rate was 0.4 percent of income before income taxes in 2012, compared with 11.0 percent of income before income taxes in The change in the effective tax rate is mainly due to a release of our liability for unrecognized tax benefits of 92.5 million after successful conclusion of tax audits in different jurisdictions which almost completely offsets the tax expenses, resulting in an income tax expense of 4.3 million (2011: million). ASML ANNUAL REPORT

43 Results of operations 2011 compared with 2010 Net sales and gross profit The following table shows a summary of net sales (revenue and units sold), gross profit on sales and ASP data on an annual and semi-annual basis for the years ended December 31, 2011 and First half year Second half year Full year First half year 2010 Second half year Full year Net sales ( million) 2, , , , , ,507.9 Net system sales ( million) 2, , , , , ,894.7 Net service and field option sales ( million) Total sales of systems (in units) Total sales of new systems (in units) Total sales of used systems (in units) Gross profit as a percentage of net sales ASP of system sales ( million) ASP of new system sales ( million) ASP of used system sales ( million) As of January 1, 2011, we adopted Accounting Standards Update ( ASU ) , Revenue Arrangements with Multiple Deliverables which amended ASC The ASU was adopted prospectively and had an insignificant impact on timing and allocation of revenues. See Note 1 to the consolidated financial statements. Net sales increased by 1,143.1 million, or 25.4 percent to 5,651.0 million in 2011 from 4,507.9 million in The increase in net sales mainly resulted from an increase in net system sales of million, or 25.4 percent to 4,883.9 million in 2011 from 3,894.7 million in Net service and field option sales increased to million in 2011 from million in The number of total systems sold increased by 12.7 percent to 222 systems in 2011 from 197 systems in The increase in total net sales was caused by increased demand for lithography imaging systems required for all of the various chip layers: customers continued to invest in new leading-edge immersion technology as well as dry lithography tools in order to execute their strategic investments in new technology and capacity to meet demand. Sales were derived from all two major markets in which our customers operate, with Logic generating the majority of system sales and Memory generating the remainder. The ASP of our systems increased by 11.1 percent to 22.0 million in 2011 from 19.8 million in 2010 (2009: 16.8 million) resulting from a decrease in the number of used systems sold with relatively lower ASPs. The ASP of our new systems increased by 1.7 percent to 24.5 million in 2011 from 24.1 million in 2010 (2009: 21.1 million), which was mainly driven by three NXE:3100 systems recognized with an ASP of 39.8 million, partly offset by a change in product mix. The number of used systems sold in 2011 decreased to 27 from 43 in The ASP of our used systems decreased by 13.6 percent to 3.8 million in 2011 from 4.4 million in 2010, which was the result of a shift in the mix of used systems sold toward more low-end system types. Through 2011, all of the top 10 chipmakers worldwide, in terms of semiconductor capital expenditure, were our customers. In 2011, recognized sales to our largest customer accounted for 1,311.7 million, or 23.2 percent of our net sales. In 2010, recognized sales to our three largest customers accounted for 1,270.8 million, or 28.2 percent of our net sales. Gross profit increased to 2,449.4 million or 43.3 percent of net sales in 2011 from 1,955.2 million or 43.4 percent of net sales in 2010 (2009: gross profit or 28.7 percent of net sales). The higher gross profit reflects increased demand for lithography imaging systems across all chip layers: customers continued to invest in new leading-edge immersion technology as well as dry lithography tools in order to execute their strategic investments both in new technology and in capacity to meet demand. Gross profit as a percentage of net sales in 2011 is approximately the same as the 2010 percentage, which is due to the following: 2011 net sales and cost of sales included three NXE:3100 systems which represented net sales of approximately million with zero gross profit at the time these were recognized as revenue. Our gross profit was negatively impacted by increased cost of sales incurred on all six NXE:3100 systems shipped to our customers as a result of significant costs due to the introduction of the EUV program. These effects had a negative impact on the 2011 gross profit as a percentage of net sales of 1.5 percent. In addition, manufacturing costs increased in 2011 compared to 2010 (mainly EUV related expenditures). ASML ANNUAL REPORT

44 Research and development costs R&D costs (net of credits) increased by 66.8 million, or 12.8 percent to million in 2011, or 10.4 percent of net sales, from million in 2010, or 11.6 percent of net sales. This increase reflected our acceleration of strategic investment in the development and enhancement of the next-generation TWINSCAN systems based on Immersion, EUV and holistic lithography solutions to extend these systems. Selling, general and administrative costs SG&A costs increased by 36.9 million, or 20.4 percent, to million in 2011 as a result of both a higher sales level and increased costs to implement and support IT solutions and for improvement programs (relating mainly to employee development costs). Interest income (expense), net Net interest income in 2011 was 7.4 million compared with a net interest expense in 2010 of 8.2 million. Interest income relates to interest earned on our cash and cash equivalents and increased in 2011 mainly due to a significantly higher cash balance, which was only partly offset by net interest expense on our outstanding debt. Income taxes The effective tax rate was 11.0 percent of income before income taxes in 2011, compared with 17.8 percent of income before income taxes in This decrease is mainly caused by the fact that ASML reached agreement with the Dutch fiscal authorities regarding the application of the Innovation Box in December 2010, a facility under Dutch corporate tax law pursuant to which income associated with R&D is partially exempted from taxation. This tax ruling has retroactive effect to January 1, 2007 and is valid through December 31, Thereafter the validity of this ruling may be extended or this ruling may be adapted depending on a possible change of circumstances. For 2010, the beneficial impact of the Innovation Box was partially offset with the cumulative negative Innovation Box effects (previously called Royalty Box ) incurred in The Netherlands during the period In 2011, the Innovation Box effect is no longer offset by these prior year effects. Foreign Exchange Management See Item 3.D. Risk Factors, Fluctuations in Foreign Exchange Rates Could Harm Our Results of Operations, Item 11 Quantitative and Qualitative Disclosures About Market Risk, Note 1 and Note 3 to our consolidated financial statements. New U.S. GAAP Accounting Pronouncements In June 2011, the FASB issued ASU No , Comprehensive Income (Topic 220). Under the ASU, an entity has the option to present comprehensive income in either one continuous statement or two consecutive financial statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income ( OCI ) along with a total for OCI and a total amount for comprehensive income. The option under current guidance which permits the presentation of components of OCI as part of the statement of changes in shareholders equity has been eliminated. In December 2011, the FASB issued ASU which indefinitely defers certain provisions of ASU , the main deferred provision relating to a requirement for entities to present reclassification adjustments out of accumulated OCI by component in both the statements in which net income is presented and the statement in which OCI in any period is presented. The ASU is effective for annual and interim periods beginning after December 15, We have early adopted this standard; adoption had no impact on our consolidated financial statements. In December 2011, the Financial Accounting Standards Board ( FASB ) issued ASU No Disclosures about Offsetting Assets and Liabilities. Under the new guidance, the entities must disclose both gross information and net information about both instruments and transactions eligible for offset on the balance sheet in accordance with the offsetting guidance in ASC or ASC , and instruments and transactions subject to an agreement similar to a master netting arrangement. The new guidance will be effective for us beginning January 1, Other than requiring some additional disclosures, we do not anticipate material impacts on our consolidated financial statements upon adoption. In July 2012, the FASB issued ASU No Testing Indefinite-Lived Intangible Assets for Impairment. This ASU amends the guidance in ASC on testing indefinite-lived intangible assets, other than goodwill, for impairment. The FASB issued the ASU in response to feedback on ASU , which amended the goodwill impairment testing requirements by allowing an entity to perform a qualitative impairment assessment before proceeding to the two-step ASML ANNUAL REPORT

45 impairment test. The new guidance will be effective for annual and interim impairment tests performed for fiscal years beginning after September 15, The ASU will not have any effect on our consolidated financial statements. In October 2012, the FASB issued ASU No Technical Corrections and Improvements. This ASU makes certain technical corrections (i.e., relatively minor corrections and clarifications) and conforming fair value amendments to the FASB Accounting Standards Codification (the Codification ). The new guidance will be effective for fiscal years beginning after December 15, We do not anticipate material impacts on our consolidated financial statements upon adoption. B. Liquidity and Capital Resources We generated net cash from operating activities of million, 2,070.4 million and million in 2012, 2011 and 2010, respectively. Lower net cash provided by operating activities in 2012 compared to 2011 relates to decreased sales levels and decreased accrued and other liabilities mainly as a result of lower amounts of EUV down payments received in Higher net cash provided by operating activities in 2011 compared to 2010 was primarily related to increased sales levels and an increase in accrued and other liabilities mainly as a result of EUV down payments, partly offset by an increase of our working capital. This net increase in working capital mainly related to a decrease in accounts payable. We used 1,119.8 million for investing activities in 2012 and million in 2011 (2010: million). In 2012 our investing activities primarily related to our short-term investments in Dutch Treasury Certificates and deposits with the Dutch government of million and purchases of property, plant and equipment of million. In 2011 our investing activities mainly related to machinery and equipment, EUV and NXT production facilities in Veldhoven, the Netherlands, information technology and leasehold improvements to our facilities. In 2010 our investing activities were mainly related to machinery and equipment and the start of the second part of the EUV and NXT production facilities in Veldhoven, the Netherlands. Net cash used in financing activities was million in 2012 compared with million in 2011 (2010: net cash provided by financing activities of 92.7 million). In 2012 net cash used in financing activities includes the net cash outflow of 3,728.3 million for the Synthetic Share Buyback, million for our regular share buyback programs and million for our annual dividend payment, to a large extent offset by the proceeds of 3,853.9 million from issuance of shares under the Customer Co-Investment Program and 53.8 million net proceeds from issuance of shares in connection with the exercise and purchase of employee stock options. In 2011 net cash used in financing activities included the cash outflow of million used in our regular share buyback program, our annual dividend payment of million and a repayment of deposits from our customers of million, partly offset by the net proceeds from issuance of shares in connection with the exercise and purchase of employee stock options of 34.1 million. In 2010 net cash provided by financing activities included million cash inflow from deposits from customers and 31.0 million cash inflow from the issuance of shares in connection with the exercise and purchase of employee stock options, partly offset by 87.0 million cash outflow for our annual dividend payment. Our principal sources of liquidity consist of cash flows from operations, cash and cash equivalents as of December 31, 2012 of 1,767.6 million, short-term investments as of December 31, 2012 of million and available credit facilities as of December 31, 2012 of million. In addition, we may from time to time raise additional capital in debt and equity markets. Our goal is to remain an investment grade rated company and maintain a capital structure that supports this. We invest our cash and cash equivalents and short-term investments in short-term deposits with high-rated financial institutions and the Dutch government, in Dutch Treasury Certificates and in AAAm-rated money market funds that invest in high-rated short-term debt securities of financial institutions and governments. Our investments are predominantly denominated in euros and partly in US dollars. Our available credit facility consists of an million committed revolving credit facility from a group of banks that will mature in The credit facility contains a restrictive covenant that requires us to maintain a minimum committed capital to net total assets ratio of 40.0 percent calculated in accordance with contractually agreed definitions. In 2012, we were in compliance with the covenant and currently do not expect any difficulty in continuing to meet our covenant requirement. Outstanding amounts under this credit facility will bear interest at IBOR or LIBOR plus a margin that depends on our liquidity position. No amounts were outstanding under this credit facility at the end of 2012 and We have repayment obligations in 2017, amounting to million, on our 5.75 percent senior notes due 2017 ( Eurobond ). The coupons on the Eurobond have been swapped to a floating rate thereby creating a partial fair value ASML ANNUAL REPORT

46 hedge of the floating rate cash flows which we receive from investments of our cash and cash equivalents and short-term investments. Our liquidity needs are affected by many factors, some of which are based on the normal on-going operations of the business, and others that relate to the uncertainties of the global economy and the semiconductor industry. Although our cash requirements fluctuate based on the timing and extent of these factors, we believe that cash generated from operations, together with the liquidity provided by existing cash and cash equivalents and short-term investments and our borrowing capability are sufficient to satisfy our current requirements, including our 2013 capital expenditures. We intend to return cash to our shareholders on a regular basis in the form of dividend payments and, subject to our actual and anticipated liquidity requirements and other relevant factors, share buybacks or capital repayment. See Notes 3, 4, 14 and 15 to our consolidated financial statements for discussion of our counterparty risk management, our cash and cash equivalents and short-term investments, our long-term debt and credit lines and Notes 26 and 27 for information on dividend, share buybacks and capital repayments. C. Research and Development, Patents and Licenses, etc Research and Development See Item 4.B. Business Overview, Research and Development and Item 5.A. Operating Results, Results of operations. Intellectual Property Matters See Item 3.D. Risk Factors, Failure to Adequately Protect the Intellectual Property Rights Upon Which We depend Could Harm Our Business and Risk Factors, Defending Against Intellectual Property Claims by Others Could Harm Our Business and Item 4.B. Business Overview, Intellectual Property. D. Trend Information The year 2012 was characterized by a decreased demand for lithography imaging systems. Customers mainly decreased their Memory capacity investments as the PC business shrunk compared to The majority of system sales was generated from Logic. The following table sets forth our systems backlog, excluding EUV, as of December 31, 2012 and Year ended December New systems backlog excluding EUV (in units) Used systems backlog excluding EUV (in units) 6 10 Total systems backlog excluding EUV (in units) Value of new systems backlog excluding EUV ( million) 1, ,702.7 Value of used systems backlog excluding EUV ( million) Total value of systems backlog excluding EUV ( million) 1, ,732.5 ASP of new systems backlog excluding EUV ( million) ASP of used systems backlog excluding EUV ( million) ASP of total systems backlog excluding EUV ( million) Our systems backlog includes only orders for which written authorizations have been accepted and system shipment and revenue recognition dates within 12 months have been assigned. Historically, orders have been subject to cancellation or delay by the customer. Due to possible customer changes in delivery schedules and to cancellation of orders, our systems backlog at any particular date is not necessarily indicative of actual sales for any succeeding period. We expect net sales for 2013 to be in line with 2012 supported by the strategic technology transition need for very lithography-intensive nm foundry and logic nodes. These nodes will enable the next generation portable products, for which all semiconductor architecture leaders have designs pending and need initial capacity. In addition we will ship our first NXE:3300B EUV tool in the second quarter targeting for a maximum of 11 potential shipments in For the first quarter of 2013, we expect net sales of about 850 million, gross margin of about 38 percent, R&D costs of 185 million, other income of 16 million which consists of contributions from participants of the Customer Co-Investment Program and SG&A costs of 63 million including 6 million expenses related to the pending Cymer acquisition. ASML ANNUAL REPORT

47 In the fourth quarter of 2012, we announced the intended cash-and-stock acquisition of lithographic light source supplier Cymer. As part of the regulatory review process, clearance has been granted by the U.S. Committee on Foreign Investment in the United States (CFIUS) and German anti-trust authorities. Completion of the merger is subject to customary closing conditions, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act and receipt of approvals under other foreign competition laws. On february 5, 2013, the Cymer Stockholders approved the merger agreement. We continue to expect the transaction to close in the first half of See also Item 10.C Material Contract, Cymer Merger. The trends discussed in this Item 5.D. Trend information are subject to risks and uncertainties. See Part I Special Note Regarding Forward Looking Statements. E. Off-Balance Sheet Arrangements We have various contractual obligations, some of which are required to be recorded as liabilities in our consolidated financial statements, including long- and short-term debt. Other contractual obligations, namely operating lease commitments, purchase obligations and guarantees, are generally not required to be recognized as liabilities on our balance sheet but are required to be disclosed. On October 16, 2012, we entered into a merger agreement with Cymer, a company engaged in the development, manufacturing and marketing of light sources for sale to customers who manufacture photolithography tools in the semiconductor equipment industry (the Merger Agreement ), under which ASML will acquire all outstanding shares of common stock of Cymer for a consideration per Cymer share of Cymer common stock of USD in cash and a fixed ratio of ASML Ordinary Shares). Completion of the merger is subject to customary closing conditions, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act and receipt of approvals under other foreign competition laws. On february 5, 2013, the Cymer Stockholders approved the merger agreement. We expect the transaction to close in the first half of 2013, however there is no assurance that the transaction will be completed within the expected time period or at all. See Risk Factors, We May Be Unable to Make Desirable Acquisitions or to Integrate Any Businesses We Successfully Acquire. See also Item 10.C Material Contracts, Cymer Merger. On October 16, 2012, we also entered into an EUV source R&D cooperation agreement and an EUV source supply agreement with Cymer. F. Tabular Disclosure of Contractual Obligations Our contractual obligations as of December 31, 2012 can be summarized as follows: Payments due by period (in thousands) Total 1 year 2 year 3 year 4 year 5 year After 5 years Long-Term Debt Obligations, including interest expense 1 831,194 39,801 39,726 39,726 39, ,726 32,489 Operating Lease Obligations 98,827 32,195 22,267 17,192 13,465 5,265 8,443 Purchase Obligations 1,643,955 1,557,021 84,012 2, Unrecognized Tax Benefits, including interest expense 59,967 2,964 4, ,957 35,837 Total Contractual Obligations 2,633,943 1,631, ,214 59,794 53, ,962 76,769 1 See Note 14 for the amounts excluding interest expenses. Long-term debt obligations mainly relate to interest payments and principal amount of the Eurobond. See Note 14 to our consolidated financial statements. Operating lease obligations include leases of equipment and facilities. Lease payments recognized as an expense were 41.6 million, 40.6 million and 37.9 million for the years ended December 31, 2012, 2011 and 2010, respectively. ASML ANNUAL REPORT

48 Several operating leases for our buildings contain purchase options, exercisable at the end of the lease, and in some cases, during the term of the lease. The amounts to be paid if ASML should exercise these purchase options at the end of the lease as of December 31, 2012 can be summarized as follows: Purchase options due by period (in thousands) Total 1 year 2 year 3 year 4 year 5 year After 5 years Purchase options 22,982-8,999-13, Purchase obligations include purchase commitments with suppliers in the ordinary course of business. ASML expects that it will honor these purchase obligations to fulfill future sales, in line with the timing of those future sales. The general terms and conditions of the agreements relating to the major part of our purchase commitments as of December 31, 2012 contain clauses that enable us to delay or cancel delivery of ordered goods and services up to the dates specified in the corresponding purchase contracts. These terms and conditions that we had agreed with our supply chain partners gives us additional flexibility to adapt our purchase obligations to our requirements in light of the inherent cyclicality of the semiconductor equipment industry in which we operate. We establish a provision for cancellation fees when it is probable that the liability has been incurred and the amount of cancellation fees is reasonably estimable. G. Safe Harbor See Part I Special Note Regarding Forward-Looking Statements. ASML ANNUAL REPORT

49 Item 6 Directors, Senior Management and Employees A. Directors and Senior Management The members of our Supervisory Board and our Board of Management are as follows: Name Title Year of Birth Term Expires Arthur P.M. van der Poel 1,2,3 Chairman of the Supervisory Board Jos W.B. Westerburgen 2,4 Member of the Supervisory Board Fritz W. Fröhlich 1 Vice Chairman and Member of the Supervisory Board Hendrika (leke) C.J. van den Burg 4 Member of the Supervisory Board OB Bilous 2,3 Member of the Supervisory Board William T. Siegle 3 Member of the Supervisory Board Pauline F.M. van der Meer Mohr 4 Member of the Supervisory Board Wolfgang H. Ziebart 1,3,4 Member of the Supervisory Board Eric Meurice President, Chief Executive Officer and Chairman of the Board of Management Peter T.F.M. Wennink Executive Vice President, Chief Financial Officer and Member of the Board of 1957 N/A 6 Management Martin A. van den Brink Executive Vice President, Chief Product and Technology Officer and Member 1957 N/A 6 of the Board of Management Frits J. van Hout Executive Vice President, Chief Marketing Officer and Member of the Board of Management Frédéric J.M. Schneider-Maunoury Executive Vice President, Chief Operating Officer and Member of the Board of Management Member of the Audit Committee. 2 Member of the Selection and Nomination Committee. 3 Member of the Technology and Strategy Committee. 4 Member of the Remuneration Committee. 5 Upon notification to the AGM held on April 25, 2012, ASML s Supervisory Board extended Eric Meurice s appointment term as President, Chief Executive Officer and Chairman of the Board of Management of ASML until the 2014 AGM, with the option to further extend the appointment term by another two years if both parties agree. 6 There are no specified terms for members of the Board of Management appointed prior to March Messrs. Bilous and Fröhlich retired by rotation in 2012 and were reappointed for a maximum period of two years in line with the Supervisory Board s profile. Mr. Van der Poel also retired by rotation and was reappointed for a maximum period of four years. No new Supervisory Board members were appointed in There are no family relationships among the members of our Supervisory Board and Board of Management. Since 2005, the Works Council of ASML Netherlands B.V. has an enhanced right to make recommendations for nomination of one-third of the members of the Supervisory Board, which recommendations may be rejected by the Supervisory Board in limited circumstances. See Item 6.C. Board Practices, Supervisory Board. At the 2005 General Meeting of Shareholders, Ms. Van den Burg was appointed pursuant to this recommendation right, and at the 2009 General Meeting of Shareholders she was reappointed in accordance with this recommendation right. At the 2009 General Meeting of Shareholders, Ms. Van der Meer Mohr was appointed pursuant to this recommendation right. Director and Officer Biographies Arthur P.M. van der Poel Mr. Van der Poel was appointed to our Supervisory Board in March 2004 and was appointed as Chairman in Until 2001, he was the Chief Executive Officer of Philips Semiconductors. Mr. Van der Poel is a former member of the Board of Management (until April 2003) and a former member of the Group Management Committee of Royal Philips Electronics N.V. Mr. Van der Poel was a member of the Supervisory Board of PSV N.V. until June, He currently serves as a member of the Board of Directors of Gemalto Holding N.V. and as a member of the Supervisory Board of Royal HaskoningDHV B.V. and since October 2012, as member of the Supervisory Board of BDR Thermea. Jos W.B. Westerburgen Mr. Westerburgen was appointed to our Supervisory Board in March Mr. Westerburgen has extensive experience in the field of corporate law and tax. Mr. Westerburgen is former Company Secretary and Head of Tax of Unilever N.V. and Plc. Mr. Westerburgen served as Supervisory Board member of Unibail-Rodamco S.E. until 2010 and was Vice-Chairman of the Board of the Association of Aegon N.V. until April ASML ANNUAL REPORT

50 Fritz W. Fröhlich Mr. Fröhlich was appointed to our Supervisory Board in March He is the former Deputy Chairman and Chief Financial Officer of Akzo Nobel N.V. Mr. Fröhlich is the Chairman of the Supervisory Board of Randstad Holding N.V. Mr. Fröhlich also serves as a member of the Supervisory Boards of Allianz Nederland N.V. and Rexel S.A. and as a member of the Board of Directors of Prysmian Group. Hendrika (leke) C.J. van den Burg Ms. Van den Burg was appointed to our Supervisory Board in March Ms. Van den Burg was a member of the European Parliament from 1999 until Currently she is a member of the Supervisory Board of APG Group N.V., serves as a member of the Dutch Monitoring Committee Corporate Governance Code, is chairperson of the Monitoring Foundation Dutch Insurance Companies ( Stichting Toetsing Verzekeraars ) and is a member of the Advisory Boards of the Dutch Data Protection Authority ( College Bescherming Persoonsgegevens ) and Dutch National Register of Supervisory Directors ( Nationaal Register Commissarissen en Toezichthouders ). Ms. Van den Burg also serves as a member of the Advisory Scientific Systemic Committee European Risk Board (ECB Frankfurt) and as a member of the Advisory Council International Affairs Commission Human Rights (Dutch Ministry Foreign Affairs). OB Bilous Mr. Bilous was appointed to our Supervisory Board in March From 1960 until 2000 Mr. Bilous held various management positions at IBM, including General Manager and Vice President Worldwide Manufacturing of IBM s Microelectronics Division. Mr. Bilous also served on the Boards of SMST, ALTIS Semiconductor, Dominion Semiconductor and was chairman of the Board of Sematech from 2000 to Mr. Bilous currently serves as Board member of Nantero, Inc. William T. Siegle Mr. Siegle was appointed to our Supervisory Board in March From 1964 until 1990 Mr. Siegle held various technical, management and executive positions at IBM, including Director of the Advanced Technology Center. From 1990 until 2005 Mr. Siegle served as Senior Vice President and Chief Scientist at AMD, responsible for the development of technology platforms and manufacturing operations worldwide. He was also chairman of the Board of Directors of SRC, member of the Board of Directors of Sematech and Director of Etec, Inc. and DuPont Photomask, Inc. Currently, Mr. Siegle is a member of the Advisory Board of Acorn Technologies, Inc. Pauline F.M. van der Meer Mohr Ms. Van der Meer Mohr was appointed to our Supervisory Board in March As of January 1, 2010, Ms. Van der Meer Mohr serves as President of the Executive Board of the Erasmus University Rotterdam. Prior thereto she was managing partner of the Amstelbridge Group, Senior Executive Vice President at ABN AMRO Bank, Head of Group Human Resources at TNT N.V., and held several senior executive roles at the Royal/Dutch Shell Group of Companies in various areas. Currently, Ms. Van der Meer Mohr is a member of the Supervisory Boards of Royal DSM N.V. and Duisenberg School of Finance. Wolfgang H. Ziebart Mr. Ziebart was appointed to our Supervisory Board in March Until May 2008, he was President and Chief Executive Officer of Infineon Technologies A.G. Before Infineon, Mr. Ziebart was on the Boards of Management of car components manufacturer Continental A.G. and automobile producer BMW A.G. Mr. Ziebart is the chairman of the Supervisory Board of Nordex S.E. and of Novaled A.G. He also serves as member of the Board of Autoliv, Inc. Eric Meurice Mr. Meurice joined ASML on October 1, 2004 as President, Chief Executive Officer and Chairman of the Board of Management. Prior to joining ASML, and since March 2001, he was Executive Vice President of Thomson Television Worldwide. Between 1995 and 2001, Mr. Meurice served as Vice President for Dell Computer, where he ran the Western, Eastern Europe and Dell s Emerging Markets business within EMEA. Before 1995, he gained extensive technology experience in the semiconductor industry at ITT Semiconductors Group and Intel Corporation, in the microcontroller group. ASML ANNUAL REPORT

51 Peter T.F.M. Wennink Mr. Wennink joined ASML on January 1, 1999 and was appointed as Executive Vice President, Chief Financial Officer of ASML and member of our Board of Management on July 1, Mr. Wennink has an extensive background in finance and accounting. Prior to his employment with ASML, Mr. Wennink worked as a partner at Deloitte Accountants, specializing in the high technology industry with an emphasis on the semiconductor equipment industry. Mr. Wennink was a member of the Supervisory Board of PSV N.V. until June 30, Mr. Wennink is a member of the Dutch Institute of Registered Accountants. Mr. Wennink is currently a member of the Supervisory Board of Bank Insinger de Beaufort N.V. Martin A. van den Brink Mr. Van den Brink joined ASML when the company was founded in early He held several positions in engineering and from 1995 he served as Vice President Technology. Mr. Van den Brink was appointed as member of the Board of Management in 1999 and is currently ASML s Executive Vice President and Chief Product & Technology Officer. Mr. Van den Brink has earned a degree in Electrical Engineering from HTS Arnhem (HAN University), and a degree in Physics (1984) from the University of Twente, the Netherlands. In 2012, he was awarded an honorary doctorate in physics by the University of Amsterdam. Frits J. van Hout Mr. Van Hout was appointed as Executive Vice President, Chief Marketing Officer and Member of our Board of Management in Mr. Van Hout was previously an ASML employee from its founding in 1984 to 1992, in various roles in engineering and sales. From 1998 to 2001, Mr. Van Hout served as Chief Executive Officer of the Beyeler Group, based in the Netherlands and Germany. After rejoining ASML in 2001, he served as Senior Vice President Customer Support and two Business Units. In 2008, Mr. Van Hout was appointed Executive Vice President Integral Efficiency. Frédéric J.M. Schneider-Maunoury Mr. Schneider-Maunoury joined ASML on December 1, 2009 as Executive Vice President and Chief Operations Officer and was appointed to ASML s Board of Management on March 24, Before joining ASML, Mr. Schneider-Maunoury served as Vice President Thermal Products Manufacturing of the power generation and rail transport equipment group ALSTOM. Previously, he ran the worldwide Hydro Business of ALSTOM as general manager. Before joining ALSTOM in 1996, Mr. Schneider-Maunoury held various positions at the French Ministry of Trade and Industry. B. Compensation For details on Board of Management and Supervisory Board remuneration as well as benefits upon termination, see Note 21 to our consolidated financial statements. ASML has not established in the past and does not intend to establish in the future any stock (option) or purchase plans or other equity compensation arrangements for the members of our Supervisory Board. Bonus and Profit-sharing plans For details of employee bonus and profit-sharing plans, see Note 17 to our consolidated financial statements. Pension plans For details of employee pension plans, see Note 17 to our consolidated financial statements. C. Board Practices General We endorse the importance of good corporate governance, in which independent supervision, accountability and transparency are the most significant elements. Within the framework of corporate governance, it is important that a relationship of trust exists between the Board of Management, the Supervisory Board, our employees and our shareholders. We pursue a policy of active communication with our shareholders. In addition to the exchange of ideas at the General Meeting of Shareholders, other important forms of communication include the publication of our annual and quarterly financial results as well as press releases and publications posted on our website. ASML ANNUAL REPORT

52 Our corporate governance structure is intended to: provide shareholders with regular, reliable, relevant and transparent information regarding our activities, structure, financial condition, performance and other information, including information on our social, ethical and environmental records and policies; apply high-quality standards for disclosure, accounting and auditing; and apply stringent rules with regard to insider securities trading. Two-tier board structure ASML is incorporated under Dutch law and has a two-tier board structure. Responsibility for the management of ASML lies with the Board of Management. Independent, nonexecutive members serve on the Supervisory Board, which supervises and advises the members of the Board of Management in performing their management tasks. The Board of Management has the duty to keep the Supervisory Board informed, consult with the Supervisory Board on important matters and submit certain important decisions to the Supervisory Board for its approval. The Supervisory Board is responsible for supervising, monitoring and advising the Board of Management on: (i) the achievement of ASML s objectives, (ii) the corporate strategy and management of risks inherent to ASML s business activities, (iii) the structure and operation of internal risk management and control systems, (iv) the financial reporting process and (v) compliance with applicable legislation and regulations. Supervisory Board members are prohibited from serving as officers or employees of ASML, and members of the Board of Management cannot serve on the Supervisory Board. Board of Management The Board of Management consists of at least two members or such larger number of members as determined by the Supervisory Board. Members of the Board of Management are appointed by the Supervisory Board. The Supervisory Board must notify the General Meeting of Shareholders of the intended appointment of a member of the Board of Management. As a result of our compliance with the Dutch Corporate Governance Code, members of the Board of Management that are initially appointed in 2004 or later shall be appointed for a maximum period of four years, but may be re-appointed. Members of the Board of Management serve until the end of the term of their appointment, voluntary retirement, or suspension or dismissal by the Supervisory Board. In the case of dismissal, the Supervisory Board must first inform the General Meeting of Shareholders of the intended removal. The Supervisory Board determines the remuneration of the individual members of the Board of Management, in line with the remuneration policy adopted by the General Meeting of Shareholders, upon a proposal of the Supervisory Board. ASML s remuneration policy is included in the Remuneration Report. For details of the terms of office of the current members of the Board of Management, see Item 6.A Directors and Senior Management. For details of the benefits provided to members of Board of Management upon termination, see Note 21 to our consolidated financial statements. Supervisory Board The Supervisory Board consists of at least three members or such larger number as determined by the Supervisory Board. The Supervisory Board prepares a profile in relation to its size and composition; ASML s Supervisory Board profile is posted on ASML s website. Members of the Supervisory Board are appointed by the General Meeting of Shareholders from nominations of the Supervisory Board. Nominations must be reasoned and must be made available to the General Meeting of Shareholders and the Works Council simultaneously. Before the Supervisory Board presents its nominations, both the General Meeting of Shareholders and the Works Council may make recommendations (which the Supervisory Board may reject). In addition, the Works Council has an enhanced right to make recommendations for nomination of at least one-third of the members of the Supervisory Board, which recommendation may only be rejected by the Supervisory Board: (i) if the relevant person is unsuitable or (ii) if the Supervisory Board would not be duly composed if the recommended person were appointed as a Supervisory Board member. If no agreement can be reached between the Supervisory Board and the Works Council on these recommendations, the Supervisory Board may request the Enterprise Chamber of the Amsterdam Court to declare its objection legitimate. Any decision of the Enterprise Chamber on this matter is non-appealable. Nominations of the Supervisory Board may be rejected by the General Meeting of Shareholders by an absolute majority of the votes representing at least one-third of the total outstanding capital. If the votes cast in favor of such resolution do not represent at least one-third of the total outstanding capital, a new meeting can be convened at which the ASML ANNUAL REPORT

53 nomination can be rejected by an absolute majority. If a nomination is rejected, the Supervisory Board must make a new nomination. If a nomination is not rejected and the General Meeting of Shareholders does not appoint the nominated person, the Supervisory Board will appoint the nominated person. Members of the Supervisory Board serve for a maximum term of four years from the date of their appointment, or a shorter period as set out in the rotation schedule as adopted by the Supervisory Board. They may be re-appointed, provided that their entire term of office does not exceed twelve years. The General Meeting of Shareholders may, with an absolute majority of the votes representing at least one-third of the total outstanding capital, dismiss the Supervisory Board in its entirety for lack of confidence. In such event, the Enterprise Chamber of the Amsterdam Court shall appoint one or more members of the Supervisory Board at the request of the Board of Management. Upon the proposal of the Supervisory Board, the General Meeting of Shareholders determines the remuneration of the members of the Supervisory Board. A member of the Supervisory Board may not be granted any shares or option rights by way of remuneration. For details of the terms of office of the current members of the Supervisory Board, see Item 6.A Directors and Senior Management. For details of the benefits provided to members of Supervisory Board upon termination, see Note 21 to our consolidated financial statements. Approval of Board of Management Decisions The Board of Management requires prior approval of the General Meeting of Shareholders for resolutions concerning an important change in the identity or character of ASML or its business, including: a transfer of all or substantially all of the business of ASML to a third party; entering into or the termination of a long-term material joint venture between ASML and a third party; and an acquisition or divestment by ASML of an interest in the capital of a company with a value of at least one-third of ASML s assets (determined by reference to ASML s most recently adopted Statutory Annual Report). Rules of Procedure The Board of Management and the Supervisory Board have adopted Rules of Procedure for each of the Board of Management, Supervisory Board and the four Committees of the Supervisory Board. These Rules of Procedure are posted on ASML s website. Directors and Officers Insurance and Indemnification Members of the Board of Management and Supervisory Board, as well as certain senior management members, are insured under ASML s Directors and Officers Insurance Policy. Although the insurance policy provides for a wide coverage, our directors and officers may incur uninsured liabilities. ASML has agreed to indemnify its Board of Management and Supervisory Board against any claims arising in connection with their position as director and officer of ASML, provided that such claim is not attributable to willful misconduct or intentional recklessness of such officer or director. Corporate Governance Developments ASML continuously monitors and assesses applicable corporate governance rules, including recommendations and initiatives regarding principles of corporate governance. These include rules that have been promulgated in the United States both by The NASDAQ Stock Market LLC ( NASDAQ ) and by the SEC. The Dutch Corporate Governance Code came into effect on January 1, 2004 and was amended as of January 1, 2009 (the Code ). Dutch listed companies are required to either comply with the principles and the best practice provisions of the Code, or to explain on which points they deviate from these best practice provisions and why. ASML reports on its compliance with the amended Code in its Statutory Annual Report for the year ended December 31, ASML ANNUAL REPORT

54 Committees of ASML s Supervisory Board While retaining overall responsibility, the Supervisory Board assigns certain of its tasks to its four committees: the Audit Committee, the Remuneration Committee, the Selection and Nomination Committee and the Technology and Strategy Committee. Members of these committees are appointed from among the Supervisory Board members. The chairman of each committee reports to the Supervisory Board verbally and when deemed necessary in writing, the issues and items discussed in each meeting. In addition, the minutes of each committee are available to all members of the Supervisory Board, enabling the Supervisory Board to make the appropriate decisions. Audit Committee ASML s Audit Committee is composed of three members of the Supervisory Board. The current members of our Audit Committee are Fritz Fröhlich (chairman), Arthur van der Poel and Wolfgang Ziebart, each of whom is an independent, non-executive member of our Supervisory Board. The Supervisory Board has determined that Fritz Fröhlich qualifies as the Audit Committee financial expert pursuant to Section 407 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. Our external auditor, our Chief Executive Officer, our Chief Financial Officer, our Senior Vice President Finance, our Corporate Chief Accountant, our Senior Director Corporate Risk and Assurance, as well as other ASML employees invited by the chairman of the Audit Committee may also attend the meetings of the Audit Committee. The Audit Committee assists the Supervisory Board in: overseeing the integrity of our financial statements and related financial and non-financial disclosures; overseeing the qualifications, independence and performance of the external auditor; and overseeing the integrity of our systems of disclosure controls and procedures and the system of internal controls over financial reporting. In 2012, the Audit Committee held nine scheduled meetings, either in person or via conference calls. Remuneration Committee ASML s Remuneration Committee is currently composed of four members of the Supervisory Board. The current members of our Remuneration Committee are Jos Westerburgen (chairman), Ieke van den Burg, Pauline van der Meer Mohr and Wolfgang Ziebart. The Remuneration Committee is responsible for the preparation and implementation of the remuneration policy for the Board of Management. The Remuneration Committee prepares and the Supervisory Board establishes ASML s general compensation philosophy for members of the Board of Management, and oversees the development and implementation of compensation programs for members of the Board of Management. The Remuneration Committee reviews and proposes to the Supervisory Board corporate goals and objectives relevant to the compensation of members of the Board of Management. The Committee further evaluates the performance of members of the Board of Management in view of those goals and objectives, and makes recommendations to the Supervisory Board on the compensation levels of the members of the Board of Management based on this evaluation. In proposing to the Supervisory Board the actual remuneration elements and levels applicable to the members of the Board of Management, the Remuneration Committee considers, among other factors, the remuneration policy, the desired levels of and emphasis on particular aspects of ASML s short and long-term performance, as well as current compensation and benefits structures and levels benchmarked against relevant peers. External compensation survey data and, where necessary, external consultants are used to benchmark ASML s remuneration levels and structures. In 2012, the Remuneration Committee held seven scheduled meetings and several ad hoc meetings, either in person or via conference call. ASML ANNUAL REPORT

55 Selection and Nomination Committee ASML s Selection and Nomination Committee is composed of three members of the Supervisory Board. The current members of our Selection and Nomination Committee are Jos Westerburgen (chairman), Arthur van der Poel and OB Bilous. The Selection and Nomination Committee assists the Supervisory Board in: preparing the selection criteria and appointment procedures for members of ASML s Supervisory Board and Board of Management; periodically evaluating the scope and composition of the Board of Management and the Supervisory Board, and proposing the profile of the Supervisory Board in relation thereto; periodically evaluating the functioning of the Board of Management and the Supervisory Board and the individual members of those boards and reporting the results thereof to the Supervisory Board; and proposing (re-)appointments of members of the Board of Management and the Supervisory Board, and supervising the policy of the Board of Management in relation to the selection and appointment criteria for senior management. In 2012, the Selection and Nomination Committee held four scheduled meetings and several ad hoc meetings, either in person or by conference call. Technology and Strategy Committee ASML s Technology and Strategy Committee is composed of four members of the Supervisory Board. The current members of our Technology and Strategy Committee are William Siegle (chairman), Arthur van der Poel, OB Bilous and Wolfgang Ziebart. In addition, the Technology and Strategy Committee may appoint one or more advisors from within and/or from outside ASML. The advisors to the Technology and Strategy Committee may be invited as guests to the meetings, or parts thereof, of the Committee, but are not entitled to vote in the meetings. The Technology and Strategy Committee assists the Supervisory Board in relation to the following responsibilities and may prepare resolutions of the Supervisory Board related thereto: familiarization with and risk assessment and study of potential strategies, required technical resources, technology roadmaps and product roadmaps; and providing advice to the Supervisory Board with respect to matters related thereto. In 2012, the Technology and Strategy Committee held five meetings, either in person or by conference call. Disclosure Committee ASML has a Disclosure Committee to ensure compliance with applicable disclosure requirements arising under US and Dutch law and applicable stock exchange rules. The Disclosure Committee is composed of various members of senior management, and reports to the Chief Executive Officer and Chief Financial Officer. The Disclosure Committee informs the Audit Committee about the outcome of the Disclosure Committee meetings. Furthermore, members of the Disclosure Committee are in close contact with our external legal counsel and our external auditor. The Disclosure Committee gathers all relevant financial and non-financial information and assesses materiality, timeliness and necessity for disclosure of such information. In addition the Disclosure Committee assists the Chief Executive Officer and Chief Financial Officer in the maintenance and evaluation of disclosure controls and procedures. During 2012, the Disclosure Committee reviewed the quarterly financial result announcements, Statutory Interim Report, the Annual Report on Form 20-F and the Statutory Annual Report, the Form F-4 registration filed with the SEC in connection with our merger agreement with Cymer and the prospectus filed with the Dutch AFM in connection with the shares issued to participating customers in our Customer Co-Investment Program both including the audited consolidated financial statements and other public announcements containing financial information. They also advise the Chief Executive Officer and Chief Financial Officer on the assessment of ASML s disclosure controls and procedures and on the assessment of ASML s internal controls over financial reporting. ASML ANNUAL REPORT

56 D. Employees The following table presents our total numbers of payroll employees and temporary employees as of December 31, 2012, 2011 and 2010 (in FTEs), primarily in manufacturing, product development and customer support activities: As of December Payroll Employees 8,497 7,955 7,184 Temporary Employees 2,139 1,935 2,061 Employees (in FTEs) 10,636 9,890 9,245 During 2012, the average number of payroll employees in FTEs employed was 8,140, and the average number of temporary employees in FTE s employed was 1,934. For a more detailed description of payroll employee information, including a breakdown of our employees in FTEs by sector, see Notes 17 and 22 to our consolidated financial statements. We rely on our ability to vary the number of temporary employees to respond to fluctuating market demand for our products. Our future success will depend on our ability to attract, train, retain and motivate highly qualified, skilled and educated employees, who are in great demand. We are particularly reliant for our continued success on the services of several key employees, including a number of systems development specialists with advanced university qualifications in engineering, optics and computing. See Item 3.D. Risk Factors, Our Business and Future Success Depend on Our Ability to Attract and Retain a Sufficient Number of Adequately Educated and Skilled Employees. ASML Netherlands B.V., our operating subsidiary in the Netherlands, has a Works Council, as required by Dutch law. A Works Council is a representative body of the employees of a Dutch company elected by the employees. The Board of Management of any Dutch company that runs an enterprise with a Works Council must seek the nonbinding advice of the Works Council before taking certain decisions with respect to ASML, such as those related to a major restructuring, a change of control, or the appointment or dismissal of a member of the Board of Management. In case the Works Council renders a contrary advice on a particular decision and the Board of Management nonetheless wishes to proceed, the Board of Management must temporarily suspend any further action while the Works Council determines whether to appeal to the Enterprise Chamber of the Amsterdam Court of Appeal. Other decisions directly involving employment matters that apply either to all employees, or certain groups of employees, may only be taken with the Works Council s approval. Failing approval of the Works Council, the decision first has to be submitted to the Enterprise Chamber for mediation. If no resolution has been reached, the decision can only be taken by with the approval of the Dutch District Court. E. Share Ownership Information with respect to share ownership of members of our Supervisory Board and Board of Management is included in Item 7A Major Shareholders and Note 21 to our consolidated financial statements. Information with respect to the grant of shares and stock options to employees is included in Note 17 to our consolidated financial statements. ASML ANNUAL REPORT

57 Item 7 Major Shareholders and Related Party Transactions A. Major Shareholders The following table sets forth the total number of ordinary shares owned by each shareholder whose beneficial ownership of ordinary shares is at least 5.0 percent of the ordinary shares issued and outstanding, as well as the ordinary shares (including options) owned by members of the Board of Management (which includes those persons specified in Item 6 Directors, Senior Management and Employees ), as a group, as of December 31, The information set out below is solely based on public filings with the SEC and AFM ( Autoriteit Financiele Markten; the Netherlands Authority for the Financial Markets) as through February 6, Identity of Person or Group Shares Owned Percent of Class 7 Capital Group International, Inc 1 51,453, % FMR LLC 2 36,311, % Stichting Administratiekantoor MAKTSJAB/Intel 3 62,977, % Stichting Administratiekantoor TSMC/TSMC 3 20,992, % BlackRock Inc 4 22,878, % Members of ASML s Board of Management, as a group (5 persons) 5,6 101, % 1 As reported to the Dutch Authority for the Financial Markets on September 3, 2012, Capital Group International, Inc. has voting rights related to 51,453,097 shares of our ordinary shares but does not have ownership rights related to those shares. In addition, Capital Research & Management Company ( CRMC ), which we believe to be an affiliate of Capital Group International, Inc., reported to the Dutch Authority for the Financial Markets on August 2, 2011, that it holds voting rights related to 44,579,832 shares of our ordinary shares. Capital World Investors reported on a Schedule 13-G/A filed with the Commission on February 10, 2012 that it is the beneficial owner of 41,253,546 shares of our ordinary shares as a result of its affiliation with CRMC. 2 Based solely on the Schedule 13-G/A filed by FMR LLC with the Commission on February 14, Stichting Administratiekantoor MAKTSJAB and Stichting Administratiekantoor TSMC own the stated percentage of ordinary shares and have simultaneously issued corresponding depository receipts to Intel respectively TSMC. 4 Based solely on the Schedule 13G filed by BlackRock Inc. with the Commission on January 30, Does not include unvested shares and shares underlying options granted to members of ASML s Board of Management. For further information, please refer to Note 21 to our consolidated financial statements. 6 No shares are owned by members of the Supervisory Board. 7 As a percentage of the total number of shares outstanding (407,165,221) as of December 31, The Synthetic Share Buyback completed in November 2012 resulted in a reduction of the number of shares held by all of our shareholders (through a 100 for 77 share exchange) other than the customers who participated in our Customer Co-Investment Program (Intel, TSMC and Samsung). Stichting Administratiekantoor MAKTSJAB (the Intel Stichting ) and Stichting Administratiekantoor TSMC (the TSMC Stichting ), (together referred to as the Customer Stichtingen and each a Customer Stichting ) acquired the shares indicated above as part of our Customer Co-Investment Program in the second half of The Customer Stichtingen do not vote on the ordinary shares held by them, unless instructed to do so by Intel and TSMC in accordance with their respective shareholders agreements. Intel and TSMC, are not entitled to vote on the listing shares held by the Customer Stichtingen, except in certain exceptional circumstances, including the authorization of certain significant share issuances and share repurchases, any amendment to the Articles of Association that would materially affect the specific voting rights of Intel or TSMC or any significant change in the identity or nature of ASML or its business, the dissolution of ASML, and any merger or demerger which would result in a material change in the identity or nature of ASML or its business (see Item 10.C. Material Contracts, Customer Co-Investment Program ). We do not issue share certificates, except for registered New York Shares. For more information see Item 10.B. Memorandum and Articles of Association. As of December 31, 2012, 72,689,511 million ordinary shares were held by 323 registered holders with a registered address in the United States. Since certain of our ordinary shares were held by brokers and nominees, the number of record holders in the United States may not be representative of the number of beneficial holders or of where the beneficial holders are resident. Obligations of Shareholders to Disclose Holdings under Dutch Law Holders of our shares may be subject to reporting obligations under the Dutch Financial Markets Supervision Act ( Wet op het financieel toezicht, the Act ). The disclosure obligations under the Act apply to any person or entity that acquires, holds or disposes of an interest in the voting rights and/or the capital of a public limited company incorporated under the laws of the Netherlands whose shares are admitted to trading on a regulated market within the European Union, such as ASML. Disclosure is required when the percentage of voting rights or capital interest of a person or an entity reaches, exceeds or falls below 5.0, ASML ANNUAL REPORT

58 10.0, 15.0, 20.0, 25.0, 30.0, 40.0, 50.0, 60.0, 75.0 or 95.0 percent (as a result of an acquisition or disposal by such person, or as a result of a change in our total number of voting rights or capital issued). With respect to ASML, the Act requires any person or entity whose interest in the voting rights and/or capital of ASML reached, exceeded or fell below those percentage interests to notify the AFM immediately. A legislative proposal pursuant to which an initial threshold of 3.0 percent will be introduced has been adopted and is currently expected to enter into force on July 1, The proposal would also introduce a mechanism pursuant to which ASML would be able to identify, and communicate with, beneficial holders of its shares through the respective custodians. ASML is required to notify the AFM immediately if our voting rights and/or capital have changed by 1.0 percent or more since its previous notification on outstanding voting rights and capital. In addition, ASML must notify the AFM of changes of less than 1.0 percent in ASML s outstanding voting rights and capital at least once per calendar quarter, within eight days after the end of the quarter. Any person whose direct or indirect voting rights and/or capital interest meets or passes the thresholds referred to in the previous paragraph as a result of a change in the outstanding voting rights or capital must notify the AFM no later than the fourth trading day after the AFM has published such a change. Once every calendar year, within four weeks after the end of the calendar year, holders of an interest of 5.0 percent or more in ASML s voting rights or capital must notify the AFM of any changes in the composition of their interest resulting from certain acts (including, but not limited to, the exchange of shares for depositary receipts and vice versa, and the exercise of rights to acquire shares). Subsidiaries, as defined in the Act, do not have independent reporting obligations under the Act, as interests held by them are attributed to their (ultimate) parents. Any person may qualify as a parent for purposes of the Act, including an individual. A person who ceases to be a subsidiary and who disposes of an interest of 5.0 percent or more in ASML s voting rights or capital must immediately notify the AFM. As of that moment, all notification obligations under the Act become applicable to the former subsidiary. For the purpose of calculating the percentage of capital interest or voting rights, the following interests must, among other arrangements, be taken into account: shares and votes (i) directly held by any person, (ii) held by such person s subsidiaries, (iii) held by a third party for such person s account, (iv) held by a third party with whom such person has concluded an oral or written voting agreement (including on the basis of an unrestricted power of attorney) and (v) held by a third party with whom such person has agreed to temporarily transfer voting rights against payment. Interests held jointly by multiple persons are attributed to those persons in accordance with their entitlement. A holder of a pledge or right of usufruct in respect of shares can also be subject to these reporting obligations if such person has, or can acquire, the right to vote on the shares or, in case of depositary receipts, the underlying shares. The managers of certain investment funds are deemed to hold the capital interests and voting rights in the funds managed by them. For the same purpose, the following instruments qualify as shares : (i) shares, (ii) depositary receipts for shares (or negotiable instruments similar to such receipts), (iii) negotiable instruments for acquiring the instruments under (i) or (ii) (such as convertible bonds), and (iv) options for acquiring the instruments under (i) or (ii). The AFM keeps a public registry of and publishes all notifications made pursuant to the Act. Non-compliance with the reporting obligations under the Act could lead to criminal fines, administrative fines, imprisonment or other sanctions. In addition, non-compliance with the reporting obligations under the Act may lead to civil sanctions, including (i) suspension of the voting rights relating to the shares held by the offender, for a period of not more than three years, (ii) nullification of any resolution of our General Meeting of Shareholders to the extent that such resolution would not have been approved if the votes at the disposal of the person or entity in violation of a duty under the Act had not been exercised and (iii) a prohibition on the acquisition by the offender of our shares or the voting on our ordinary shares for a period of not more than five years. ASML ANNUAL REPORT

59 B. Related Party Transactions Loan Agreement With PSV N.V. Consistent with ASML s corporate responsibilities to its surrounding community and together with several other companies in the region, in prior year ASML entered into a loan agreement with a local sports club PSV N.V., pursuant to which ASML provided PSV N.V., as of August 1, 2011, a 14 year, interest free, subordinated loan of 5.0 million. As of June 30, 2012 the chairman of the Supervisory Board of ASML, Mr. Arthur van der Poel, and Chief Financial Officer of ASML, Mr. Peter Wennink, resigned as members of the Supervisory Board of PSV N.V. Therefore the loan agreement with PSV N.V. is concluded to no longer classify as a related party transaction from that date onwards. Intel Agreements On July 9, 2012, we announced our Customer Co-Investment Program to accelerate our development of EUV technology beyond the current generation and our development of future 450mm silicon wafer technology. The participating collectively agreed to fund 1.38 billion of our research and development projects from 2013 through This program creates risk sharing with some of our largest customers while the results of ASML s development programs will be available to every semiconductor manufacturer with no restrictions. The R&D funding program in the Customer Co-Investment Program consists of two funding projects: a 450mm technology development project and a next-generation EUV development project. ASML has entered into Non Recurring Engineering ( NRE ) funding agreements with the participating customers. In addition to the funding commitments described above, the participating customers have invested in ordinary shares equal, in aggregate, to 23 percent of ASML s issued share capital (calculated giving effect to our Synthetic Share Buyback in November 2012). The proceeds of the share issuance, 3.85 billion, were returned to the holders of ordinary shares (excluding the participating customers) through a Synthetic Share Buyback executed in November For further information regarding the Synthetic Share Buyback, see Note 26 to our consolidated financial statements. Investment Agreement : Pursuant to the investment agreement between ASML and Intel, dated July 9, 2012 ( the Intel Investment Agreement ), ASML agreed to issue to a foundation established for Intel (the Intel Stichting ) ordinary shares equal to 15 percent of ASML s issued ordinary shares; the Intel Stichting issued to Intel depositary receipts representing the ordinary shares. The subscription price for the ordinary shares issued to Intel was per ordinary share, which is the average of the volume weighted average price of the ordinary shares on NYSE Euronext Amsterdam for the twenty trading days up to and including July 6, Under the Intel Investment Agreement, ASML has agreed to indemnify Intel, and its affiliates for certain losses and expenses related to breaches of representations, warranties, covenants and agreements in the Investment Agreements and with respect to certain legal proceedings related thereto, subject to certain limitations. Shareholder Agreement : In connection with the issuance of shares pursuant to the Intel Investment Agreement, on September 12, 2012 ASML, Intel and the Intel Stichting entered into a shareholder agreement (the Shareholder Agreement ) which governs certain matters relating to the holding of and further investment by Intel in ordinary shares of ASML, directly and indirectly through the Intel Stichting. NRE Funding Agreement : On July 9, 2012, ASML and Intel entered into two NRE funding agreements pursuant to which Intel has agreed to fund certain of ASML s R&D costs and project expenditures. One agreement relates to the development of 450mm lithography equipment (the Intel 450mm NRE Funding Agreement ) and the other agreement relates to the development of EUV lithography equipment (the Intel EUV NRE Funding Agreement ). Intel has committed to provide funding in an aggregate amount of 553 million under the Intel 450mm NRE Funding Agreement and funding in an aggregate amount of 276 million under the Intel EUV NRE Funding Agreement, payable over the term of the relevant agreements ( ). Under the agreements, ASML retains sole control over the development of 450mm photo lithography equipment and EUV platforms and will own all intellectual property created by ASML in connection therewith. The NRE funding agreements provide that if ASML, in its reasonable discretion, determines to abandon either the 450mm or EUV development project, as a result of technical infeasibility or lack of sufficient industry demand, or if the then remaining funding exceeds the expenditure estimate for the development project (450mm or EUV), then the parties may agree on an alternative development project. If no alternative is agreed, ASML may invoice Intel for the remaining due portion of committed funding during each year of the remaining funding period in which ASML s actual gross R&D expenditures exceed a minimum threshold specified in the relevant Intel NRE Funding Agreement. The NRE funding agreements will terminate on December 31, 2017 or upon pre-payment by Intel of the aggregate amount of funding owed under the Intel NRE Funding Agreements. ASML ANNUAL REPORT

60 Commercial Agreement : On July 9, 2012, ASML and Intel entered into the Commercial Agreement, pursuant to which ASML and Intel established a contractual framework for Intel to purchase equipment related to the 450mm and next-generation EUV lithography equipment. Under this agreement, Intel has committed to purchase specified numbers of 450mm and next-generation EUV tools. The agreement sets forth pricing terms for the tools as well as milestones related to product deliveries, and provides for certain commercial discounts in the form of credits in exchange for Intel s early purchase commitments and volume purchase commitments and for specified additional credits in the event that certain schedules are not met. In addition, subject to certain conditions, ASML has agreed to install sufficient capacity to meet Intel s forecasted 450mm lithography equipment needs through Please see Item 10.C Material Contracts, Customer Co-Investment Program and Note 28 to our consolidated financial statements for more information about the Customer Co-Investment Program. There have been no other transactions during our most recent fiscal year, and there are currently no transactions, between ASML or any of its subsidiaries, and any significant shareholder and any director or officer or any relative or spouse thereof other than ordinary course compensation arrangements. During our most recent fiscal year, there has been no, and at present there is no, outstanding indebtedness to ASML owed or owing by any director or officer of ASML or any associate thereof, other than the virtual financing arrangement with respect to shares and stock options described under Notes 17 and 21 to our consolidated financial statements. C. Interests of Experts & Counsel Not applicable. Item 8 Financial Information A. Consolidated Statements and Other Financial Information Consolidated Statements See Item 18 Financial Statements. Export Sales See Note 20 to our consolidated financial statements. Legal Proceedings See Item 4.B. Business Overview, Intellectual Property and Note 18 to our consolidated financial statements. Dividend Policy As part of our financing policy, we aim to pay an annual dividend that will be stable or growing over time. Annually, the Board of Management will, upon prior approval from the Supervisory Board, submit a proposal to the AGM with respect to the amount of dividend to be declared with respect to the prior year. The dividend proposal in any given year will be subject to the availability of distributable profits or retained earnings and may be affected by, among other factors, the Board of Management s views on our potential future liquidity requirements, including for investments in production capacity, the funding of our research and development programs and for acquisition opportunities that may arise from time to time; and by future changes in applicable income tax and corporate laws. Accordingly, it may be decided to propose not to pay a dividend or to pay a lower dividend with respect to any particular year in the future. For 2012, a proposal to declare a dividend of 0.53 per ordinary share of 0.09 nominal value will be submitted to the AGM to be held on April 24, B. Significant Changes No significant changes have occurred since the date of our consolidated financial statements. See Item 5.D. Trend Information. Item 9 The Offer and Listing A. Offer and Listing Details Our ordinary shares are listed for trading in the form of registered shares on NASDAQ ( New York shares ) and in the form of registered shares on NYSE Euronext Amsterdam ( Amsterdam Shares ). The principal trading market of our ordinary shares is NYSE Euronext Amsterdam. For more information see Item 10.B. Memorandum and Articles of Association. ASML ANNUAL REPORT

61 New York shares are registered with J.P. Morgan Chase Bank, N.A. (the New York Transfer Agent ), 4 New York Plaza, New York, New York, pursuant to the terms of a transfer, registrar and dividend disbursing agreement (the Transfer Agent Agreement ) between ASML and the New York Transfer Agent. Amsterdam shares are held in dematerialized form through the facilities of Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V. ( Euroclear Nederland ), the Dutch centralized securities custody and administration system. The New York Transfer Agent charges shareholders a fee of USD 5.00 per 100 shares for the exchange of New York shares for Amsterdam shares and vice versa. Dividends payable on New York shares are declared in euro and converted by us to U.S. dollars at the rate of exchange at the close of business on the date determined and announced by the Board of Management. The resulting amounts are distributed through the New York Transfer Agent and no charge is payable by holders of New York shares in connection with this conversion or distribution. Pursuant to the terms of the Transfer Agent Agreement, we have agreed to reimburse the New York Transfer Agent for certain out of pocket expenses, including in connection with any mailing of notices, reports or other communications made generally available by ASML to holders of ordinary shares and the New York Transfer Agent has waived its fees associated with routine services to ASML associated with the New York shares. In addition, the New York Transfer Agent has agreed to reimburse certain reasonable expenses incurred by ASML in connection with the issuance and transfer of New York shares. In the year ended December 31, 2012, the Transfer Agent reimbursed USD 849,377 of expenses incurred by ASML, which mainly comprised legal, audit and accounting fees incurred due to the existence of the New York shares. The following table sets forth, for the periods indicated, the high and low closing prices of our ordinary shares on NASDAQ, as well as on NYSE Euronext Amsterdam. NASDAQ Euronext Amsterdam USD High Low High Low Annual Information Quarterly Information 4th quarter rd quarter nd quarter st quarter th quarter rd quarter nd quarter st quarter Monthly Information February (through February 4) January December November October September August B. Plan of Distribution Not applicable. C. Markets See Item 9.A. Offer and Listing Details. D. Selling Shareholders Not applicable. ASML ANNUAL REPORT

62 E. Dilution Not applicable. F. Expenses of the Issue Not applicable. Item 10 Additional Information A. Share Capital Not applicable. B. Memorandum and Articles of Association The information required by Item 10.B. is incorporated by reference in ASML s Report on Form 6-K, filed with the Commission on February 8, Current Authorizations to Issue and Repurchase Ordinary Shares Our Board of Management has the power to issue ordinary shares and preference shares if and insofar as the Board of Management has been authorized to do so by the General Meeting of Shareholders (whether by means of an authorizing resolution or by an amendment to our Articles of Association). The Board of Management requires the approval, however, of the Supervisory Board for such an issue. An authorization of the Board of Management to issue ordinary shares or preference shares may be effective for a specified period of up to five years and may be renewed. In the absence of such authorization, the General Meeting of Shareholders has the power to authorize the issuance of ordinary shares or preference shares, upon the proposal of the Board of Management, which proposal must be authorized by the Supervisory Board. At our Extraordinary General Meeting of Shareholders ( EGM ), held on September 7, 2012, the Board of Management was authorized from September 7, 2012 through October 25, 2013, subject to the approval of the Supervisory Board, to issue shares and/or rights thereto representing up to a maximum of 5.0 percent of our issued share capital as of April 25, 2012, plus an additional 5.0 percent of our issued share capital as of April 25, 2012 that may be issued in connection with mergers, acquisitions and/or (strategic) alliances. With this authorization, the corresponding authorization granted at the AGM held on April 25, 2012, ceased to apply to the extent not already used. At our AGM to be held on April 24, 2013, our shareholders will be asked to authorize the Board of Management (subject to the approval of the Supervisory Board) to issue shares and/or rights thereto through October 24, 2014, up to an aggregate maximum of 10.0 percent of ASML s issued share capital. This authorization would supercede the authorization described above granted at the September 2012, EGM. Holders of ASML s ordinary shares have a preemptive right of subscription, in proportion to the aggregate nominal amount of the ordinary shares held by them, to any issuance of ordinary shares for cash, which right may be restricted or excluded. Ordinary shareholders have no pro rata preemptive right of subscription to any ordinary shares issued for consideration other than cash or ordinary shares issued to employees. If authorized for this purpose by the General Meeting of Shareholders (either by means of a resolution or by an amendment to our Articles of Association), the Board of Management has the power subject to approval of the Supervisory Board, to restrict or exclude the preemptive rights of holders of ordinary shares. At our EGM held on September 7, 2012, the Board of Management was authorized from September 7, 2012 through October 25, 2013, subject to approval of the Supervisory Board, to restrict or exclude preemptive rights of holders of ordinary shares up to a maximum of 10 percent of our issued share capital as of April 25, With this authorization, the corresponding authorization granted at the AGM held on April 25, 2012, ceased to apply to the extent not already used. At our EGM held on September 7, 2012, the Board of Management was also authorized from September 7, 2012 through July 31, 2013, to issue shares or rights to subscribe for shares in our capital in connection with the Customer Co-Investment Program, subject to Supervisory Board approval, up to 25.0 percent of our issued share capital as of April 25, 2012, and to restrict or exclude the pre-emption rights accruing to shareholders in connection with the issue of these shares or rights. We issued shares (on September 12, 2012 and October 31, 2012) pursuant to the Customer Co-Investment Program equaling 23.0 percent of the issued share capital in ASML as of April 25, 2012 as per this authorization. At September 7, 2012, the Customer Co-Investment Program was closed for other participants. At the EGM held on September 7, 2012, several changes in the articles of association of ASML were adopted. Consequently, on November 24, 2012 the articles of association were amended as follows. Upon the first amendment the ordinary shares to be held for the benefit of the participants to the Customer Co-Investment Program were converted into ordinary shares M and all other ordinary shares were converted into ordinary shares A. Upon the second ASML ANNUAL REPORT

63 amendment the par value per ordinary share A was increased from 0.09 to 9.24 at the expense of the share premium reserve. Upon the third amendment, the nominal value per ordinary share A was reduced to an amount of 0.06, by decreasing the nominal value per ordinary share A by an amount of 9.18, which resulted in a repayment of the same amount per share to holders of ordinary shares into which the ordinary shares A were converted. The fourth amendment provided for the consolidation of the ordinary shares A through the exchange of each 100 ordinary shares for 77 ordinary shares, resulting in an increase of the nominal value per ordinary share from 0.06 to 0.09, whereby the aggregate difference is booked at the expense of the share premium reserve. The fifth and last amendment provided for the deletion of the share class M for participants to the Customer Co-Investment Program and the share class A for the other shareholders. The ordinary shares M and A were converted thereafter into ordinary shares without a specific letter mark attached to it. In addition, the articles of association provide for 9,000 ordinary shares B with a nominal value of 0.01 to allow holders of fractional shares, created as a result of the share consolidation, to obtain voting rights with respect to those fractional shares. We may repurchase our issued ordinary shares at any time, subject to compliance with the requirements of Dutch law and our Articles of Association. Any such repurchases are subject to the approval of the Supervisory Board and the authorization of shareholders at our General Meeting of Shareholders, which authorization may not be for more than 18 months. The Board of Management is currently authorized, subject to Supervisory Board approval, to repurchase as of April 25, 2012 through October 25, 2013, up to a maximum of two times 10.0 percent of ASML s issued share capital as of April 25, 2012, at a price between the nominal value of the ordinary shares purchased and percent of the market price of these securities on NYSE Euronext Amsterdam or NASDAQ. C. Material Contracts Overview On July 9, 2012, we announced our Customer Co-Investment Program to accelerate our development of EUV technology beyond the current generation and our development of future 450mm silicon wafer technology. The participating customers collectively agreed to fund 1.38 billion of our research and development projects from 2013 through This program creates risk sharing with some of our largest customers while the results of ASML s development programs will be available to every semiconductor manufacturer with no restrictions. The R&D funding program in the Customer Co-Investment Program consists of two funding projects: a 450mm technology development project and a next-generation EUV development project. ASML has entered into Non Recurring Engineering ( NRE ) funding agreements with the participating customers. In addition to the funding commitments described above, the participating customers have invested in ordinary shares equal, in aggregate, to 23 percent of ASML s issued share capital (calculated giving effect to our Synthetic Share Buyback in November 2012). The proceeds of the share issuance, 3.85 billion, were returned to the holders of ordinary shares (excluding the participating customers) through a Synthetic Share Buyback executed in November For further information regarding the Synthetic Share Buyback, see Note 26 to our consolidated financial statements. Description of Investment Agreements, Shareholder Agreements and NRE Funding Agreements In connection with the Customer Co-Investment Program, ASML entered into an investment agreement, a shareholder agreement and NRE funding agreements with each of the participating customers. Intel is the largest participant in the program, with an aggregate funding commitment of 829 million and an investment in 15 percent of our ordinary shares (calculated giving effect to our Synthetic Share Buyback in November 2012). A description of the investment agreement, shareholders agreement and NRE funding agreements between ASML and Intel is set out below. The agreements between ASML and the other program participants TSMC (which acquired 5 percent of our shares and made an 277 million funding commitment) and Samsung (which acquired 3 percent of our shares and made an 276 million funding commitment) are on substantially the same terms as those agreed with Intel. Shares were acquired by Dutch foundations ( Stichtingen ) established for each participant. Investment Agreement Pursuant to the investment agreement between ASML and Intel, dated July 9, 2012 ( the Intel Investment Agreement ), ASML agreed to issue to a foundation established for Intel (the Intel Stichting ) ordinary shares equal to 15 percent of ASML s issued ordinary shares; the Intel Stichting issued to Intel depositary receipts representing the ordinary shares. The subscription price for the ordinary shares issued to Intel was per ordinary share, which is the average of ASML ANNUAL REPORT

64 the volume weighted average price of the ordinary shares on NYSE Euronext Amsterdam for the twenty trading days up to and including July 6, Under the Intel Investment Agreement, ASML has agreed to indemnify Intel, and its affiliates for certain losses and expenses related to breaches of representations, warranties, covenants and agreements in the Investment Agreements and with respect to certain legal proceedings related thereto, subject to certain limitations. Shareholder Agreement In connection with the issuance of shares pursuant to the Intel Investment Agreement, on September 12, 2012 ASML, Intel and the Intel Stichting entered into a shareholder agreement (the Shareholder Agreement ) which governs certain matters relating to the holding of and further investment by Intel in ordinary shares of ASML, directly and indirectly through the Intel Stichting, including the matters described below. Voting Restrictions Pursuant to the Intel Shareholder Agreement, Intel (and the Intel Stichting) will not be entitled to vote the ordinary shares that were acquired by the Intel Stichting as part of the Customer Co-Investment Program or any other ordinary shares otherwise transferred to the Intel Stichting (under the circumstances described under Standstill; Additional Purchases below) prior to a Shareholder Agreement Termination Event (as defined below), except when a Suspension Event (as described below) occurs and is continuing or where the following matters are proposed at any General Meeting (the Voting Restrictions ): (i) an issuance of ASML shares or grant of rights to subscribe for ASML shares representing 25 percent or more of the issued and outstanding share capital of ASML or the restriction or exclusion of pre-emption rights relating thereto (in each case, on an aggregate basis during the preceding 12 months) or the designation of the Board of Management as the authorized body to resolve on these matters; (ii) an authorization to repurchase 25 percent or more of ASML s issued and outstanding share capital on an aggregate basis during the preceding 12 months; (iii) the approval of a significant change in the identity or nature of ASML or its business, including a transfer of all or substantially all business or assets of ASML and its subsidiaries to a third party, the establishment or cancellation of a long-lasting cooperation of essential importance with a third party and an acquisition or disposition of an interest in the capital or assets of a person with a value of at least one third of the assets of ASML (on a consolidated basis); (iv) an amendment to ASML s Articles of Association that would materially affect the specific voting rights of Intel, would materially affect the identity or nature of ASML or its business, or would disproportionately (or uniquely) and adversely affect the rights or benefits attached to or derived from the ordinary shares held by Intel through the Intel Stichting as compared to the shareholders; (v) the dissolution of ASML; and (vi) any merger or demerger which would result in a material change in the identity or nature of ASML or its business. Standstill, Lock-up and Orderly Market Arrangements Standstill; Additional Purchases Subject to certain exceptions, pursuant to the Shareholder Agreement, Intel (or its affiliates) may not, prior to the six-year anniversary of the date of the Intel Shareholder Agreement (the Standstill Period ), acquire more than 19.9 percent of the outstanding share capital of ASML without ASML s prior approval (the Standstill Restriction ). There is an exception from the Standstill Restriction in the case of a suspension event, which includes certain circumstances where a third party has acquired or made an offer to acquire at least 20 percent of ASML s outstanding shares, and the Standstill Restriction will terminate upon the occurrence of a Shareholder Agreement Termination Event. The Shareholder Agreement permits Intel (and its affiliates) to acquire up to 4.99 percent of ASML s outstanding shares (other than shares acquired through the Customer Co-Investment Program) that may be held outside the Intel Stichting. For any additional ASML shares that Intel (or its affiliates) acquires in excess of 4.99 percent of the outstanding shares of ASML, Intel is required to deposit such shares with the Intel Stichting in exchange for Depositary Receipts. Shares held directly by Intel or its affiliates (and which not required to be deposited with the Intel Stichting) are not subject to the Voting Restrictions, or Lock-Up Restrictions (as defined below), but are subject to the Standstill Restriction. The Intel Stichting will continue to hold ASML shares owned by Intel (notwithstanding termination of the Standstill Period) until the earlier of (i) such time as Intel owns (directly or through the Intel Stichting) less than 2 percent of ASML s outstanding shares (the relevant percentage is 1 percent for the other participating customers) (ii) the date of notification to ASML by participating customers that the aggregate amount of ASML s outstanding shares owned by Intel and the other participating customers represents less than 5 percent of ASML s outstanding shares and (iii) a Shareholder Agreement Termination Event (as defined below), following which time Depositary Receipts will be exchanged for the underlying ASML shares. In case Intel would acquire ASML shares within 18 months after an event ASML ANNUAL REPORT

65 described under (i) or (ii) above, any ASML shares held by Intel in excess of 4.99 percent of the outstanding shares of ASML must be transferred to (and held by) the Intel Stichting. Lock-up; Orderly Sell Down Intel may not, without prior written consent of ASML, transfer any ordinary shares or Depositary Receipts until the earliest of (i) two years and six months after the date of the Intel Shareholder Agreement, (ii) termination of the NRE funding agreements, and (iii) the occurrence of a Shareholder Agreement Termination Event ((i), (ii) and (iii) together, the Lock-Up Restriction ). The Lock-Up Restriction does not apply in certain circumstances where a third party offers to acquire at least 20 percent of ASML s shares. Intel is not permitted to transfer the ASML ordinary shares it acquired in the program in connection with an offer (before the end of the offer), or make any public statement in support of such offer, that is not recommended by the ASML Supervisory Board or Management Board, except in limited circumstances. In addition, Intel may not (even after the Lock-Up Period has ended), without written consent of ASML, transfer on NYSE Euronext Amsterdam, NASDAQ or another securities exchange more than (i) in respect of Intel, 4 percent of the outstanding shares of ASML (the relevant percentage is 1.5 percent for Samsung and 2.5 percent for TSMC). There are also restrictions on Intel s ability to transfer ASML shares to certain competitors or customers of ASML. Termination The Intel Shareholder Agreement will terminate upon the occurrence of the following events (each a Shareholder Agreement Termination Event ) (i) certain change of control transactions were the shareholders of ASML prior to such a transaction are no longer entitled to exercise at least 50 percent of the votes in the General Meeting following such transaction, (ii) in the event of a delisting of the Ordinary Shares from NYSE Euronext Amsterdam or de listing from NASDAQ (except for certain voluntary delistings from NASDAQ), (iii) the winding up or liquidation of ASML, or (vi) in the event that all Depositary Receipts are exchanged for ASML shares and Intel does not acquire ASML shares in excess of 4.99 percent of the outstanding ASML shares within 18 months of such exchange (see Standstill; Additional Purchases above). NRE Funding Agreements Intel NRE Funding Agreements On July 9, 2012, ASML and Intel entered into two NRE funding agreements pursuant to which Intel has agreed to fund certain of ASML s R&D costs and project expenditures. One agreement relates to the development of 450mm lithography equipment (the Intel 450mm NRE Funding Agreement ) and the other agreement relates to the development of EUV lithography equipment (the Intel EUV NRE Funding Agreement ). Intel has committed to provide funding in an aggregate amount of 553 million under the Intel 450mm NRE Funding Agreement and funding in an aggregate amount of 276 million under the Intel EUV NRE Funding Agreement, payable over the term of the relevant agreements ( ). Under the agreements, ASML retains sole control over the development of 450mm photo lithography equipment and EUV platforms and will own all intellectual property created by ASML in connection therewith. The NRE funding agreements provide that if ASML, in its reasonable discretion, determines to abandon either the 450mm or EUV development project, as a result of technical infeasibility or lack of sufficient industry demand, or if the then remaining funding exceeds the expenditure estimate for the development project (450mm or EUV), then the parties may agree on an alternative development project. If no alternative is agreed, ASML may invoice Intel for the remaining due portion of committed funding during each year of the remaining funding period in which ASML s actual gross R&D expenditures exceed a minimum threshold specified in the relevant Intel NRE Funding Agreement. The NRE funding agreements will terminate on December 31, 2017 or upon pre-payment by Intel of the aggregate amount of funding owed under the Intel NRE Funding Agreements. ASML ANNUAL REPORT

66 Cymer Merger The Merger On October 16, 2012, we entered into a merger agreement with Cymer, a company engaged in the development, manufacturing and marketing of light sources for sale to customers who manufacture photolithography tools in the semiconductor equipment industry (the Merger Agreement ), under which ASML will acquire all outstanding shares of common stock of Cymer for a consideration per Cymer share of Cymer common stock of USD in cash and a fixed ratio of ASML Ordinary Shares. Completion of the merger is subject to customary closing conditions, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act and receipt of approvals under other foreign competition laws. On february 5, 2013, the Cymer Stockholders approved the merger agreement. We expect the transaction to close in the first half of 2013, however there is no assurance that the transaction will be completed within the expected time period or at all. See Risk Factors, We May Be Unable to Make Desirable Acquisitions or to Integrate Any Businesses We Successfully Acquire. The Merger Agreement Merger Consideration The Merger Agreement provides that each share of Cymer common stock outstanding immediately prior to the consummation of the Merger (other than shares owned by ASML, ASML US Inc. ( Holdco ), Kona Acquisition Company Inc. ( Merger Sub ), Kona Technologies LLC ( Merger Sub 2 ), any other wholly owned subsidiary of ASML, or held in the treasury of Cymer or owned by any wholly owned subsidiary of Cymer (the Excluded Shares )) will be converted into the right to receive from Holdco (i) USD in cash, without interest thereon, and (ii) ASML Ordinary Shares. No fractional Ordinary Shares will be issued. In lieu of fractional Ordinary Shares, Cymer stockholders that would otherwise be entitled to a fractional Ordinary Share will receive in cash an amount equal to the product of the ASML Share Price (as defined in the Merger Agreement) and the fractional Ordinary Share to which such holder would otherwise be entitled. In addition, for purposes of complying with requirements of Dutch law, upon consummation of the merger, each holder of Cymer capital stock (other than holders of Excluded Shares) will be entitled to receive the Dutch Compensation Amount (as defined in the Merger Agreement) from ASML, to be set off against the obligation to pay up the Ordinary Shares as described below. By virtue of the Merger, each Cymer stockholder will be deemed to have subscribed for the Ordinary Shares to be issued to such holder pursuant to the Merger. In accordance with the laws of The Netherlands, each Cymer stockholder, as a result of such deemed subscription, will be obligated to pay up such Ordinary Shares in an amount, determined solely for the purpose of satisfying such obligation, equal to the Dutch Compensation Amount to which such holder is entitled by virtue of the Merger. Such obligation will be satisfied by such Cymer stockholder by set off by ASML of such obligation against the right of such Cymer common stockholder to receive from ASML the Dutch Compensation Amount, and will have no effect on the receipt by a Cymer common stockholder of the merger consideration. Conditions to the Merger Each party s obligation to effect the Merger is subject to satisfaction or waiver, at or prior to the closing of the merger, of certain conditions, including, among other things, certain regulatory approvals (including the expiration or termination of all applicable waiting periods under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and approval of the Committee on Foreign Investment in the United States), obtaining certain required clearances under certain foreign merger control laws, effectiveness of the registration statement filed in the United States relating to the Merger, and the accuracy of certain representations and warranties provided by each party under the Merger Agreement. Representations and Warranties The Merger Agreement contains representations and warranties that Cymer, on the one hand, and ASML, Holdco, Merger Sub and Merger Sub 2, on the other hand, have made to each other, including, among other things, organization, corporate power and authority, financial condition, compliance with laws, environmental matters, intellectual property, real property and availability of cash consideration. Covenants The Merger Agreement contains covenants of both parties, including restrictions on Cymer with regard to the ability to, among other things, issue, sell, pledge or redeem shares of Cymer common stock, make acquisitions or investments, dispose of assets, create security rights and incur indebtedness. In the Merger Agreement, the parties have stated ASML ANNUAL REPORT

67 their intent that, subject to the terms of the Merger Agreement, ASML and its subsidiaries are free to conduct their businesses and operations without restrictions between the date of the Merger Agreement and the closing of the merger, except for certain restrictions on the ability of ASML to redeem Ordinary Shares, pay dividends or otherwise make a payment to holders of Ordinary Shares (other than pursuant to the Synthetic Share Buyback) and the entering into contracts that could reasonably be expected to prevent or materially delay the consummation of the Merger. For a period of six years after consummation of the Merger, ASML and the surviving entity will, to the fullest extent permitted under applicable law, indemnify and hold harmless, each of Cymer s and its subsidiaries present and former directors, officers and employees against all costs and expenses (including attorneys fees), judgments, fines, losses, claims, damages, liabilities and settlement amounts paid in connection with any claim, action, suit, proceeding or investigation to the extent they were indemnified under Cymer s articles, bylaws and indemnification contracts in effect as of the date of the Merger Agreement with respect to any action or omission in their capacity as an officer, director or employee, at or prior to the consummation of the merger. Termination The Merger Agreement may be terminated at any time prior to the effective time of the merger, (i) by the mutual written consent of ASML and Cymer and (ii) by ASML or Cymer if (a) a court or governmental entity issues a final order prohibiting the Merger, (b) the Cymer stockholders do not approve the Merger Agreement, (c) the Merger is not consummated on or before July 16, 2013 and parties have not extended this date, (d) the other party has breached or failed to perform its representations and warranties, covenants or agreements in the Merger Agreement or (e) the Cymer board changes its recommendation to Cymer stockholders to approve the Merger Agreement or fails to include its recommendation in the proxy statement/prospectus that has been filed with the SEC. All costs and expenses incurred by the parties in connection with the Merger Agreement and the transactions contemplated thereby are to be paid by the party that has incurred such costs and expenses, whether or not the Merger is consummated. However, Cymer must pay ASML a termination fee of USD 75,000,000 if the Merger Agreement is terminated on certain grounds including, among other things, termination because the Cymer board changes its recommendation to Cymer stockholders to approve the Merger Agreement in connection with a superior acquisition proposal or an intervening event or (subject to certain conditions) the Merger is not consummated on or before July 16, 2013 (or any date to which the termination date is extended, but not later than October 16, 2013). D. Exchange Controls There are currently no limitations, either under the laws of the Netherlands or in the Articles of Association of ASML, to the rights of non-residents to hold or vote ordinary shares. Cash distributions, if any, payable in euros on Amsterdam Shares may be officially transferred by a bank from the Netherlands and converted into any other currency without being subject to any Dutch legal restrictions. However, for statistical purposes, such payments and transactions must be reported by ASML to the Dutch Central Bank. Furthermore, no payments, including dividend payments, may be made to jurisdictions subject to certain sanctions, adopted by the government of the Netherlands, implementing resolutions of the Security Council of the United Nations. Cash distributions, if any, on New York Shares shall be declared in euros but paid in U.S. dollars, converted by us at the rate of exchange at the close of business on the date fixed for that purpose by the Board of Management in accordance with the Articles of Association. E. Taxation Dutch Taxation The statements below represent a summary of current Dutch tax laws, regulations and judicial interpretations thereof. The description is limited to the material tax implications for a holder of ordinary shares who is not, or is not deemed to be, a resident of the Netherlands for Dutch tax purposes ( Non-resident Holder ). This summary does not address special rules that may apply to special classes of holders of ordinary shares and should not be read as extending by implication to matters not specifically referred to herein. As to individual tax consequences, each investor in ordinary shares should consult his or her tax counsel. General The acquisition of ordinary shares by a non-resident of the Netherlands should not be treated as a taxable event for Dutch tax purposes. The income consequences in connection with owning and disposing of our ordinary shares are discussed below. Substantial Interest A person that, (inter alia) directly or indirectly, and either independently or jointly with his partner (as defined in the Dutch Personal Income Tax Act 2001), owns 5.0 percent or more of our share capital, owns profit participating rights that ASML ANNUAL REPORT

68 correspond to at least 5.0 percent of the annual profits of a Dutch company or to at least 5.0 percent of the liquidation proceeds of such company or holds options to purchase 5.0 percent or more of our share capital, is deemed to have a substantial interest in our shares, or our options, as applicable. Specific rules apply in case certain family members of the Non-resident hold a substantial interest. A deemed substantial interest also exists if (part of) a substantial interest has been disposed of, or is deemed to be disposed of, in a transaction where no taxable gain has been recognized. Special attribution rules exist in determining the presence of a substantial interest. Income Tax Consequences for Individual Non-resident Holders on Owning and Disposing of the Ordinary Shares An individual who is a Non-resident Holder will not be subject to Dutch income tax on received income in respect of our ordinary shares or capital gains derived from the sale, exchange or other disposition of our ordinary shares, provided that such holder: Does not carry on and has not carried on a business in the Netherlands through a permanent establishment or a permanent representative to which the ordinary shares are attributable; Does not hold and has not held a (deemed) substantial interest in our share capital or, in the event the Non-resident Holder holds or has held a (deemed) substantial interest in our share capital, such interest is, or was, a business asset in the hands of the holder; Does not share and has not shared directly (through the beneficial ownership of ordinary shares or similar securities) in the profits of an enterprise managed and controlled in the Netherlands which (is deemed to) own(s), or (is deemed to have) has owned, our ordinary shares; Does not carry out and has not carried out any activities which generate taxable profit or taxable income to which the holding of our ordinary shares was connected; Is not an individual that has elected to be taxed as a resident of the Netherlands. Corporate Income Tax Consequences for Corporate Non-resident Holders Income derived from ordinary shares or capital gains derived from the sale, exchange or disposition of ordinary shares by a corporate Non-resident Holder is taxable if: The holder carries on a business in the Netherlands through a permanent establishment or a permanent agent in the Netherlands (Dutch enterprise) and the ordinary shares are attributable to this permanent establishment or permanent agent, unless the participation exemption (discussed below) applies; or The holder is a resident of Aruba, Curacao or Saint Martin with a permanent establishment or permanent representative in Bonaire, Eustatius or Saba to which out ordinary shares are attributable, while the profits of such holder are taxable in the Netherlands pursuant to article 17(3)(c) of the Dutch Corporate Income Tax Act 1969; or The holder has a substantial interest in our share capital, which is held with the primary aim or one of the primary aims to evade the levy of income tax or dividend withholding tax at the level of another person and which is not attributable to his enterprise; or Certain assets of the holder are deemed to be treated as a Dutch enterprise under Dutch tax law and the ordinary shares are attributable to this Dutch enterprise. To qualify for the Dutch participation exemption, the holder must generally hold at least 5.0 percent of our nominal paid-in capital and meet certain other requirements. Dividend Withholding Tax In general, a dividend distributed by us in respect of our ordinary shares will be subject to a withholding tax imposed by the Netherlands at the statutory rate of 15.0 percent. Dividends include: Dividends in cash and in kind; Deemed and constructive dividends; Consideration for the repurchase or redemption of ordinary shares (including a purchase by a direct or indirect ASML subsidiary) in excess of qualifying average paid-in capital unless such repurchase is made for temporary investment purposes or is exempt by law; Stock dividends up to their nominal value (unless distributed out of qualifying paid-in capital); Any (partial) repayment of paid-in capital not qualifying as capital for Dutch dividend withholding tax purposes; and Liquidation proceeds in excess of qualifying average paid-in capital for Dutch dividend withholding tax purposes. ASML ANNUAL REPORT

69 A reduction of Dutch dividend withholding tax can be obtained if: The participation exemption applies and the ordinary shares are attributable to a business carried out in the Netherlands; The dividends are distributed to a qualifying EU corporate holder satisfying the conditions of article 4(2) and 4(3) of the Dutch Dividend Withholding Tax Act 1965; or The rate is reduced by a Tax Treaty. A Non-resident Holder of ordinary shares can be eligible for a partial or complete exemption or refund of all or a portion of the above withholding tax under a Tax Treaty that is in effect between the Netherlands and the Non-resident Holder s country of residence. The Netherlands has concluded such treaties with the United States, Canada, Switzerland, Japan, most European Union member states, as well as many other countries. Under the Treaty between the United States and the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the Tax Treaty ), dividends paid by us to a Non-resident Holder that is a resident of the United States as defined in the Tax Treaty (other than an exempt organization or exempt pension trust, as discussed below) are generally liable to 15.0 percent Dutch withholding tax or, in the case of certain United States corporate shareholders owning at least 10.0 percent of our voting power, a reduction to 5.0 percent, provided that the Holder does not have an enterprise or an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment or permanent representative in the Netherlands to which the dividends are attributable. The Tax Treaty also provides for a dividend withholding tax exemption on dividends, but only for a shareholders owning at least 80.0 percent of our voting power and meeting all other requirements. The Tax Treaty provides for a complete exemption from tax on dividends received by exempt pension trusts and exempt organizations, as defined therein. Except in the case of exempt organizations, the reduced dividend withholding tax rate (or exemption from withholding) can be applied at the source upon payment of the dividends, provided that the proper forms have been filed in advance of the payment. Exempt organizations remain subject to the statutory withholding rate of 15.0 percent and are required to file for a refund of such withholding. A Non-resident Holder may not claim the benefits of the Tax Treaty unless (i) he/she is a resident of the United States as defined therein, or (ii) he/she is deemed to be a resident on the basis of the provisions of article 24(4) of the Tax Treaty, and (iii) his or her entitlement to those benefits is not limited by the provisions of article 26 (limitation on benefits) of the Tax Treaty. Dividend Stripping Rules Under Dutch tax legislation regarding anti-dividend stripping, no exemption from, or refund of, Dutch dividend withholding tax is granted if the recipient of dividends paid by us is not considered the beneficial owner of such dividends. Gift or Inheritance Taxes Dutch gift or inheritance taxes will not be levied on the transfer of ordinary shares by way of gift, or upon the death of a Non-resident Holder, unless: (1) The transfer is construed as an inheritance or as a gift made by or on behalf of a person who, at the time of the gift or death, is deemed to be, resident of the Netherlands; or (2) The ordinary shares are attributable to an enterprise or part thereof that is carried on through a permanent establishment or a permanent representative in the Netherlands. Gift tax and inheritance tax are levied on the beneficiary. For purposes of Dutch gift and inheritance tax, an individual of Dutch nationality is deemed to be a resident of the Netherlands if he has been a resident thereof at any time during the ten years preceding the time of the gift or death. For purposes of Dutch gift tax, a person not possessing Dutch nationality is deemed to be a resident of the Netherlands if he/she has resided therein at any time in the twelve months preceding the gift. Value Added Tax No Dutch value added tax is imposed on dividends in respect of our ordinary shares or on the transfer of our shares. Residence A Non-resident Holder will not become resident, or be deemed to be resident, in the Netherlands solely as a result of holding our ordinary shares or of the execution, performance, delivery and/or enforcement of rights in respect of our ordinary shares. ASML ANNUAL REPORT

70 United States Taxation The following is a discussion of the material United States federal income tax consequences relating to the acquisition, ownership and disposition of Ordinary Shares by a United States Holder (as defined below) acting in the capacity of a beneficial owner who is not a tax resident of the Netherlands. This discussion deals only with Ordinary Shares held as capital assets and does not deal with the tax consequences applicable to all categories of investors, some of which (such as tax-exempt entities, financial institutions, regulated investment companies, dealers in securities/traders in securities that elect a mark-to-market method of accounting for securities holdings, insurance companies, investors owning directly, indirectly or constructively 10.0 percent or more of ASML s outstanding voting shares, investors who hold Ordinary Shares as part of hedging or conversion transactions and investors whose functional currency is not the U.S. dollar) may be subject to special rules. In addition, the discussion does not address any alternative minimum tax or any state, local, FIRPTA related United States federal income tax consequences, or non-united States tax consequences. This discussion is based on the U.S.-Dutch Income Tax Treaty ( Treaty ) and the Internal Revenue Code of 1986, as amended to the date hereof, final, temporary and proposed Treasury Department regulations promulgated, and administrative and judicial interpretations thereof, changes to any of which subsequent to the date hereof, possibly with retroactive effect, may affect the tax consequences described herein. In addition, there can be no assurance that the Internal Revenue Service ( IRS ) will not challenge one or more of the tax consequences described herein, and ASML has not obtained, nor does ASML intend to obtain, a ruling from the IRS or an opinion of counsel with respect to the United States federal income tax consequences of acquiring or holding shares. Prospective purchasers of Ordinary Shares are advised to consult their tax advisers with respect to their particular circumstances and with respect to the effects of United States federal, state, local or non-united States tax laws to which they may be subject. As used herein, the term United States Holder means a beneficial owner of Ordinary Shares for United States federal income tax purposes whose holding of such Ordinary Shares does not form part of the business property or assets of a permanent establishment or fixed base in the Netherlands; who is fully entitled to the benefits of the Treaty in respect of such Ordinary Shares; and is: an individual citizen or tax resident of the United States; a corporation or other entity treated as a corporation for United States federal income tax purposes created or organized in or under the laws of the United States or of any political subdivision thereof; an estate of which the income is subject to United States federal income taxation regardless of its source; or a trust whose administration is subject to the primary supervision of a court within the United States and which has one or more United States persons who have the authority to control all of its substantial decisions. If an entity treated as a partnership for United States federal income tax purposes owns ordinary shares, the United States federal income tax treatment of a partner in such partnership will generally depend upon the status and tax residency of the partner and the activities of the partnership. A partnership that owns Ordinary Shares and the partners in such partnership should consult their tax advisors about the United States federal income tax consequences of holding and disposing of the ordinary Shares. Passive Foreign Investment Company Considerations ASML believes it was not a Passive Foreign Investment Company ( PFIC ) for U.S. federal income tax purposes in 2012 and that it will not be a PFIC in However, as PFIC status is a factual matter that must be determined annually at the close of each taxable year, there can be no certainty as to ASML s actual PFIC status in any particular year until the close of the taxable year in question. ASML has not conducted a detailed study at this time to confirm its non-pfic status. If ASML were treated as a PFIC in any year during which a United States Holder owned common shares, certain adverse tax consequences could apply. Investors should consult their tax advisors with respect to any PFIC considerations. Taxation of Dividends United States Holders should generally include in gross income, as foreign-source dividend income the gross amount of any non-liquidating distribution (before reduction for Dutch withholding taxes) ASML makes out of its current or accumulated earnings and profits (as determined for United States federal income tax purposes) when the distribution is actually or constructively received by the United States Holder. Distributions will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution includible in income of a United States Holder should be the U.S. dollar value of the foreign currency (e.g. euros) paid, determined by the spot rate of exchange on the date of the distribution, regardless of whether the payment is in fact converted into U.S. dollars. Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a non-taxable return of capital to the extent of the United States Holder s U.S. tax basis in the Ordinary Shares and ASML ANNUAL REPORT

71 thereafter as taxable capital gain. ASML presently does not maintain calculations of its earnings and profits under United States federal income tax principles. If ASML does not report to a United States Holder the portion of a distribution that exceeds earnings and profits, the distribution will generally be taxable as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above. Subject to limitations provided in the United States Internal Revenue Code, a United States Holder may generally deduct from its United States federal taxable income, or credit against its United States federal income tax liability, the amount of qualified Dutch withholding taxes. However, Dutch withholding tax may be credited only if the United States Holder does not claim a deduction for any Dutch or other non-united States taxes paid or accrued in that year. In addition, Dutch dividend withholding taxes will likely not be creditable against the United States Holder s United States tax liability to the extent ASML is not required to pay over the amount withheld to the Dutch Tax Administration. Currently, a Dutch corporation that receives dividends from qualifying non-dutch subsidiaries may credit source country tax withheld from those dividends against Dutch withholding tax imposed on a dividend paid by a Dutch corporation, up to a maximum of 3.0 percent of the dividend paid by the Dutch corporation. The credit reduces the amount of dividend withholding that ASML is required to pay to the Dutch Tax Administration but does not reduce the amount of tax ASML is required to withhold from dividends. For U.S. foreign tax credit purposes, dividends paid by ASML generally will be treated as foreign-source income and as passive category income (or in the case of certain holders, as general category income ). Gains or losses realized by a United States Holder on the sale or exchange of Ordinary Shares generally will be treated as U.S.- source gain or loss. The rules governing the foreign tax credit are complex and ASML suggests that each United States Holder consult his or her own tax advisor to determine whether, and to what extent, a foreign tax credit will be available. Dividends received by a United States Holder will generally be taxed at ordinary income tax rates. However, the Jobs and Growth Tax Reconciliation Act of 2003, as amended by the Tax Increase and Prevention Act of 2005 and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduce to 15.0 percent the maximum tax rate for certain dividends received by individuals through taxable years beginning on or before December 31, 2012, so long as certain exclusions do not apply and the stock has been held for at least 60 days during the 121-day period beginning 60 days before the ex-dividend date. Dividends received from qualified foreign corporations generally qualify for the reduced rate. A non-united States corporation (other than a passive foreign investment company) generally will be considered to be a qualified foreign corporation if: (i) the shares of the non-united States corporation are readily tradable on an established securities market in the United States or (ii) the non- United States corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that has been identified as a qualifying treaty and contains an exchange of information program. Individual United States Holders should consult their tax advisors regarding the impact of this provision on their particular situations. Dividends paid by ASML generally will constitute portfolio income for purposes of the limitations on the use of passive activity losses (and, therefore, generally may not be offset by passive activity losses) and as investment income for purposes of the limitation on the deduction of investment interest expense. Taxation on Sale or Other Disposition of Ordinary Shares Upon a sale or other disposition of Ordinary Shares, a United States Holder will generally recognize capital gain or loss for United States federal income tax purposes in an amount equal to the difference between the amount realized, if paid in U.S. dollars, or the U.S. dollar value of the amount realized (determined at the spot rate on the settlement date of the sale) if proceeds are paid in currency other than the U.S. dollar, as the case may be, and the United States Holder s U.S. tax basis (determined in U.S. dollars) in such Ordinary Shares. Generally, the capital gain or loss will be long-term capital gain or loss if the holding period of the United States Holder in the Ordinary Shares exceeds one year at the time of the sale or other disposition. The deductibility of capital losses is subject to limitations for United States federal income tax purposes. Gain or loss from the sale or other disposition of Ordinary Shares generally will be treated as United States source income or loss for United States foreign tax credit purposes. Generally, any gain or loss resulting from currency fluctuations during the period between the date of the sale of the Ordinary Shares and the date the sale proceeds are converted into U.S. dollars will be treated as ordinary income or loss from sources within the United States. Each United States Holder should consult his or her tax advisor with regard to the translation rules applicable when computing its adjusted U.S. tax basis and the amount realized upon a sale or other disposition of its Ordinary Shares if purchased in, or sold or disposed of for, a currency other than U.S. dollar. Information Reporting and Backup Withholding Information returns may be filed with the IRS in connection with payments on the Ordinary Shares or proceeds from a sale, redemption or other disposition of the Ordinary Shares. A backup withholding tax may be applied to, and withheld from, these payments if the beneficial owner fails to provide a correct taxpayer identification number to the paying agent and to comply with certain certification procedures or otherwise establish an exemption from backup withholding. Any ASML ANNUAL REPORT

72 amounts withheld under the backup withholding rules might be refunded (or credited against the beneficial owner s United States federal income tax liability, if any) depending on the facts and provided that the required information is furnished to the IRS. The discussion set out above is included for general information only and may not be applicable depending upon a holder s particular situation. Holders should consult their tax advisors with respect to the tax consequences to them of the purchase, ownership and disposition of shares including the tax consequences under state, local and other tax laws and the possible effects of changes in United States federal and other tax laws. F. Dividends and Paying Agents Not applicable. G. Statement by Experts Not applicable. H. Documents on Display We are subject to certain reporting requirements of the US Securities Exchange Act of 1934 (the Exchange Act ). As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing certain disclosure and procedural requirements for proxy solicitations, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act, with respect to their purchases and sales of shares. In addition, we are not required to file reports and financial statements with the Commission as frequently or as promptly as companies that are not foreign private issuers whose securities are registered under the Exchange Act. However, we are required to file with the Commission, within four months after the end of each fiscal year, an annual report on Form 20-F containing financial statements audited by an independent accounting firm and interactive data comprising financial statements in extensible business reporting language. We publish unaudited interim financial information after the end of each quarter. We furnish this quarterly financial information to the Commission under cover of a Form 6-K. Documents we file with the Commission are publicly available at its public reference room at 100 F Street, N.E., Washington, DC The Commission also maintains a website that contains reports and other information regarding registrants that are required to file electronically with the Commission. The address of this website is Please call the Commission at SEC-0330 for further information on the operation of the public reference facilities. I. Subsidiary Information See Item 4.C. Organizational Structure. Item 11 Quantitative and Qualitative Disclosures About Market Risk We are exposed to certain financial risks such as market risk (including foreign currency exchange risk and interest rate risk), credit risk, liquidity risk and capital risk. The overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potentially adverse effects on our financial performance. We use derivative financial instruments to hedge certain risk exposures. None of our transactions are entered into for trading or speculative purposes. We believe that market information is the most reliable and transparent measure for our derivative financial instruments that are measured at fair value. To mitigate the risk that any of our counterparties in hedging transactions is unable to meets its obligations, we only enter into transactions with a limited number of major financial institutions that have high credit ratings and closely monitor the creditworthiness of our counterparties. Concentration risk is mitigated by limiting the exposure to a single counterparty. Our risk management program focuses appropriately on the current environment of uncertainty in the financial markets, especially in the euro-zone. Foreign currency risk management Our sales are predominately denominated in euros. Exceptions may occur on a customer by customer basis. Our cost of sales and other expenses are mainly denominated in euros, to a certain extent in U.S. dollars and Japanese yen and to a limited extent in other currencies. Therefore, we are exposed to foreign currency exchange risk. It is our policy to hedge material transaction exposures, such as forecasted sales and purchase transactions, and material net remeasurement exposures, such as accounts receivable and payable. We hedge these exposures through ASML ANNUAL REPORT

73 the use of foreign exchange contracts. It is our policy not to hedge currency translation exposures resulting from net equity investments in foreign subsidiaries. Details of the forward foreign exchange contracts and hedging activities are included in Note 3 of our consolidated financial statements. Interest rate risk management We have interest-bearing assets and liabilities that expose us to fluctuations in market interest rates. We use interest rate swaps to align the interest-typical terms of interestbearing liabilities with the interest-typical terms of interest-bearing assets. There may be residual interest rate risk to the extent the asset and liability positions do not fully offset. As part of our hedging policy, we use interest rate swaps to hedge changes in fair value of our Eurobond due to changes in market interest rates, thereby offsetting the variability of future interest receipts on part of our cash and cash equivalents. Furthermore, as part of our hedging policy, we use interest rate swaps to hedge the variability of future interest cash flows relating to certain of our operating lease obligations. Details of the interest rate swaps and hedging activities are included in Note 3 of the consolidated financial statements. Financial instruments We use foreign exchange contracts to manage our currency risk and interest rate swaps to manage our interest rate risk. The following table summarizes the notional amounts and estimated fair values of our financial instruments: As of December 31 (in thousands) Notional Fair Value Notional amount amount Fair Value Forward foreign exchange contracts 1 262,146 16, ,579 (23,999) Interest rate swaps 2 624, , , ,991 1 Relates to forward contracts assigned as a hedge to forecasted sales and purchase transactions and to monetary assets and liabilities, mainly in U.S. dollar and Japanese Yen. 2 Relates to interest rate swaps assigned as a hedge to interest bearing assets and liabilities, mainly related to the Eurobond; the fair value of the interest rate swaps includes accrued interest. The valuation technique used to determine the fair value of forward foreign exchange contracts (used for hedging purposes) approximates the Net Present Value technique, which is the estimated amount that a bank would receive or pay to terminate the forward foreign exchange contracts at the reporting date, taking into account current interest rates and current exchange rates. The valuation technique used to determine the fair value of interest rate swaps (used for hedging purposes) is the Net Present Value technique, which is the estimated amount that a bank would receive or pay to terminate the swap agreements at the reporting date, taking into account current interest rates. Sensitivity analysis financial instruments Foreign currency sensitivity We are mainly exposed to fluctuations in exchange rates between the euro and the U.S. dollar and the euro and the Japanese yen. The following table details our sensitivity to a 10.0 percent strengthening of foreign currencies against the euro. The sensitivity analysis includes foreign currency denominated monetary items outstanding and adjusts their translation at the period end for a 10.0 percent strengthening in foreign currency rates. A positive amount indicates an increase in income before income taxes or other comprehensive income, as shown. (in thousands) Impact on income before income Impact on Impact on other income before comprehensive taxes income income taxes Impact on other comprehensive income U.S. dollar (5,646) 13,669 (2,317) 17,293 Japanese yen 465 (3,218) (902) (6,255) Other currencies (7,674) - (3,628) - Total (12,855) 10,451 (6,847) 11,038 ASML ANNUAL REPORT

74 It is our policy to limit the effects of currency exchange rate fluctuations on our consolidated statements of operations. The increased effect on income before income taxes in 2012 compared with 2011 reflects our higher net exposure at year end. The negative effect on income before income taxes as presented in the table above for 2012 is mainly attributable to timing differences between the arising and hedging of exposures. The effects of the fair value movements of cash flow hedges, entered into for U.S. dollar and Japanese yen transactions are recognized in other comprehensive income. The decreased U.S. dollar and Japanese yen effect on other comprehensive income in 2012 compared with 2011 is the result of a decrease in outstanding sales and purchase hedges. For a 10.0 percent weakening of the foreign currencies against the euro, there would be approximately an equal but opposite effect on the income before income taxes and other comprehensive income. Interest rate sensitivity The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative financial and non-derivative financial instruments at the balance sheet date with the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. The table below shows the effect of a 1.0 percentage point increase in interest rates on our income before income taxes and other comprehensive income. A positive amount indicates an increase in income before income taxes and other comprehensive income. (in thousands) Impact on income before income Impact on income before taxes Impact on other comprehensive income income taxes Impact on other comprehensive income Effect of a 1.0 percent point increase in interest rates 20,706 1,488 21,020 1,691 The positive effect on income before income taxes mainly relates to our cash and cash equivalents and short-term investments. The positive effect on other comprehensive income, is mainly attributable to the fair value movements of the interest rate swaps designated as cash flow hedges. For a 1.0 percentage point decrease in interest rates there would be a lower opposite effect on income before income taxes and other comprehensive income due to the current interest rates. See Note 3 to our consolidated financial statements for more information on our financial risk management. Item 12 Description of Securities Other Than Equity Securities Not applicable. ASML ANNUAL REPORT

75 ASML ANNUAL REPORT

76 Part II Item 13 Defaults, Dividend Arrearages and Delinquencies None. Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds None. Item 15 Controls and Procedures Disclosure Controls and Procedures As of December 31, 2012, the management of ASML conducted an evaluation, under the supervision and with the participation of ASML s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of ASML s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on such evaluation, ASML s Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2012, ASML s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by ASML in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by ASML is accumulated and communicated to ASML s management, including ASML s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management s Report on Internal Control over Financial Reporting ASML s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, for ASML. Under the supervision and with the participation of ASML s Chief Executive Officer and Chief Financial Officer, ASML s management conducted an evaluation of the effectiveness of ASML s internal control over financial reporting as of December 31, 2012 based upon the framework in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management has concluded that ASML s internal control over financial reporting was effective as of December 31, 2012 at providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in conformity with US GAAP. Deloitte Accountants B.V., an independent registered public accounting firm, has audited the consolidated financial statements included in Item 18 Financial Statements and, as part of the audit, has issued a report, included herein, on the effectiveness of ASML s internal control over financial reporting. Changes in Internal Control over Financial Reporting During the year ended December 31, 2012 there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitations of Disclosure Controls and Procedures in Internal Control over Financial Reporting It should be noted that any system of controls, however well-designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Item 16 A. Audit Committee Financial Expert Our Supervisory Board has determined that effective March 18, 2004, Mr. Fritz Fröhlich, an independent member of the Supervisory Board, qualifies as the Audit Committee Financial Expert. See also Item 6A. ASML ANNUAL REPORT

77 B. Code of Ethics Within ASML, we use a code of ethics and conduct ( Code of Conduct ), that focuses on the following five key areas: 1. show respect for people and planet; 2. operate with integrity; 3. preserve intellectual property and other assets; 4. manage exposure by following processes; and 5. adhere to the ASML business principles and applicable laws, and speak up. The five key areas of the Code of Conduct are translated into a set of Business Principles, an internal set of practical rules and procedures that support the ASML employees in their the day-to-day activities and decision making process. The Code of Conduct is available on our website ( Furthermore, in order to enhance adherence to and enforcement of the Code of Conduct and internal Business Principles, we use a reporting procedure that provides for whistleblower protection when reporting fraud and other breaches of the Code of Conduct and Business Principles. The reporting procedure is also posted on our website ( C. Principal Accountant Fees and Services Deloitte Accountants B.V. has served as our independent registered public accounting firm for each of the three financial years up to December 31, The following table sets out the aggregate fees for professional audit services and other services rendered by Deloitte Accountants B.V. and its member firms and/or affiliates in 2012 and 2011: Year ended December 31 (in thousands) 2012 Deloitte Accountants B.V. Deloitte Network Total 2011 Deloitte Accountants B.V. Deloitte Network Total Audit fees and other audit fees Audit fees primarily relate to the audit of our annual consolidated financial statements set out in our Annual Report on Form 20-F, our Statutory Annual Report, agreed upon procedures on our quarterly financial results and services related to statutory and regulatory filings of ASML Holding N.V. and its subsidiaries. Audit-related fees Audit-related fees mainly related to various audit services not related to the ASML s consolidated financial statements. Tax fees Tax fees can be detailed as follows: Audit fees in relation to annual reports 1,002-1,002 1,022-1,022 Other audit fees Audit-related fees Tax fees Other Principal accountant fees and services 1, ,103 1, ,815 Year ended December 31 (in thousands) Corporate Income Tax compliance services Tax assistance for expatriate employees Other tax advisory and compliance Tax fees The Audit Committee has approved the external audit plan and related audit fees for the year The Audit Committee has adopted a policy regarding audit and non-audit services, in consultation with Deloitte Accountants B.V. This policy ensures the independence of our auditors by expressly setting forth all services that the auditors may not perform and reinforcing the principle of independence regardless of the type of work performed. Certain non-audit services, such as certain tax-related services and acquisition advisory services, are permitted. The Audit Committee pre- ASML ANNUAL REPORT

78 approves all audit and non-audit services not specifically prohibited under this policy and reviews the annual external audit plan and any subsequent engagements. The Audit Committee will monitor compliance with the new Dutch rules on non-audit services provided by our auditor, which outlines strict separation of audit and advisory services for Dutch public interest entities. Furthermore, we will evaluate the implication of the mandatory firm rotation (not applicable to financial years before January 1, 2016) which applies to all Dutch public interest entities. D. Exemptions from the Listing Standards for Audit Committees Not applicable. E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers In addition to dividend payments, we intend to return cash to our shareholders on a regular basis through share buybacks or capital repayment, subject to our actual and anticipated level of liquidity requirements, our current share price, other market conditions and other relevant factors. On April 25, 2012, the General Meeting of Shareholders authorized the repurchase of up to a maximum of two times 10.0 percent of our issued share capital as of the date of authorization through October 25, On January 19, 2011, we announced our intention to repurchase up to 1.0 billion of our own shares within the next two years. On January 18, 2012, we announced to increase the size of the program to a maximum amount of 1,130 million. During the period from January 20, 2011 up to and including November 22, 2012, when the program was completed, we had purchased 36,952,634 of our shares at an average price of per share. Of the shares purchased, 24,627,581 have been cancelled with the remaining shares intended to be cancelled in Furthermore, on January 18, 2012, we announced our intention to purchase up to 2.2 million of additional shares during 2012 for the purpose of covering outstanding employee stock and stock option plans. During the period from November 22, 2012 up to and including December 14, 2012, when the program was completed, a total number of 2.2 million shares was purchased for a total amount of million at an average price of per share. These shares will be held as treasury shares pending delivery pursuant to such plans. Both programs had been suspended between July 10, 2012 and October 18, 2012 following the announcement of the Customer Co-Investment Program on July 9, The following table provides a summary of shares repurchased by ASML in 2012 (excluding the effect of the Synthetic Share Buyback): Period Total number of shares purchased Average price paid per Share () Total number of shares purchased as part of publicly announced plans or programs Maximum value of shares that may yet be purchased under the program 1 () Maximum number of shares that may yet be purchased under the program 2 January 20-31, ,132, ,132, ,369,363 2,200,000 February 1-28, ,025, ,157, ,780,615 2,200,000 March 1-31, , ,107, ,820,741 2,200,000 April 1-30, , ,761, ,501,698 2,200,000 May 2-31, ,219, ,981, ,530,029 2,200,000 June 1-30, ,133, ,114, ,764,616 2,200,000 July 1-29, , ,542, ,366,940 2,200,000 August 1-31, ,542, ,366,940 2,200,000 September 1-30, ,542, ,366,940 2,200,000 October 3-31, ,153, ,695, ,099,413 2,200,000 November 1-30, ,240, ,935,909-1,542,149 December 1-31, ,542, ,478, Total 13,478, Program to purchase shares up to a maximum amount of 1,130 million. We have or will cancel these shares. 2 Program to purchase up to 2.2 million shares for the purpose of covering outstanding employee stock and stock option plans. At the EGM held on September 7, 2012, a resolution was passed to amend the Articles of Association in connection with the Synthetic Share Buyback to be effected in connection with the Customer Co-Investment Program. We refer to Item 10 B. Memorandum and Articles of Association for a summary description of these amendments. On November 24, ASML ANNUAL REPORT

79 2012, we effectuated the amendments consisting of a repayment to shareholders (excluding participating customers) of 9.18 per ordinary share and the exchange of each 100 ASML ordinary shares for 77 ASML ordinary shares. As a result of these amendments, which in substance constitute a Synthetic Share Buyback, we effectively repurchased 93,411,216 shares at an average price of for a total amount of 3,728.3 million. Total amount paid (in millions) Total Number of Shares Purchased Average Price Paid Reduction of Shares Outstanding vs Beginning of Year (Percentage) per Share Period Year () Share Buybacks ,385, Synthetic Share Buyback , ,093, Share Buybacks ,000, Share Buybacks ,000, Share Buybacks ,674, Synthetic Share Buyback , ,411, Share Buybacks ,478, Total / Average 1 3, ,631, Totals, average and percentage are excluding the synthetic share buyback executed in 2012 as part of our Customer Co-Investment Program. The percentage represents the reduction of shares outstanding compared to January 1, F. Change in Registrant s Certifying Accountant Not applicable. G. Corporate Governance NASDAQ rules provide that foreign private issuers may follow home country practice in lieu of the NASDAQ corporate governance standards subject to certain exceptions and except to the extent that such exemptions would be contrary to US federal securities laws. The practices followed by ASML in lieu of NASDAQ rules are described below: ASML does not follow NASDAQ s quorum requirements applicable to meetings of ordinary shareholders. In accordance with Dutch law and Dutch generally accepted business practice, ASML s Articles of Association provide that there are no quorum requirements generally applicable to General Meetings of Shareholders. ASML does not follow NASDAQ s requirements regarding the provision of proxy statements for General Meetings of Shareholders. Dutch law does not have a regulatory regime for the solicitation of proxies: the solicitation of proxies is not a generally accepted business practice in the Netherlands. ASML does provide shareholders with an agenda and other relevant documents for the General Meeting of Shareholders. Dutch law requires that ASML s external auditors be appointed by the AGM and not by the Audit Committee as contemplated by NASDAQ rules. ASML does not follow NASDAQ s requirement regarding distribution to shareholders of copies of an Annual Report containing audited financial statements prior to our AGM. The distribution of Annual Reports to shareholders is not required under Dutch corporate law or Dutch securities laws, or by NYSE Euronext Amsterdam. Furthermore, it is generally accepted business practice for Dutch companies not to distribute annual reports. In part, this is because the Dutch system of bearer shares has made it impractical to keep a current list of holders of the bearer shares in order to distribute the Annual Reports. Instead, we make our annual report available at our corporate head office in the Netherlands (and at the offices of our Dutch listing agent as stated in the convening notice for the meeting) approximately two weeks prior to convocation of the AGM. In addition, we post a copy of our annual report on our website prior to the Annual General Meeting of Shareholders. ASML does not follow NASDAQ s requirement to obtain shareholder approval of stock option or purchase plans or other equity compensation arrangements available to officers, directors or employees. It is not required under Dutch law or generally accepted practice for Dutch companies to obtain shareholder approval of equity compensation arrangements available to officers, directors or employees. The AGM adopts the remuneration policy for the Board of Management, approves equity compensation arrangements for the Board of Management and approves the remuneration for the Supervisory Board. The actual total remuneration (including equity compensation) for individual members of the Board of Management is determined by the Supervisory Board. Equity compensation arrangements for employees are adopted by the Board of Management within limits approved by the AGM. ASML ANNUAL REPORT

80 H. Mine Safety Disclosure Not applicable. ASML ANNUAL REPORT

81 ASML ANNUAL REPORT

82 Part III Item 17 Financial Statements Not applicable. Item 18 Financial Statements In response to this item, ASML incorporates herein by reference the consolidated financial statements of ASML set out on pages F-2 through F-55 hereto. Item 19 Exhibits Exhibit No. Description 1 Articles of Association of ASML Holding N.V. (English translation) (Incorporated by reference to Amendment No. 13 to the Registrant s, Registration Statement on Form 8-A/A, filed with the Commission on February 8, 2013) 2.1 Fiscal Agency Agreement between ASML Holding N.V., Deutsche Bank AG, London Branch and Deutsche Bank Luxembourg S.A. relating to the Registrant s 5.75 percent Notes due 2017 (Incorporated by reference to the Registrant s Annual Report for the year ended December 31, 2008) 4.1 Agreement between ASM Lithography B.V. and Carl Zeiss, dated March 17, 2000 (Incorporated by reference to the Registrant s Annual Report on Form 20-F for the fiscal year ended December 31, 2000) Agreement between ASML Holding N.V. and Carl Zeiss, dated October 24, 2003 (Incorporated by reference to the Registrant s Annual Report on Form 20-F for the year ended December 31, 2003) Form of Indemnity Agreement between ASML Holding N.V. and members of its Board of Management (Incorporated by reference to the Registrant s Annual Report on Form 20-F for the year ended December 31, 2003) 4.4 Form of Indemnity Agreement between ASML Holding N.V. and members of its Supervisory Board (Incorporated by reference to the Registrant s Annual Report on Form 20-F for the year ended December 31, 2003) 4.5 Form of Employment Agreement for members of the Board of Management (Incorporated by reference to the Registrant s Annual Report on Form 20- F for the fiscal year ended December 31, 2003) 4.6 Nikon-ASML Patent Cross-License Agreement, dated December 10, 2004, between ASML Holding N.V. and Nikon Corporation (Incorporated by reference to the Registrant s Annual Report on Form 20-F for the fiscal year ended December 31, 2004) ASML/Zeiss Sublicense Agreement, 2004, dated December 10, 2004, between Carl Zeiss SMT AG and ASML Holding N.V. (Incorporated by reference to the Registrant s Annual Report on Form 20-F for the fiscal year ended December 31, 2004) ASML New Hires and Incentive Stock Option Plan For Management (Version 2003) (Incorporated by reference to the Registrant s Statement on Form S-8, filed with the Commission on September 2, 2003 (File No )) 4.9 ASML Incentive and New Hire Option Plan for Board of Management (Incorporated by reference to the Registrant s Registration Statement on Form S-8, filed with the Commission on June 9, 2004 (File No )) 4.10 ASML Option Plan for Management of ASML Holding Group Companies (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on June 30, 2005 (file No )) 4.11 ASML Stock Option Plan for New Hire Options granted to Members of the Board of Management (Version April 2006) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on August 7, 2006 (file No )) 4.12 ASML Stock Option Plan for Incentive or New Hire Options granted to Senior and Executive Management (Version April 2006) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on August 7, 2006 (file No )) 4.13 ASML Stock Option Plan for Incentive or New Hire Options granted to Senior and Executive Management (Version July 2006) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on August 7, 2006 (file No )) 4.14 ASML Stock Option Plan for Incentive or New Hire Options granted to Senior and Executive Management (Version October 2006) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on August 7, 2006 (file No )) 4.15 ASML Restricted Stock Plan (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on March 7, 2007 (file No )) 4.16 Brion Technologies, Inc., 2002 Stock Option Plan (as amended on March 25, 2005; March 24, 2006; and November 17, 2006) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on April 20, 2007 (file No )) 4.17 ASML Stock Option Plan for Incentive or New Hire Options granted to Senior and Executive Management (Version January 2007) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on July 5, 2007 (file No )) 4.18 ASML Stock Option Plan for Incentive or New Hire Options granted to Senior and Executive Management (Version April 2007) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on July 5, 2007 (file No )) 4.19 ASML Stock Option Plan for Incentive or New Hire Options granted to Senior and Executive Management (Version July 2007) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on July 5, 2007 (file No )) 4.20 ASML Stock Option Plan for Incentive or New Hire Options granted to Senior and Executive Management (Version October 2007) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on July 5, 2007 (file No )) 4.21 ASML Performance Stock Plan for Members of the Board of Management (Version 1) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on July 5, 2007 (file No )) 4.22 ASML Performance Stock Option Plan for Members of the Board of Management (Version 2) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on July 5, 2007 (file No )) ASML ANNUAL REPORT

83 Exhibit No. Description 4.23 ASML Stock Option Plan from Base Salary for Senior & Executive Management (Version October 2007) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on November 2, 2007 (file No )) 4.24 ASML Performance Stock Option Plan for Senior and Executive Management (version 1) (Incorporated by reference to the Registrant s. Registration Statement on Form S-8 filed with the Commission on August 29, 2008 (file No )) 4.25 ASML Performance Share Plan for Senior and Executive Management (version 1) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on August 29, 2008 (file No )) 4.26 ASML Restricted Stock Plan (version 2) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on August 29, 2008 (file No )) 4.27 ASML Performance Stock Plan for Members of the Board of Management (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on October 13, 2009 (file No )) 4.28 ASML Performance Stock Option Plan for Senior and Executive Management (version 1) (Incorporated by reference to the Registrant s. Registration Statement on Form S-8 filed with the Commission on October 13, 2009 (file No )) 4.29 ASML Performance Share Plan for Senior and Executive Management (version 1) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on October 13, 2009 (file No )) 4.30 ASML Share and Option Purchase Plan for Employees (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on October 20, 2010 (file No )) 4.31 Investment Agreement between ASML Holding N.V. and Intel Corporation, dated July 9, mm NRE Funding Agreement between ASML Holding N.V., and Intel Corporation, dated July 9, , EUV NRE Funding Agreement between ASML Holding N.V., and Intel Corporation, dated July 9, , Shareholder Agreement between ASML Holding N.V. and Intel Holdings B.V., Intel Corporation and Stichting Administratiekantoor MAKTSJAB dated September 12, Agreement and Plan of Merger by and among ASML Holding N.V., Kona Acquisition Company, Inc. Cymer, Inc. and certain other parties set forth therein, date October 16, 2012 (incorporated by reference to Annex A to the Registrant s Registration Statement on Form F-4 filed with the Commission on November 21, 2012 (file No )) 8.1 List of Main Subsidiaries Certification of CEO and CFO Pursuant to Rule 13a-14(a) of the Securities Exchange Act of Certification of CEO and CFO Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of Consent of Deloitte Accountants B.V INS XBRL Instance Document SCH XBRL Taxonomy Extension Schema Document CAL XBRL Taxonomy Extension Calculation Linkbase Document DEF XBRL Taxonomy Extension Definition Linkbase Document LAB XBRL Taxonomy Extension Label Linkbase Document PRE XBRL Taxonomy Extension Presentation Linkbase Document 2 1 Certain information omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission. 2 Filed at the Commission herewith. ASML Holding N.V. hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf. ASML Holding N.V. (Registrant) /s/ Eric Meurice Eric Meurice President, Chief Executive Officer and Chairman of the Board of Management Dated: February 12, 2013 /s/ Peter T.F.M. Wennink Peter T.F.M. Wennink Executive Vice President, Chief Financial Officer and Member of the Board of Management Dated: February 12, 2013 ASML ANNUAL REPORT

84 Financial Statements

85

86 Index to Financial Statements F-2 Consolidated Statements of Operations F-2 Consolidated Statements of Comprehensive Income F-3 Consolidated Balance Sheets F-4 Consolidated Statements of Shareholders Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to the Consolidated Financial Statements F-55 Report of Independent Registered Public Accounting Firm ASML ANNUAL REPORT 2012 F-1

87 Consolidated Statements of Operations Notes Year ended December 31 (in thousands, except per share data) Net system sales 3,801,632 4,883,913 3,894,742 Net service and field option sales 929, , , Total net sales 4,731,555 5,651,035 4,507,938 Cost of system sales 2,198,921 2,793,931 2,222,965 Cost of service and field option sales 527, , , Total cost of sales 2,726,298 3,201,645 2,552,768 Gross profit on sales 2,005,257 2,449,390 1,955,170 22, 23 Research and development costs 589, , , Selling, general and administrative costs 259, , ,045 Income from operations 1,156,774 1,641,216 1,250, Interest income 16,585 41,156 15, Interest expense (22,781) (33,737) (23,301) Income before income taxes 1,150,578 1,648,635 1,242, Provision for income taxes (4,262) (181,675) (220,703) Net income 1,146,316 1,466,960 1,021,820 Basic net income per ordinary share Diluted net income per ordinary share Number of ordinary shares used in computing per share amounts (in thousands) Basic 424, , ,146 Diluted 1 426, , ,974 1 The calculation of diluted net income per ordinary share assumes the exercise of options issued under ASML stock option plans and the issuance of shares under ASML share plans for periods in which exercises or issuances would have a dilutive effect. The calculation of diluted net income per ordinary share does not assume exercise of such options or issuance of shares when such exercises or issuance would be anti-dilutive. 2 As of January 1, 2011, we adopted Accounting Standards Update ( ASU ) , Revenue Arrangements with Multiple Deliverables which amended ASC The ASU was adopted prospectively and had an insignificant impact on timing and allocation of revenues. See Note 1 to the consolidated financial statements. Consolidated Statements of Comprehensive Income Notes Year ended December 31 (in thousands) Net income 1,146,316 1,466,960 1,021,820 Foreign currency translation: 3 Gain (loss) on foreign currency translation 8,063 (17,473) 22,286 Financial instruments, net of taxes: 3 Gain (loss) on derivative financial instruments 214 (4,610) (49,175) 3 Transfers to net income (7,761) 51,963 47,954 Comprehensive income 1,146,832 1,496,840 1,042,885 ASML ANNUAL REPORT 2012 F-2

88 Consolidated Balance Sheets Notes As of December 31 (in thousands, except share and per share data) Assets 4 Cash and cash equivalents 1,767,596 2,731,782 4 Short-term investments 930,005-5 Accounts receivable, net 605, ,627 6 Finance receivables, net 265,167 78, Current tax assets 57,116 32,105 7 Inventories, net 1,856,970 1,624, Deferred tax assets 103, ,720 8 Other assets 246, ,095 Total current assets 5,831,842 5,706,809 6 Finance receivables, net 38, Deferred tax assets 39,443 38,735 8 Other assets 311, ,251 9 Goodwill 149, , Other intangible assets, net 9,943 8, Property, plant and equipment, net 1,029,923 1,053,610 Total non-current assets 1,578,636 1,554,006 Total assets 7,410,478 7,260,815 Liabilities and shareholders equity Accounts payable 188, , Accrued and other liabilities 1,880,370 1,768, Current tax liabilities 10,791 14, Current portion of long-term debt 3,610 2, Provisions 2,280 2, Deferred and other tax liabilities Total current liabilities 2,086,283 2,233, Long-term debt 755, , Deferred and other tax liabilities 88, , Provisions 7,974 10, Accrued and other liabilities 405, ,099 Total non-current liabilities 1,257,302 1,583,619 Total liabilities 3,343,585 3,816,661 16, 18 Commitments and contingencies - - Cumulative Preference Shares; 0.09 nominal value; 700,000,000 shares authorized at December 31, 2012 and 2011; none issued and outstanding at December 31, 2012 and 2011; - - Ordinary Shares B; 0.01 nominal value; 9,000 shares authorized at December 31, 2012; none issued and outstanding per December 31, 2012; not applicable per December 31, 2011; Ordinary Shares; 0.09 nominal value; 699,999,000 shares authorized at December 31, 2012; 407,165,221 issued and outstanding at December 31, 2012; 700,000,000 shares authorized at December 31, 2011; 413,669,257 issued and outstanding at December 31, 2011; Issued and outstanding shares 37,470 38,354 Share premium 483, ,043 Treasury shares at cost (464,574) (416,417) Retained earnings 3,931,359 3,270,703 Accumulated other comprehensive income 78,987 78, Total shareholders equity 4,066,893 3,444,154 Total liabilities and shareholders equity 7,410,478 7,260, ASML ANNUAL REPORT 2012 F-3

89 Consolidated Statements of Shareholders Equity Notes (in thousands) Issued and Outstanding Shares Number 1 Amount Share Premium Treasury Shares at cost Retained Earnings Accumulated Other Comprehensive Income Total Balance at January 1, ,639 39, ,261 (218,203) 1,450,156 27,526 1,774,768 Components of comprehensive income: Net income ,021,820-1,021,820 3 Foreign Currency Translation, net of ,286 22,286 taxes 3 Loss on financial instruments, net of taxes (1,221) (1,221) 17, 21, 22 Share-based payments , ,109 17, 21 Issuance of shares 2, (17,223) 66,531 (18,573) - 31, Dividend paid (86,960) - (86,960) 17, 19 Tax benefit from share-based payments Balance at December 31, ,593 39, ,253 (151,672) 2,366,443 48, ,773,908 Components of comprehensive income: Net income ,466,960-1,466,960 3 Foreign Currency Translation, net of taxes (17,473) (17,473) 3 Gain on financial instruments, net of taxes ,353 47,353 Purchase of treasury shares (25,675) - - (700,452) - - (700,452) Cancellation of treasury shares - (1,187) - 373,801 (372,614) , 21, 22 Share-based payments , ,430 17, 21 Issuance of shares 2, (10,629) 61,906 (17,441) - 34, Dividend paid (172,645) - (172,645) 17, 19 Tax deficit from share-based payments - - (11) (11) Balance at December 31, ,669 38, ,043 (416,417) 3,270,703 78, ,444,154 Components of comprehensive income: Net income ,146,316-1,146,316 3 Foreign Currency Translation ,063 8,063 3 Loss on financial instruments, net of taxes (7,547) (7,547) Customer Co-Investment Program: 26, 28 Issuance of shares 96,566 8,691 3,968, ,977,368 26, 28 Fair value differences (123,416) (123,416) 26, 28 Capital repayment 4 (93,411) (8,691) (3,845,261) 125, (3,728,324) 26 Purchase of treasury shares (13,478) (198) - (535,175) - - (535,373) 26 Cancellation of treasury shares - (1,030) - 294,752 (293,722) , 21, 22 Share-based payments , ,714 17, 21 Issuance of shares 3, (10,222) 66,638 (3,046) - 53, Dividend paid (188,892) - (188,892) 17, 19 Tax benefit from share-based payments - - 2, ,116 Balance at December 31, ,165 37, ,651 (464,574) 3,931,359 78, ,066,893 1 As of December 31, 2012, the number of issued shares was 419,852,467. This includes the number of issued and outstanding shares of 407,165,221 and the number of treasury shares of 12,687,246. As of December 31, 2011, the number of issued shares was 431,294,790. This includes the number of issued and outstanding shares of 413,669,257 and the number of treasury shares of 17,625, As of December 31, 2012, accumulated other comprehensive income, net of taxes, consists of 83.5 million relating to foreign currency translation (2011: 75.5 million; 2010: 93.0 million) and 4.5 million relating to unrealized losses on financial instruments (2011: 3.0 million gains; 2010: 44.4 million losses). 3 The difference between the fair value of the shares and the subscription price of the shares issued to the participating customers in the Customer Co-Investment Program. 4 In 2012, as part of the capital repayment, 3,728.3 million of shareholders equity was returned to our shareholders (excluding Intel Corporation ( Intel ), Taiwan Semiconductor Manufacturing Company Ltd. ( TSMC ) and Samsung Electronics Corporation ( Samsung ) (collectively referred to as participating customers in the Customer Co-investment Program)) and the number of shares was reduced by 23 percent. See Note 26. ASML ANNUAL REPORT 2012 F-4

90 Consolidated Statements of Cash Flows Notes Year ended December 31 (in thousands) Cash Flows from Operating Activities Net income 1,146,316 1,466,960 1,021,820 Adjustments to reconcile net income to net cash flows from operating activities: 10, 11 Depreciation and amortization 186, , ,444 9, 10, 11 Impairment 3,234 12,272 8, Loss on disposal of property, plant and equipment 1 2,272 3,368 2,913 17, 21 Share-based payments 18,714 12,430 12,109 5 Allowance for doubtful receivables (1,256) 7 Allowance for obsolete inventory 130,911 60,300 55, Deferred income taxes (72,374) 63,250 28,053 Changes in assets and liabilities: 5 Accounts receivable 246, ,209 (748,898) 6 Finance receivables (225,103) (37,301) (20,000) 7 Inventories 1 (352,716) (276,243) (706,233) 8 Other assets 19,117 (58,292) (114,003) 12, 13 Accrued and other liabilities (147,691) 589, ,919 Accounts payable (225,083) (126,234) 350, Current income taxes (28,179) (72,530) 36,695 Net cash provided by operating activities 703,478 2,070, ,048 Cash Flows from Investing Activities 11 Purchase of property, plant and equipment 1 (171,878) (300,898) (128,728) 11 Proceeds from sale of property, plant and equipment , Purchase of intangible assets (7,658) Purchase of available for sale securities (1,379,997) Maturity of available for sale securities 449, Acquisition of subsidiaries (net of cash acquired) (10,292) - - Net cash used in investing activities (1,119,833) (300,898) (124,903) Cash Flows from Financing Activities 26 Dividend paid (188,892) (172,645) (86,960) 27 Purchase of shares (535,373) (700,452) - 17, 21 Net proceeds from issuance of shares 3,907, ,084 31, Capital Repayment (3,728,324) Deposits from customers - (150,000) 150, Repayment of debt (2,776) (2,537) (1,444) 17, 19 Tax benefit (deficit) from share-based payments 2,116 (11) 106 Net cash provided by (used in) financing activities (545,583) (991,561) 92,702 Net cash flows (961,938) 777, ,847 Effect of changes in exchange rates on cash (2,248) 3,967 4,913 Net increase (decrease) in cash and cash equivalents (964,186) 781, ,760 4 Cash and cash equivalents at beginning of the year 2,731,782 1,949,834 1,037,074 4 Cash and cash equivalents at end of the year 1,767,596 2,731,782 1,949,834 Supplemental Disclosures of Cash Flow Information: Interest paid (37,906) (35,919) (35,559) Taxes paid (109,504) (202,312) (148,915) 1 An amount of million (2011: million, 2010: million) of the additions in property, plant and equipment relates to non-cash transfers from inventory, an amount of 9.6 million relates to other non-cash movements (mainly investments not yet paid and inceptions of finance lease arrangements) and an amount of million (2011: million, 2010: million) of the disposal of property, plant and equipment relates to non-cash transfers to inventory. Since the transfers between inventory and property, plant and equipment are non-cash events, these are not reflected in these consolidated statements of cash flows. For further details see Note The net proceeds from issuance of shares includes an amount of 3,853.9 million related to the share issuances in connection to the Customer Co-Investment Program. 3 The difference of million between the capital repayment of 3,728.3 million and the net proceeds from issuance of shares of 3,853.9 million relates to the capital repayment on ASML s treasury shares which was also part of the Synthetic Share Buyback in November ASML ANNUAL REPORT 2012 F-5

91 Notes to the Consolidated Financial Statements 1. General information / Summary of significant accounting policies ASML Holding N.V. ( ASML ), with its corporate headquarters in Veldhoven, the Netherlands, is engaged in the development, production, marketing, sale and servicing of advanced semiconductor equipment systems exclusively consisting of lithography systems. ASML s principal operations are in the Netherlands, the United States of America and Asia. Our shares are listed for trading in the form of registered shares on NASDAQ and on NYSE Euronext Amsterdam. The principal trading market of our ordinary shares is NYSE Euronext Amsterdam. Basis of preparation The accompanying consolidated financial statements are stated in thousands of euros ( ) unless indicated otherwise. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ( U.S. GAAP ). Use of estimates The preparation of ASML s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities on the balance sheet dates, and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates. Principles of consolidation The consolidated financial statements include the financial statements of ASML Holding N.V. and all of its subsidiaries and the variable interest entities in which ASML is the primary beneficiary (referred to as ASML ). All intercompany profits, balances and transactions have been eliminated in the consolidation. Subsidiaries Subsidiaries are all entities over which ASML has the power to govern financial and operating policies generally accompanying a shareholding of more than half of the voting rights. As from the date that these criteria are met, the financial data of the relevant subsidiaries are included in the consolidation. Acquisitions of subsidiaries are included on the basis of the acquisition method. The cost of acquisition is measured based on the consideration transferred, the fair value of other assets distributed and the fair value of liabilities incurred or assumed at the acquisition date (i.e., the date at which we obtain control). The excess of the costs of an acquired subsidiary over the net of the amounts assigned to assets acquired and liabilities incurred or assumed, is capitalized as goodwill. Acquisition-related costs are expensed when incurred in the period they arise or the service is received. Variable Interest Entities We assess whether we have a controlling financial interest in any Variable Interest Entity ( VIE ) and, thus, whether we are the VIE s primary beneficiary. ASML shall be deemed to have a controlling financial interest in a VIE if it has both of the following characteristics: (a.) the power to direct the activities of a VIE that most significantly impact the VIE s economic performance and (b.) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. If ASML has a controlling financial interest in a VIE, it is required to consolidate the VIE. Foreign currency translation The financial information for subsidiaries outside the euro-zone is generally measured using local currencies as the functional currency. The financial statements of those foreign subsidiaries are translated into euros in the preparation of ASML s consolidated financial statements. Assets and liabilities are translated into euros at the exchange rate in effect on the respective balance sheet dates. Income and expenses are translated into euros based on the average exchange rate for the corresponding period. The resulting translation adjustments are recorded directly in shareholders equity. Currency differences on intercompany loans that have the nature of a long-term investment are also accounted for directly in shareholders equity. Derivative financial instruments We principally use derivative hedging instruments for the management of foreign currency risks and interest rate risks. We measure all derivative hedging instruments based on fair values derived from market prices of the instruments. We ASML ANNUAL REPORT 2012 F-6

92 adopt hedge accounting for hedges that are highly effective in offsetting the identified hedged risks taking into account required effectiveness criteria. Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. We designate certain derivatives as either: A hedge of the exposure to changes in the fair value of a recognized asset or liability, or of an unrecognized firm commitment, that are attributable to a particular risk (fair value hedge); A hedge of the exposure to variability in the cash flows of a recognized asset or liability, or of a forecasted transaction, that is attributable to a particular risk (cash flow hedge); or A hedge of the foreign currency exposure of a net investment in a foreign operation (net investment hedge). We document at the inception of the transaction the relationship between hedging instruments and hedged items, as well as our risk management objectives and strategy for undertaking various hedging transactions. We also document our assessment, both at hedge inception and on an ongoing basis, of whether derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Fair value hedge Changes in the fair value of a derivative financial instrument that is designated and qualified as a fair value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk, are recorded in the consolidated statements of operations. Hedge accounting is discontinued when we revoke the hedging relationship, the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged item arising from the hedged risk is amortized to the consolidated statement of operations from that date. Interest rate swaps that are being used to hedge the fair value of fixed loan coupons payable are designated as fair value hedges. The change in fair value is intended to offset the change in the fair value of the underlying fixed loan coupons, which is recorded accordingly. The gain or loss relating to the ineffective portion of interest rate swaps hedging fixed loan coupons payable is recognized in the consolidated statements of operations as interest income or interest expense. Cash flow hedge Changes in the fair value of a derivative that is designated and qualified as a cash flow hedge are recorded in other comprehensive income, net of taxes, until the underlying hedged transaction is recognized in the consolidated statements of operations. In the event that the underlying hedge transaction will not occur within the specified time period, the gain or loss on the related cash flow hedge is released from other comprehensive income and included in the consolidated statements of operations, unless, extenuating circumstances exist that are related to the nature of the forecasted transaction and are outside our control or influence and which cause the forecasted transaction to be probable of occurring on a date that is beyond the specified time period. Foreign currency hedging instruments that are being used to hedge cash flows related to forecasted sales or purchase transactions in non-functional currencies are designated as cash flow hedges. The gain or loss relating to the ineffective portion of the foreign currency hedging instruments is recognized in the consolidated statements of operations in sales or cost of sales. Interest rate swaps that are being used to hedge changes in the variability of future interest cash flows to certain of our operating lease obligations are designated as cash flow hedges. The changes in fair value of the derivatives are intended to offset changes in future interest cash flows of such operating lease obligations. The gain or loss relating to the ineffective portion of interest rate swaps hedging the variability of future interest cash flows is recognized in the consolidated statements of operations as interest income or interest expense. Net investment hedge Foreign currency hedging instruments that are being used to hedge changes in the value of a net investment are designated as net investment hedges. Changes in the fair value of a derivative that is designated and qualifies as a net investment hedge are recorded in other comprehensive income, net of taxes. The gain or loss relating to the ineffective portion is recognized in the consolidated statements of operations as interest income or interest expense. Gains and losses accumulated in other comprehensive income are recognized in the consolidated statements of operations when the foreign operation is (partially) disposed or sold. ASML ANNUAL REPORT 2012 F-7

93 Cash and cash equivalents Cash and cash equivalents consist primarily of highly liquid investments, such as bank deposits, money market funds and interest-bearing bank accounts with insignificant interest rate risk and remaining maturities of three months or less at the date of acquisition. Short-term investments Investments with remaining maturities longer than three months and less than one year at the date of acquisition are presented as short-term investments. The short-term investments are classified as available-for-sale securities and are stated at fair value. Gains and losses, other than impairments, interest income and foreign exchange results, are recognized in comprehensive income until the short-term investments are derecognized. Upon derecognition, the cumulative gain or loss recognized in comprehensive income, is recognized in the consolidated statement of operations. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market value. Cost includes net prices paid for materials purchased, charges for freight and customs duties, production labor cost and factory overhead. Allowances are made for slow-moving, obsolete or unsellable inventory. Allowances for inventory are determined based on the expected demand which is derived from sales forecasts as well as the expected market value of the inventory. Intangible assets Goodwill Goodwill represents the excess of the costs of an acquisition over the fair value of the amounts assigned to assets acquired and liabilities incurred or assumed of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is allocated to reporting units for the purpose of impairment testing. The allocation is made to those reporting units that are expected to benefit from the business combination in which the goodwill arose. Goodwill is tested for impairment annually on September 30 and whenever events or changes in circumstances indicate that the carrying amount of the goodwill may not be recoverable. Goodwill is stated at cost less accumulated impairment losses. Other intangible assets Other intangible assets include acquired intellectual property rights, developed technology, customer relationships and other intangible assets. Other intangible assets are stated at cost, less accumulated amortization and any accumulated impairment losses. Amortization is calculated using the straight-line method based on the estimated useful lives of the assets. The following table presents the estimated useful lives of ASML s other intangible assets: Category Intellectual property Developed technology Customer relationships Other Estimated useful life 3-10 years 6 years 8 years 2-6 years Property, plant and equipment Property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses. Costs of assets manufactured by ASML include direct manufacturing costs, production overhead and interest costs incurred for qualifying assets during the construction period. Depreciation is calculated using the straight-line method based on the estimated useful lives of the related assets. In the case of leasehold improvements, the estimated useful lives of the related assets do not exceed the remaining term of the corresponding lease. The following table presents the estimated useful lives of ASML s property, plant and equipment: Category Buildings and constructions Machinery and equipment Leasehold improvements Furniture, fixtures and other equipment Estimated useful life 5-40 years 2-5 years 5-10 years 3-5 years Land is not depreciated. Certain internal and external costs associated with the purchase and/or development of internally used software are capitalized when both the preliminary project stage is completed and management has authorized further funding for ASML ANNUAL REPORT 2012 F-8

94 the project, which it has deemed probable to be completed and to be usable for the intended function. These costs are depreciated on a straight-line basis over the period of related benefit, which ranges primarily from three to five years. Evaluation of long-lived assets for impairment Long-lived assets include goodwill, other intangible assets and property, plant and equipment. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (September 30) and whenever events or changes in circumstances indicate that the carrying amount of the goodwill may not be recoverable. The test is based on a two-step approach. First, the recoverability is tested by comparing the carrying amount of the reporting unit (including goodwill allocated to such unit) with the fair value of that reporting unit. If the carrying amount of the reporting unit is higher than the fair value of the reporting unit, the second step should be performed. In the second step the goodwill impairment is measured as the excess of the carrying amount of the goodwill over its implied fair value. The implied fair value of goodwill is determined by calculating the fair value of the various assets and liabilities included in the reporting unit in the same manner as goodwill is determined in a business combination. Other intangible assets and property, plant and equipment are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. Other intangible assets and property, plant and equipment are tested for impairment based on a two-step approach. First, the recoverability is tested by comparing the carrying amount of the other intangible assets and property, plant and equipment with the fair value being the sum of the related undiscounted future cash flows. Second, if the carrying amount of the other intangible assets and property, plant and equipment is higher than the fair value the assets are considered to be impaired. An impairment expense is recognized as the difference between the carrying amount and the fair value of the other intangible assets and property, plant and equipment. Provisions Provisions for lease contract termination costs are recognized when costs will continue to be incurred under a contract for its remaining term without economic benefit to us and we cease using the rights conveyed by the contract. The provisions are measured at fair value which for an operating lease contract is determined based on the remaining lease payments reduced by the estimated sublease payments that could be reasonably obtained. Revenue recognition ASML recognizes revenue when all four revenue recognition criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; seller s price to buyer is fixed or determinable; and collectability is reasonably assured. At ASML this policy generally results in revenue recognition from the sale of a system upon shipment. The revenue from the installation of a system is generally recognized upon completion of that installation at the customer site. Each system undergoes, prior to shipment, a Factory Acceptance Test in ASML s clean room facilities, effectively replicating the operating conditions that will be present on the customer s site, in order to verify whether the system will meet its standard specifications and any additional technical and performance criteria agreed with the customer, if any. A system is shipped, and revenue is recognized, only after all specifications are met and customer sign-off is received or waived. In case not all specifications are met and the remaining performance obligation is not essential to the functionality of the system but is substantive rather than inconsequential or perfunctory, a portion of the sales price is deferred. Although each system s performance is re-tested upon installation at the customer s site, ASML has never failed to successfully complete installation of a system at a customer s premises. In connection with the introduction of new technology, such as our second-generation EUV systems (NXE:3100), we initially defer revenue recognition until completion of installation and acceptance of the new technology based system at customer premises. As our systems are based largely on two product platforms that permit incremental, modular upgrades, the introduction of genuinely new technology occurs infrequently, and in the past 12 years, has occurred on only two occasions: 2010 (EUV) and 1999 (TWINSCAN). In 2012, we recognized system sales revenue for one NXE:3100 system (2011: three NXE:3100 systems; 2010: no NXE:3100 systems) that was installed at the customer location and was accepted by our customer, for an amount of 43.7 million (2011: million and 2010: nil). As of December 31, 2012, no amounts were deferred in relation to NXE:3100 systems (2011: 48.6 million and 2010: 38.5 million). ASML has no significant repurchase commitments in its general sales terms and conditions. From time to time we repurchase systems that we have manufactured and sold and, following refurbishment, resell those systems to other customers. This repurchase decision is driven by market demand expressed by other customers and not by explicit or implicit contractual arrangements relating to the initial sale. We consider reasonable offers from any vendor, including customers, to repurchase used systems so that we can refurbish, resell, and install these systems as part of our ASML ANNUAL REPORT 2012 F-9

95 normal business operations. Once repurchased, the repurchase price of the used system is recorded in work-in-process inventory during the period it is being refurbished, following which the refurbished system is reflected in finished products inventory until it is sold to the customer. As of December 31, 2012 and 2011 ASML had no repurchase commitments. We offer customers discounts in the normal course of sales negotiations. These discounts are directly deducted from the gross sales price at the moment of revenue recognition. From time to time, we offer volume discounts to certain customers. In some instances these volume discounts can be used to purchase field options (system enhancements). The related amount is recorded as a reduction in revenue at time of shipment. From time to time, we offer free or discounted products or services (award credits) to our customers as part of a volume purchase agreement. The sales transaction that gives rise to these award credits is accounted for as a multiple element revenue transaction as the agreements involve the delivery of multiple products. The consideration received from the sales transaction is allocated between the award credits and the other elements of the sales transaction. The consideration allocated to the award credits is recognized as deferred revenue until award credits are delivered to the customer. The amount allocable to a delivered item is limited to the amount that is not contingent upon the delivery of additional items or meeting other specified performance conditions (the non-contingent amount). Revenues are recognized excluding the taxes levied on revenues (net basis). In the event that an arrangement with a customer becomes onerous, we recognize a liability for the amount that the cost of settling the arrangement exceeds the amount of the contract price. When we satisfy the onerous arrangement, we derecognize the related liability. Multiple element arrangements The main portion of ASML s revenue is derived from contractual arrangements with our customers that have multiple deliverables, which mainly include the sale of our systems, installation and training services and prepaid extended and enhanced (optic) warranty contracts. As of January 1, 2011, ASML adopted Accounting Standards Update ( ASU ) , Revenue Arrangements with Multiple Deliverables which amended the guidance on arrangements with multiple deliverables in ASC The new standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable to be based on the relative selling price. We apply this accounting guidance prospectively to arrangements originating or materially modified on or after January 1, The implementation resulted in additional qualitative disclosures that are included below, but did not result in additional units of accounting and only had an insignificant impact on timing and allocation of revenues. Each element in the arrangement is accounted for as a separate unit of accounting provided the following criteria are met: the delivered products or services have value to the customer on a standalone basis; and for an arrangement that includes a general right of return relative to the delivered products or services, delivery or performance of the undelivered product or service is considered probable and is substantially controlled by us. We consider a deliverable to have stand-alone value if the product or service is sold separately by us or another vendor or could be resold by the customer. Further, our revenue arrangements do not include a general right of return relative to the delivered products. Where the aforementioned criteria for a separate unit of accounting are not met, the deliverable is combined with the undelivered element(s) and treated as a single unit of accounting for the purposes of allocation of the arrangement consideration and revenue recognition. The hierarchy of evidence to determine a selling price in ASC is as follows: Vendor-Specific Objective Evidence ( VSOE ) the price at which we sell the element in a separate standalone transaction; Third-Party Evidence ( TPE ) evidence from us or other companies of the value of a largely interchangeable element in a transaction; Best Estimate of Selling Price ( BESP ) our best estimate of the selling price of an element in the transaction. To determine the selling price in multiple elements arrangements, we establish VSOE of the selling price for installation and training services and prepaid extended and enhanced (optic) warranty contracts. VSOE is determined based on the prices that ASML charges for installation and comparable services (such as relocating a system to another customer site) and prepaid extended and enhanced (optic) warranty contracts on a stand-alone basis, which are subject to normal price negotiations. Revenue from installation and training services is recognized when the services are completed. Revenue from prepaid extended and enhanced (optic) warranty contracts is recognized over the term of the contract. When we are unable to establish the selling price using VSOE or TPE, we use BESP. The objective of using estimated selling price-based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. Accordingly, we determine BESP considering several internal and external factors ASML ANNUAL REPORT 2012 F-10

96 including, but not limited to, pricing practices, gross margin objectives, market conditions, competitive environment, internal costs and geographies. We review selling prices every reporting period and maintain internal controls over the establishment and updates of these estimates. For arrangements entered into through December 31, 2010, we primarily recognize revenue based on the previous guidance of ASC The revenue relating to the installation and training services and prepaid extended and enhanced (optic) warranty contracts is deferred at their fair value until delivery of these elements. As we are not able to determine the fair value for the system, but we are able to determine the fair value for all other elements in the arrangement, revenue is allocated as the difference between the total arrangement consideration less the aggregate fair value of all other elements in the arrangement, and no revenue is recognized until all elements without fair value have been delivered. Lease arrangements A lease is classified as a sales-type lease if any of the following lease classification criteria are met at its inception: 1. The lease transfers ownership of the property to the lessee by the end of the lease term; 2. The lease contains a bargain purchase option; 3. The lease term is equal to 75 percent or more of the estimated economic life of the leased property; and 4. The present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor. In addition revenue is recognized at commencement of the lease term. The present value of the lease payments is recognized as a finance receivable. The difference between the gross receivable and the present value of the receivable is recognized as unearned interest in the consolidated statements of operations. A lease is classified as an operating lease if the lease classification criteria (as described above) are not met. If ASML has offered its customers an operating lease arrangement, the contract consideration is recognized in the consolidated statements of operations on a straight-line basis over the period of the lease. Warranty We provide standard warranty coverage on our systems for 12 months and on certain optic parts for 60 months, providing labor and parts necessary to repair systems and optic parts during the warranty period. The estimated warranty costs are accounted for by accruing these costs for each system upon recognition of the system sale. The estimated warranty costs are based on historical product performance and field expenses. Based upon historical service records, we calculate the charge of average service hours and parts per system to determine the estimated warranty costs. On a semi-annual basis, we assess, and update if necessary, our accounting estimates used to calculate the standard warranty reserve based on the latest actual historical warranty costs and expected future warranty costs. The extended and enhanced (optic) warranty on our system is accounted for as a separate element of multiple element revenue recognition transactions. Accounting for shipping and handling fees and costs ASML bills the customer for, and recognizes as revenue, any charges for shipping and handling costs. The related costs are recognized as cost of sales. Cost of sales Cost of system sales comprise direct product costs such as materials, labor, cost of warranty, depreciation, shipping and handling costs and related overhead costs. ASML accrues for the estimated cost of the warranty on its systems, which includes the cost of labor and parts necessary to repair systems during the warranty period. The amounts recorded in the accrued warranty reserve are estimated based on actual historical expenses incurred and on estimated probable future expenses related to current sales. Actual warranty costs are charged against the accrued warranty reserve. Costs of service sales comprise direct service costs such as materials, labor, depreciation and overhead costs. Cost of field option sales comprise direct product costs such as materials, labor, cost of warranty, depreciation, shipping and handling costs and related overhead costs. ASML ANNUAL REPORT 2012 F-11

97 Research and development costs and credits Costs relating to research and development ( R&D ) are charged to operating expenses as incurred. ASML receives subsidies and other credits from several Dutch and international (inter-)governmental institutes. These subsidies and other governmental credits that cover R&D costs relating to approved projects are recorded as R&D credits in the R&D line in the consolidated statements of operations in the period in which such costs occur. Share-based payments The cost of employee services received (compensation expenses) in exchange for awards of equity instruments are recognized based upon the grant-date fair value of stock options and shares. The grant-date fair value of stock options is estimated using a Black-Scholes option valuation model. This Black-Scholes model requires the use of assumptions, including expected share price volatility, the estimated life of each award and the estimated dividend yield. The risk-free interest rate used in the model is determined, based on an index populated with euro-denominated European government agency bond with AAA ratings, and with a life equal to the expected life of the equitysettled share-based payments. The grant-date fair value of shares is determined based on the closing price of our ordinary shares on NYSE Euronext Amsterdam on the grant-date. The grant-date fair value of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on our estimate of equity instruments that will eventually vest. At each balance sheet date, we revise our estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in the consolidated statements of operations in the period in which the revision is determined, with a corresponding adjustment to shareholders equity. Our current share-based payment plans do not provide for cash settlement of options and stock. Income taxes The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the tax effect of incurred net operating losses and for tax consequences attributable to differences between the balance sheet carrying amounts of existing assets and liabilities and their respective tax bases. If it is more likely than not that the carrying amounts of deferred tax assets will not be realized, a valuation allowance is recorded to reduce the carrying amounts of those assets. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date. On January 1, 2007 we adopted the provisions of FIN 48 Accounting for Uncertainty in Income Taxes after codification included in ASC 740. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. ASC 740 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Contingencies and litigation We are party to various legal proceedings generally incidental to our business, as disclosed in Note 18. In connection with these proceedings and claims, our management evaluated, based on the relevant facts and legal principles, the likelihood of an unfavorable outcome and whether the amount of the loss could be reasonably estimated. In most cases, management determined that either a loss was not probable or was not reasonably estimable. Significant subjective judgments were required in these evaluations, including judgments regarding the validity of asserted claims and the likely outcome of legal and administrative proceedings. The outcome of these proceedings, however, is subject to a number of factors beyond our control, most notably the uncertainty associated with predicting decisions by courts and administrative agencies. In addition, estimates of the potential costs associated with legal and administrative proceedings frequently cannot be subjected to any sensitivity analysis, as damage estimates or settlement offers by claimants may bear little or no relation to the eventual outcome. Finally, in any particular proceeding, we may agree to settle or to terminate a claim or proceeding in which we believe that it would ultimately prevail where we believe that doing so, when taken together with other relevant commercial considerations, is more cost-effective than engaging in an expensive and protracted litigation, the outcome of which is uncertain. We accrue for legal costs related to litigation in our consolidated statements of operations at the time when the related legal services are actually provided. ASML ANNUAL REPORT 2012 F-12

98 Net income per ordinary share Basic net income per ordinary share is calculated by dividing net income by the weighted average number of ordinary shares outstanding for that period. The dilutive effect is calculated using the treasury stock method. Excluded from the diluted weighted average number of shares outstanding calculation are cumulative preference shares contingently issuable to the preference share foundation, since they represent a different class of stock than the ordinary shares. See Note 26 for further discussion. The basic and diluted net income per ordinary share has been calculated in accordance with the following schedule: Year ended December 31 (in thousands, except per share data) Net income 1,146,316 1,466,960 1,021,820 Weighted average number of shares outstanding during the year (after deduction of treasury stock) 424, , ,146 Basic net income per ordinary share Weighted average number of shares: 424, , ,146 Plus shares applicable to: Options and conditional shares 1 2,890 3,435 3,828 Dilutive potential ordinary shares 2,890 3,435 3,828 Adjusted weighted average number of shares 426, , ,974 Diluted net income per ordinary share The calculation of diluted net income per ordinary share assumes the exercise of options issued under ASML stock option plans and the issuance of shares under ASML share plans for periods in which exercises or issuances would have a dilutive effect. The calculation of diluted net income per ordinary share does not assume exercise of such options or issuance of shares when such exercises or issuance would be anti-dilutive. Comprehensive income Comprehensive income consists of net income (loss) and other comprehensive income. Other comprehensive income refers to revenues, expenses, gains and losses that are not included in net income (loss), but recorded directly in shareholders equity. For the year ending December 31, 2012, comprehensive income consists of net income, unrealized gains and losses on financial instruments, being available-for-sale securities and derivative financial instruments designated for hedge accounting, net of taxes, and unrealized gains and losses on foreign currency translation, net of taxes. For the years ended December 31, 2011 and 2010 comprehensive income consists of net income, unrealized gains and losses on financial instruments, being derivative financial instruments designated for hedge accounting, net of taxes, and unrealized gains and losses on foreign currency translation, net of taxes. New U.S. GAAP Accounting Pronouncements In June 2011, the FASB issued ASU No , Comprehensive Income (Topic 220). Under the ASU, an entity has the option to present comprehensive income in either one continuous statement or two consecutive financial statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income ( OCI ) along with a total for OCI and a total amount for comprehensive income. The option under current guidance which permits the presentation of components of OCI as part of the statement of changes in shareholders equity has been eliminated. In December 2011, the FASB issued ASU which indefinitely defers certain provisions of ASU , the main deferred provision relating to a requirement for entities to present reclassification adjustments out of accumulated OCI by component in both the statements in which net income is presented and the statement in which OCI in any period is presented. The ASU is effective for annual and interim periods beginning after December 15, We have early adopted this standard; adoption had no impact on our consolidated financial statements. In December 2011, the Financial Accounting Standards Board ( FASB ) issued ASU No Disclosures about Offsetting Assets and Liabilities. Under the new guidance, the entities must disclose both gross information and net information about both instruments and transactions eligible for offset on the balance sheet in accordance with the offsetting guidance in ASC or ASC , and instruments and transactions subject to an agreement similar to a master netting arrangement. The new guidance will be effective for us beginning January 1, Other than ASML ANNUAL REPORT 2012 F-13

99 requiring some additional disclosures, we do not anticipate material impacts on our consolidated financial statements upon adoption. In July 2012, the FASB issued ASU No Testing Indefinite-Lived Intangible Assets for Impairment. This ASU amends the guidance in ASC on testing indefinite-lived intangible assets, other than goodwill, for impairment. The FASB issued the ASU in response to feedback on ASU , which amended the goodwill impairment testing requirements by allowing an entity to perform a qualitative impairment assessment before proceeding to the two-step impairment test. The new guidance will be effective for annual and interim impairment tests performed for fiscal years beginning after September 15, The ASU will not have any effect on our consolidated financial statements. In October 2012, the FASB issued ASU No Technical Corrections and Improvements. This ASU makes certain technical corrections (i.e., relatively minor corrections and clarifications) and conforming fair value amendments to the FASB Accounting Standards Codification (the Codification ). The new guidance will be effective for fiscal years beginning after December 15, We do not anticipate material impacts on our consolidated financial statements upon adoption. 2. Fair value measurements Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement hierarchy prioritizes the inputs to valuation techniques used to measure fair value as follows: Level 1: Valuations based on inputs such as quoted prices for identical assets or liabilities in active markets that the entity has the ability to access. Level 2: Valuations based on inputs other than level 1 inputs such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. Level 3: Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). A financial instrument s fair value classification is based on the lowest level of any input that is significant in the fair value measurement hierarchy. Financial assets and financial liabilities measured at fair value on a recurring basis Investments in money market funds (as part of our cash and cash equivalents) have fair value measurements which are all based on quoted prices for identical assets or liabilities. Our available-for sale financial instruments consist of Dutch Treasury Certificates and deposits with the Dutch government. Dutch Treasury Certificates are traded in an active market and the fair value is determined based on quoted market prices for identical assets or liabilities. The fair value of deposits is determined with reference to quoted market prices for similar assets or discounted cash flow analysis. The principal market in which we execute our derivative contracts is the institutional market in an over-the-counter environment with a high level of price transparency. The market participants usually are large commercial banks. The valuation inputs for our derivative contracts are based on quoted prices and quoting pricing intervals from public data sources; they do not involve management judgement. The valuation technique used to determine the fair value of forward foreign exchange contracts (used for hedging purposes) approximates the Net Present Value technique ( NPV ) which is the estimated amount that a bank would receive or pay to terminate the forward foreign exchange contracts at the reporting date, taking into account current interest rates and current exchange rates. The valuation technique used to determine the fair value of interest rate swaps (used for hedging purposes) is the Net Present Value technique, which is the estimated amount that a bank would receive or pay to terminate the swap agreements at the reporting date, taking into account current interest rates. Our 5.75 percent senior notes due 2017 ( Eurobond ) serve as a hedged item in a fair value hedge relationship in which we hedge the variability of changes in the fair value of our Eurobond due to changes in market interest rates with interest rate swaps. The fair value changes of these interest rate swaps are recorded on the balance sheet under derivative financial instruments (within other current assets and other non-current assets) and the carrying amount of the ASML ANNUAL REPORT 2012 F-14

100 Eurobond is adjusted for these fair value changes only. For the actual fair value, including credit risk considerations, see Note 14. The following table presents our financial assets and financial liabilities that are measured at fair value on a recurring basis: As of December 31, 2012 (in thousands) Level 1 Level 2 Level 3 Total Assets Derivative financial instruments 1-151, ,748 Money market funds 2 385, ,420 Short-term investments 3 279, , ,005 Total 665, ,765-1,467,173 Liabilities Long-term debt 4-759, ,490 Derivative financial instruments 1-10,893-10,893 Total - 770, ,383 As of December 31, 2011 (in thousands) Level 1 Level 2 Level 3 Total Assets Derivative financial instruments 1-126, ,351 Money market funds 2 369, ,238 Total 369, , ,589 Liabilities Long-term debt 4-736, ,368 Derivative financial instruments 1-40,359-40,359 Total - 776, ,727 1 Derivative financial instruments consist of forward foreign exchange contracts and interest rate swaps. See Note 3. 2 Money market funds are part of our cash and cash equivalents. 3 Short-term investments consist of Dutch Treasury Certificates and deposits with the Dutch government. 4 Long-term debt mainly relates to our million Eurobond (fair value as at December 31, 2012: million (2011: million)) and excludes accrued interest. For further details see Note 14. There were no transfers between levels during the years ended December 31, 2012 and December 31, Assets and liabilities measured at fair value on a nonrecurring basis In 2012, we recognized impairment charges of 3.2 million (2011: 12.3 million; 2010: 8.6 million) on our property, plant and equipment, mainly relating to furniture, fixture and other equipment. Valuation of these assets is classified as Level 3 in the fair value hierarchy since their fair values were determined based on unobservable inputs. The impairment charge is determined based on the difference between the assets estimated fair value (being 0.1 million) and their carrying amount. For further information, see Note 11. We did not recognize any impairment charges for goodwill and other intangible assets during See Notes 9 and 10 for more information. 3. Financial risk management We are exposed to certain financial risks such as market risk (including foreign currency exchange risk and interest rate risk), credit risk, liquidity risk and capital risk. The overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potentially adverse effects on our financial performance. We use derivative financial instruments to hedge certain risk exposures. None of our transactions are entered into for trading or speculative purposes. We believe that market information is the most reliable and transparent measure for our derivative financial instruments that are measured at fair value. Foreign currency risk management Our sales are predominately denominated in euros. Exceptions may occur on a customer by customer basis. Our cost of sales and other expenses are mainly denominated in euros, to a certain extent in U.S. dollar and Japanese yen and to a limited extent in other currencies. Therefore, we are exposed to foreign currency exchange risk. ASML ANNUAL REPORT 2012 F-15

101 It is our policy to hedge material transaction exposures, such as forecasted sales and purchase transactions, and material net remeasurement exposures, such as accounts receivable and payable. We hedge these exposures through the use of foreign exchange contracts. As of December 31, 2012, accumulated other comprehensive income includes 4.9 million gain (net of taxes: 4.3 million gain; 2011: 4.4 million loss) representing the total anticipated gain to be released to sales, and 6.0 million loss (net of taxes: 5.3 million loss; 2011: 10.3 million gain) to be charged to cost of sales, which will offset the equivalent of foreign currency denominated forecasted sales and purchase transactions. All amounts are expected to be released over the next 12 months. The effectiveness of all contracts for which we apply hedge accounting is monitored on a quarterly basis throughout the life of the hedges. During 2012, no ineffective hedge relationships were recognized (2011: loss of 0.2 million related to sales transactions). Interest rate risk management We have interest-bearing assets and liabilities that expose us to fluctuations in market interest rates. We use interest rate swaps to align the interest-typical terms of interestbearing liabilities with the interest-typical terms of interest-bearing assets. There may be residual interest rate risk to the extent the asset and liability positions do not fully offset. As part of our hedging policy, we use interest rate swaps to hedge changes in fair value of our Eurobond due to changes in market interest rates, thereby offsetting the variability of future interest receipts on part of our cash and cash equivalents. During 2012, the hedge was 100 percent effective in hedging the fair value exposure to interest rate movements. The changes in fair value of the Eurobond were included at the same time in the consolidated statement of operations as the changes in the fair value of the interest rate swaps. Furthermore, as part of our hedging policy, we use interest rate swaps to hedge the variability of future interest cash flows relating to certain of our operating lease obligations. During 2012, these hedges were 100 percent effective in hedging the cash flow exposure to interest rate movements. Financial instruments We use foreign exchange contracts to manage our currency risk and interest rate swaps to manage our interest rate risk. The following table summarizes the notional amounts and estimated fair values of our financial instruments: As of December 31 (in thousands) 2012 Notional amount Fair Value 2011 Notional amount Fair Value Forward foreign exchange contracts 1 262,146 16, ,579 (23,999) Interest rate swaps 2 624, , , ,991 1 Relates to forward contracts assigned as a hedge to forecasted sales and purchase transactions and to monetary assets and liabilities, mainly in U.S. dollar and Japanese Yen. 2 Relates to interest rate swaps assigned as a hedge to interest bearing assets and liabilities, mainly related to the Eurobond; the fair value of the interest rate swaps includes accrued interest. The following table summarizes our derivative financial instruments per category: As of December 31 (in thousands) Assets Liabilities Assets Liabilities Interest rate swaps - cash flow hedges - 4,780-3,933 Interest rate swaps - fair value hedges 128, ,924 - Forward foreign exchange contracts - cash flow hedges 5,975 5,688 11,332 3,019 Forward foreign exchange contracts - other hedges (no hedge accounting) 16, ,095 33,407 Total 151,748 10, ,351 40,359 Less non-current portion: Interest rate swaps - cash flow hedges - 4,032-3,210 Interest rate swaps - fair value hedges 101,651-92,534 - Total non-current portion 101,651 4,032 92,534 3,210 Total current portion 50,097 6,861 33,817 37,149 The fair value part of a hedging derivative that has a remaining term of 12 months or less after balance sheet date is classified as current asset or liability. When the fair value part of a hedging derivative has a term of more than 12 months after balance sheet date, it is classified as non-current. The current portion of derivative financial instruments is included ASML ANNUAL REPORT 2012 F-16

102 in respectively other current assets and current accrued and other liabilities in the balance sheet. The non-current portion of derivative financial instruments is included in, respectively, other non-current assets and non-current accrued and other liabilities in the balance sheet. For further information regarding our derivative financial instruments, see Notes 1, 2, 8 and 12. Foreign exchange contracts The notional principal amounts of the outstanding forward foreign exchange contracts in the main currencies U.S. dollar and Japanese yen at December 31, 2012 are U.S. dollar million and Japanese yen 8.4 billion (2011: U.S. dollar 48.9 million and Japanese yen 37.2 billion). The hedged highly probable forecasted transactions denominated in foreign currency are expected to occur at various dates during the coming 12 months. Gains and losses recognized in other comprehensive income on forward foreign exchange contracts as of December 31, 2012 will be recognized in the consolidated statements of operations in the period or periods during which the hedged forecasted transactions affect the consolidated statements of operations. In 2012, we recognized a net amount of 8.7 million gain (2011: 58.1 million loss; 2010: 43.5 million loss) in the consolidated statements of operations resulting from effective cash flow hedges for forecasted sales and purchase transactions that occurred in the year. Furthermore, we recognized an amount of 3.0 million gain in the consolidated statements of operations resulting from derivative financial instruments measured at fair value through profit or loss (2011: 38.3 million loss; 2010: 32.9 million loss). Interest rate swaps The notional principal amounts of the outstanding interest rate swap contracts as of December 31, 2012 were million (2011: million). Credit risk management Financial instruments that potentially subject us to significant concentration of credit risk consist principally of cash and cash equivalents, short-term investments, derivative financial instruments used for hedging activities, accounts receivable and finance receivables. Cash and cash equivalents, short-term investments and derivative financial instruments contain an element of risk of the counterparties being unable to meet their obligations. Our risk management program focuses appropriately on the current environment of uncertainty in the financial markets, especially in the euro-zone. We invest our cash and cash equivalents and short-term investments in short-term deposits with high-rated financial institutions and the Dutch government, in Dutch Treasury Certificates and in AAAm-rated money market funds that invest in high-rated short-term debt securities of financial institutions and governments. To mitigate the risk that any of our counterparties in hedging transactions is unable to meet its obligations, We only enter into transactions with a limited number of major financial institutions that have high credit ratings and closely monitor the creditworthiness of our counterparties. Concentration risk is mitigated by limiting the exposure to a single counterparty. Our customers consist of Integrated Circuit ( IC ) manufacturers located throughout the world. We perform ongoing credit evaluations of our customers financial condition. We take additional measures to mitigate credit risk when considered appropriate by means of e.g. down payments, letters of credit, and retention of ownership provisions in contracts. Retention of ownership enables us to recover the systems in the event a customer defaults on payment. Liquidity risk management Our liquidity needs are affected by many factors, some of which are based on the normal on-going operations of the business, and others that relate to the uncertainties of the global economy and the semiconductor industry. Although our cash requirements fluctuate based on the timing and extent of these factors, we believe that cash generated from operations, together with the liquidity provided by existing cash and cash equivalents and short-term investments and our borrowing capability are sufficient to satisfy our current requirements, including our 2013 capital expenditures. We intend to return cash to our shareholders on a regular basis in the form of dividend payments and, subject to our actual and anticipated liquidity requirements and other relevant factors, share buybacks or capital repayment. ASML ANNUAL REPORT 2012 F-17

103 4. Cash and cash equivalents and short-term investments Cash and cash equivalents at December 31, 2012 include deposits with high-rated financial institutions and the Dutch government of million (2011: 1,818.6 million), investments in AAAm-rated money market funds that invest in high-rated debt securities of financial institutions and governments of million (2011: million) and interest-bearing bank accounts of million (2011: million). Our cash and cash equivalents are predominantly denominated in euros and partly in US dollars. Cash and cash equivalents have insignificant interest rate risk and remaining maturities of three months or less at the date of acquisition. No restrictions on usage of cash and cash equivalents exist. The carrying amount of these assets approximates their fair value. Short-term investments have insignificant interest rate risk and remaining maturities longer than three months but less than one year at the date of acquisition. Short-term investments (classified as available for sale securities) consist of the following: As of December 31, 2012 (in thousands) Cost basis Unrealized Gains Unrealized Losses Recorded Basis Dutch Treasury Certificates 279, ,988 Deposits 650, ,017 Total 930, ,005 We had no short-term investments as of December 31, Accounts receivable Accounts receivable consist of the following: As of December 31 (in thousands) Accounts receivable, gross 607, ,209 Allowance for doubtful receivables (2,071) (2,582) Accounts receivable, net 605, ,627 The carrying amount of the accounts receivable approximates the fair value. ASML performs ongoing credit evaluations on its customers financial condition. ASML periodically reviews whether an allowance for credit losses is needed by considering factors such as historical payment experience, credit quality, aging accounts receivables balances, and current economic conditions that may affect a customer s ability to pay. Movements of the allowance for doubtful receivables are as follows: Year ended December 31 (in thousands) Balance at beginning of year (2,582) (1,945) Addition for the year 1 (458) (849) Utilization of the provision Allowance for doubtful receivables (2,071) (2,582) 1 Addition for the year is recorded in cost of sales. ASML ANNUAL REPORT 2012 F-18

104 6. Finance receivables Finance receivables consist of the net investment in sales-type leases. The following table lists the components of the finance receivables as of December 31, 2012 and 2011: As of December 31 (in thousands) Finance receivables, gross 309,616 78,853 Unearned interest (5,828) - Finance receivables, net 303,788 78,853 Current portion of finance receivables, gross 268,617 78,853 Current portion of unearned interest (3,450) - Non-current portion of finance receivables, net 38,621 - The increase in finance receivables as of December 31, 2012 compared to December 31, 2011 is caused by an increased number of sales-type leases. At December 31, 2012, the finance receivables due for payment in each of the next five years and thereafter are as follows: (in thousands) , , , , ,301 Thereafter - Finance receivables, gross 309,616 ASML performs ongoing credit evaluations on its customers financial condition. ASML periodically reviews whether an allowance for credit losses is needed by considering factors such as historical payment experience, credit quality, aging finance receivable balances, and current economic conditions that may affect a customer s ability to pay. In 2012 and 2011, we did not record any expected credit losses from finance receivables. As of December 31, 2012 the finance receivables were neither past due nor impaired. 7. Inventories Inventories consist of the following: As of December 31 (in thousands) Raw materials 307, ,712 Work-in-process 1,074,042 1,026,872 Finished products 742, ,556 Inventories, gross 2,124,336 1,818,140 Allowance for obsolescence and/or lower market value (267,366) (193,513) Inventories, net 1,856,970 1,624,627 A summary of activity in the allowance for obsolescence and/or lower market value is as follows: Year ended December 31 (in thousands) Balance at beginning of year (193,513) (189,235) Addition for the year (130,911) (60,300) Effect of changes in exchange rates 1,009 (883) Utilization of the provision 56,049 56,905 Allowance for obsolescence and/or lower market value (267,366) (193,513) In 2012, the addition for the year is recorded in cost of sales for an amount of million and R&D costs for an amount of 5.7 million (2011: cost of sales 60.0 million and R&D costs for an amount of 0.3 million). Addition for the year mainly relates to write downs as result of technological developments and inventory parts which became obsolete and includes 43.5 million (2011: 17.0 million) with respect to lower of cost or market adjustments. ASML ANNUAL REPORT 2012 F-19

105 Utilization of the provision mainly relates to sale and scrap of obsolete inventories. In 2012 ASML made 2.3 million profit on the sale of inventories that had been previously written down (2011: 4.5 million). 8. Other assets Other current assets consist of the following: As of December 31 (in thousands) Advance payments to Zeiss 70,257 66,203 Prepaid expenses 64,708 56,300 Derivative financial instruments 50,097 33,817 VAT 25,215 47,543 Other receivables 35,728 34,232 Other current assets 246, ,095 Zeiss is our sole supplier of main optical systems (including lenses) and, from time to time, receives non-interest bearing advance payments from us that assist in financing Zeiss work-in-process and thereby secure lens and optical module deliveries to us. Amounts owed under these advance payments are repaid or settled through lens or EUV optical module deliveries over the following 12 months. Prepaid expenses include a tax prepayment on intercompany profit, not realized by the ASML group of 29.8 million as of December 31, 2012 (2011: 27.5 million). Derivative financial instruments consist of forward foreign exchange contracts and the current part of the aggregate fair value of interest rate swaps which includes accrued interest. Other non-current assets consist of the following: As of December 31 (in thousands) Advance payments to Zeiss 183, ,950 Derivative financial instruments 101,651 92,534 Compensation plan assets 1 12,080 10,577 Prepaid expenses 4,462 5,749 Subordinated loan granted to lessor in respect of Veldhoven headquarters 2 5,445 5,445 Other 4,875 4,996 Other non-current assets 311, ,251 1 For further details on compensation plan assets see Note For further details on the loan granted to lessor in respect of Veldhoven headquarters see Note 11. The non-current part of advance payments to Zeiss mainly relates to payments made to support the Zeiss investments in ASML s EUV program, which are expected to be repaid or settled through EUV optical module deliveries. Derivative financial instruments consist of the non-current part of the fair value of interest rate swaps. ASML ANNUAL REPORT 2012 F-20

106 9. Goodwill Changes in goodwill are summarized as follows: Year ended December 31 (in thousands) Cost Balance, January 1 146, ,286 Acquisition subsidiary 6,038 - Effect of changes in exchange rates (2,914) 4,758 Goodwill 149, ,044 Goodwill is tested for impairment annually on September 30 and whenever events or changes in circumstances indicate that the carrying amount of the goodwill may not be recoverable. Due to changes in our reporting structure, we have re-evaluated our reporting units during As result, all goodwill recognized in relation to the acquisition of Brion in 2007 is allocated to the operating segment ASML (in 2011 and 2010 assigned to the reporting unit Brion). Due to the re-evaluation of our reporting units, resulting in the recognized goodwill being allocated to the operating segment ASML, we also changed the recoverability testing of the annual impairment test. As a result, the fair value of the operating segment ASML is based on ASML s market capitalization, while the sum of discounted future cash flows relating to the reporting units was used in prior years. We believe that, as per September 30, 2012, ASML s market capitalization, determined on basis of the quoted share price of ASML s publicly traded outstanding shares, is the best evidence of the fair value of the operating segment ASML. Based on the recoverability testing during the annual goodwill impairment test, management believes that the fair value of the reporting unit substantially exceeded its carrying value, therefore goodwill was not impaired as of December 31, 2012 and December 31, Acquisition subsidiary relates to Wijdeven Motion Holding B.V. and its wholly-owned subsidiary Wijdeven Motion B.V. (hereafter jointly referred to as Wijdeven Motion ) acquired in the fourth quarter of Wijdeven Motion builds a portion of the complex linear motors used in ASML s wafer and reticle stages. Assets acquired and liabilities incurred, or assumed, following the acquisition have been assigned to the operating segment ASML. ASML ANNUAL REPORT 2012 F-21

107 10. Other intangible assets Other intangible assets consist of the following: I ntellectual property Developed technology Customer relationships In-process R&D (in thousands) Cost Balance, January 1, ,250 25,883 8,733 23,148 2, ,245 Balance, December 31, ,250 25,883 8,733 23,148 2, ,245 Additions 7, ,658 Balance, December 31, ,908 25,883 8,733 23,148 2, ,903 Accumulated amortization Balance, January 1, ,224 17,043 4,185 23,148 1,994 93,594 Amortization 4 4,080 1, ,285 Balance, December 31, ,228 21,123 5,277 23,148 2,103 98,879 Amortization 800 4,080 1, ,081 Balance, December 31, ,028 25,203 6,369 23,148 2, ,960 Other Carrying amount December 31, ,760 3, ,366 December 31, , , ,943 Total Intellectual property relates to licenses and patents purchased from third parties. During 2012, we acquired intellectual property from third parties for an amount of 7.7 million. Developed technology, customer relationships, in-process R&D and other were obtained in the acquisition of Brion. During 2012, we recorded amortization charges of 6.1 million (2011: 5.3 million; 2010: 5.5 million) which were recorded in cost of sales for 6.0 million (2011: 5.3 million; 2010: 5.5 million) and in R&D costs for 0.1 million (2011 and 2010: nil). During 2012, 2011 and 2010, we did not record any impairment charges for other intangible assets. As at December 31, 2012, estimated amortization expenses relating to other intangible assets for the next five years and thereafter are as follows: (in thousands) , , , , Thereafter - Amortization expenses 9,943 ASML ANNUAL REPORT 2012 F-22

108 11. Property, plant and equipment Property, plant and equipment consist of the following: Land, buildings and constructions Machinery and equipment Leasehold improvements Furniture, fixtures and other equipment (in thousands) Cost Balance, January 1, , , , ,244 1,637,987 Additions 213, ,358 20,918 29, ,103 Disposals - (212,286) (216) (1,619) (214,121) Effect of changes in exchange rates 1,773 11, ,040 14,834 Balance, December 31, , , , ,979 2,057,803 Additions 106, ,429 8,883 22, ,295 Disposals (347) (317,022) (300) (30,894) (348,563) Effect of changes in exchange rates (995) (4,671) (391) (59) (6,116) Balance, December 31, , , , ,775 2,089,419 Accumulated depreciation and impairment Balance, January 1, , , , , ,656 Depreciation 27,362 99,968 13,128 17, ,033 Impairment charges - 3,508 2,789 5,975 12,272 Disposals - (64,417) (41) (988) (65,446) Effect of changes in exchange rates 1,006 4, ,678 Balance, December 31, , , , ,741 1,004,193 Depreciation 31, ,571 13,416 23, ,253 Impairment charges ,679 3,234 Disposals (347) (92,205) (248) (30,575) (123,375) Effect of changes in exchange rates (505) (3,090) (165) (49) (3,809) Balance, December 31, , , , ,464 1,059,496 Carrying amount December 31, , ,223 60,885 44,238 1,053,610 December 31, , ,777 56,074 41,311 1,029,923 Total As of December 31, 2012, the carrying amount includes assets under construction for land, buildings and constructions of 5.5 million (2011: million), machinery and equipment of 21.8 million (2011: 16.6 million), leasehold improvements of 1.0 million (2011: 1.3 million) and furniture, fixtures and other equipment of 9.3 million (2011: 8.0 million). As of December 31, 2012, the carrying amount of land amounts to 60.7 million (2011: 51.1 million). The majority of the additions and disposals in 2012 and 2011 relate to machinery and equipment (including operating leases to customers, prototypes, evaluation and training systems). These systems are similar to those that ASML sells in its ordinary course of business. The systems are capitalized under property, plant and equipment because they are held for own use, for rental and for evaluation purposes. These systems are recorded at cost and depreciated over their expected useful life. From the time that these assets are no longer held by use but intended for sale in the ordinary course of business, they are reclassified from property, plant and equipment to inventory at the lower of their carrying value or fair market value. Since the transfers between inventory and property, plant and equipment are non-cash events, these are not reflected in the consolidated statements of cash flows. An amount of million (2011: million) of the additions relates to non-cash transfers from inventory and an amount of 9.6 million (2011: 17.7 million) relates to other non-cash movements (mainly investments not yet paid). An amount of million (2011: million) of the disposals relates to non-cash transfers to inventory. When sold, the proceeds and cost of these systems are recorded as net sales and cost of sales, respectively, identical to the treatment of other sales transactions. The cost of sales for these systems includes the inventory value and the additional costs of refurbishing (materials and labor). The impairment charges recorded in 2012 mainly related to furniture, fixture and other equipment ( 1.7 million). We recorded impairment charges with respect to software which are ceased to be used. The impairment charges were determined based on the difference between the assets estimated fair value (being 0.1 million) and their carrying amount. The impairment charges recorded in 2011 mainly related to machinery and equipment and furniture, fixture and other equipment ( 9.5 million). We recorded impairment charges with respect to technical equipment and software which ASML ANNUAL REPORT 2012 F-23

109 are ceased to be used. The impairment charges were determined based on the difference between the assets estimated fair value (being 1.9 million) and their carrying amount. The impairment charges recorded in 2010 mainly related to buildings and constructions ( 6.7 million). We recorded impairment charges with respect to several technical infrastructure items which are ceased to be used due to technical changes relating to NXE (EUV) development. The impairment charges were determined based on the difference between the assets estimated fair value (being 0.4 million) and their carrying amount. In determining the fair value of an asset, we make estimates about future cash flows. These estimates are based on our financial plan, updated with the latest available projections of the semiconductor market conditions and our sales and cost expectations, which is consistent with what ASML uses to manage its business. As of December 31, 2012, the carrying amount of machinery and equipment includes an amount of 82.2 million with respect to evaluation and operating lease systems (2011: million). During 2012, we recorded impairment charges of 3.2 million (2011: 12.3 million; 2010: 8.6 million) of which we recorded 1.0 million (2011: 6.2 million; 2010: 7.3 million) in cost of sales, 0.5 million (2011: 3.5 million; 2010: 0.7 million) in R&D costs and 1.7 million (2011: 2.6 million; 2010: 0.6 million) in SG&A costs. During 2012, we recorded depreciation charges of million (2011: million; 2010: million) of which we recorded million (2011: million; 2010: million) in cost of sales, 15.3 million ( million; 2010: 16.7 million) in R&D costs and 16.3 million (2011: 15.4 million; 2010: 19.2 million) in SG&A costs. Variable Interest Entity The carrying amount of land, buildings and constructions includes an amount of 32.4 million (2011: 33.8 million) relating to our headquarters in Veldhoven, the Netherlands, which is owned by Koppelenweg II B.V., a VIE. As of 2003, we are leasing the Veldhoven headquarters for a period of 15 years (from 2003) from an entity ( lessor ) that was incorporated by a syndicate of three banks ( VIE shareholders ) solely for the purpose of leasing this building. The lessor s shareholders equity amounts to 1.9 million and has not changed since The VIE shareholders each granted a loan of 11.6 million and a fourth bank granted a loan of 12.3 million ( 47.1 million in total) to the parent of the lessor. ASML provided the parent of the lessor with a subordinated loan of 5.4 million and has a purchase option that is exercisable either at the end of the lease in 2018, at a price of 24.5 million, or during the lease at a price equal to the book value of the assets. The total assets of the lessor entity amounted to 54.5 million at inception of the lease. The entity is determined to be a VIE because the equity investors do not have sufficient equity at risk for the legal entity to finance its activities without sufficient additional subordinated support. The primary purpose for which the VIE was created was to provide ASML with use of the building for 15 years, where ASML does not retain substantially all the risks and rewards from changes in value of the building. The main activities of the entity are to rent, re-market and ultimately sell the building that is owned by the VIE. The economic performance of the VIE is most significantly impacted by the ability of the lessee (ASML) to exercise the purchase option at any time during the lease term, and thus we could potentially benefit from increases in the fair value of the building. While the debt holders have a variable interest, and may absorb losses, and the equity holders have a variable interest and may receive benefits, they do not have the power to direct activities that most significantly impact the entity s economic performance and therefore, cannot be the primary beneficiary. Through the pre-determined price of the call option ASML has the power over the VIE, therefore only ASML meets both the power and losses/benefit criterion and consolidates the VIE. ASML ANNUAL REPORT 2012 F-24

110 12. Accrued and other liabilities Accrued and other liabilities consist of the following: As of December 31 (in thousands) Deferred revenue 739, ,045 Costs to be paid 278, ,651 Down payments from customers 1,033,768 1,057,046 Personnel related items 200, ,059 Derivative financial instruments 10,893 40,359 Standard warranty reserve 21,626 43,273 Other 1,352 2,313 Accrued and other liabilities 2,285,511 2,431,746 Less: non-current portion of accrued and other liabilities 1 405, ,099 Current portion of accrued and other liabilities 1,880,370 1,768,647 1 The main part of the non-current portion of accrued and other liabilities relates to down payments received from customers regarding future shipments of EUV systems. The decrease in accrued and other liabilities mainly relates to the decrease in deferred revenue, standard warranty reserve and derivative financial instruments. Deferred revenue mainly consists of prepaid extended and enhanced (optic) warranty contracts and award credits regarding free or discounted products or services. The decrease in deferred revenue is mainly caused by product deliveries in 2012 that were deferred as of December 31, 2011 including one NXE:3100 system of which revenues were deferred for an amount of 48.6 million as of December 31, The deferred revenue balance from extended and enhanced (optic) warranty contracts as of December 31, 2012, amounted to million (2011: million). The deferred revenue balance from installation and training services as of December 31, 2012 amounted to 4.0 million (2011: 1.8 million) and 12.4 million (2011: 11.9 million), respectively. Costs to be paid mainly relate to accrued cost for unbilled services provided by suppliers including contracted labor, outsourced services and consultancy. We receive advances from customers prior to shipment for systems included in ASML s current product portfolio or systems currently under development in the form of down payments. Personnel related items mainly consist of accrued management bonuses, accrued profit sharing, accrued vacation days, accrued vacation allowance, accrued wage tax, social securities and accrued pension premiums. Derivative financial instruments consist of foreign currency contracts and the aggregate fair value of interest rate swaps which includes accrued interest. Changes in standard warranty reserve for the years 2012 and 2011 are as follows: (in thousands) Balance, January 1 43,273 37,965 Additions of the year 35,735 61,279 Utilization of the reserve (33,746) (26,968) Release of the reserve (22,733) (29,415) Effect of exchange rates (903) 412 Standard warranty reserve 21,626 43,273 The release of the reserve is due to a change in accounting estimate based on lower than expected historical warranty expenses as a result of an improved learning-curve concerning ASML s systems. The release has been included in cost of sales. ASML ANNUAL REPORT 2012 F-25

111 13. Provisions The movement in the provision for lease contract termination costs is as follows: (in thousands) Balance, January 1 12,338 14,061 Utilization of the provision (2,545) (2,452) Unwinding of discount Effect of exchange rates (167) 308 Provision for lease contract termination costs 10,254 12,338 Less: current portion of provision for lease contract termination costs 2,280 2,326 Non-current portion of provision for lease contract termination costs 7,974 10, The provision for lease contract termination costs relates to an operating lease contract for a building for which no economic benefits are expected. The provision for lease contract termination costs is expected to be utilized by Long-term debt The long-term debt consists of the following: As of December 31 (in thousands) Eurobond, carrying amount 710, ,618 Loan headquarter building 1 32,366 33,795 Other 17,029 6,955 Long-term debt 759, ,368 Less: current portion of long-term debt 3,610 2,587 Non-current portion of long-term debt 755, ,781 1 This loan relates to our Variable Interest Entity, see Note 11. Our obligations to make principal repayments under the Eurobond and other borrowing arrangements excluding interest expense as of December 31, 2012, for the next five years and thereafter, are as follows: (in thousands) , , , , ,535 Thereafter 31,644 Long-term debt 649,394 Less: current portion of long-term debt 3,610 Non-current portion of long-term debt 645,784 Eurobond The following table summarizes the carrying amount of our outstanding Eurobond, including the fair value of interest rate swaps used to hedge the change in the fair value of the Eurobond: As of December 31 (in thousands) Principal amount 600, ,000 Fair value interest rate swaps 1 110,095 95,618 Carrying amount 710, ,618 1 The fair value of the interest rate swaps excludes accrued interest. In June 2007, we completed an offering of million principal amount of our 5.75 percent notes due 2017, with interest payable annually on June 13. The notes are redeemable at the option of ASML, in whole or in part, at any time by paying a make whole premium, and unless previously redeemed, will be redeemed at 100 percent of their principal amount on June 13, ASML ANNUAL REPORT 2012 F-26

112 The Eurobond serves as a hedged item in a fair value hedge relationship in which we hedge the variability of changes in the fair value of our Eurobond due to changes in market interest rates with interest rate swaps. The fair value changes of these interest rate swaps are recorded on the consolidated balance sheets under derivative financial instruments (within other current assets and other non-current assets) and the carrying amount of the Eurobond is adjusted for these fair value changes only. The following table summarizes amongst others the estimated fair value of the Eurobond: As of December 31 (in thousands) Principal amount 600, ,000 Carrying amount 710, ,618 Fair value 1 700, ,500 1 Source: Bloomberg Finance LP The fair value of our Eurobond is estimated based on quoted market prices as of December 31, The fair value of the Eurobond is higher than the principal amount as a result of lower market interest rates compared to the fixed 5.75% coupon rate of the Eurobond. 15. Lines of credit Our available credit facilities amount to million as of December 31, 2012 and as of December 31, The amount at December 31, 2012 consists of one million committed revolving credit facility from a group of banks that will mature in The credit facility contains a restrictive covenant that requires us to maintain a minimum committed capital to net total assets ratio of 40.0 percent calculated in accordance with contractually agreed definitions. As of December 31, 2012 and December 31, 2011, this ratio was 85.8 percent and 87.7 percent, respectively. Therefore, we are in compliance with the covenant at the end of 2012 and Outstanding amounts under this credit facility will bear interest at IBOR or LIBOR plus a margin that depends on our liquidity position. No amounts were outstanding under this credit facility at the end of 2012 and ASML ANNUAL REPORT 2012 F-27

113 16. Commitments, contingencies and guarantees We have various contractual obligations, some of which are required to be recorded as liabilities in our consolidated financial statements, including long- and short-term debt. Other contractual obligations, namely operating lease commitments, purchase obligations and guarantees, are generally not required to be recognized as liabilities on our balance sheet but are required to be disclosed. Our contractual obligations as of December 31, 2012 can be summarized as follows: Payments due by period (in thousands) Total 1 year 2 year 3 year 4 year 5 year After 5 years Long-Term Debt Obligations, including interest expense 1 831,194 39,801 39,726 39,726 39, ,726 32,489 Operating Lease Obligations 98,827 32,195 22,267 17,192 13,465 5,265 8,443 Purchase Obligations 1,643,955 1,557,021 84,012 2, Unrecognized Tax Benefits, including interest expense 59,967 2,964 4, ,957 35,837 Total Contractual Obligations 2,633,943 1,631, ,214 59,794 53, ,962 76,769 1 See Note 14 for the amounts excluding interest expenses. Long-term debt obligations mainly relate to interest payments and the principal amount of the Eurobond. See Note 14. Operating lease obligations include leases of equipment and facilities. Lease payments recognized as an expense were 41.6 million, 40.6 million and 37.9 million for the years ended December 31, 2012, 2011 and 2010, respectively. Several operating leases for our buildings contain purchase options, exercisable at the end of the lease, and in some cases, during the term of the lease. The amounts to be paid if ASML would exercise these purchase options at the end of the lease as of December 31, 2012 can be summarized as follows: Purchase options due by period (in thousands) Total 1 year 2 year 3 year 4 year 5 year After 5 years Purchase options 22,982-8,999-13, Purchase obligations include purchase commitments with suppliers in the ordinary course of business. ASML expects that it will honor these purchase obligations to fulfill future sales, in line with the timing of those future sales. The general terms and conditions of the agreements relating to the major part of our purchase commitments as of December 31, 2012 contain clauses that enables us to delay or cancel delivery of ordered goods and services up to the dates specified in the corresponding purchase contracts. These terms and conditions that we have agreed with our supply chain partners gives us additional flexibility to adapt our purchase obligations to our requirements in light of the inherent cyclicality of the semiconductor equipment industry in which we operate. We establish a provision for cancellation fees when it is probable that the liability has been incurred and the amount of cancellation fees is reasonably estimable. 17. Employee benefits Bonus plan Our bonus expenses for all participants of all bonus plans were: Year ended December 31 (in thousands) Bonus expenses 16,474 15,557 12,489 Bonus expenses include an amount of 1.8 million (2011: 1.7 million; 2010: 1.6 million) in relation to the short-term incentive ( STI ) cash bonus for the Board of Management (we refer to Note 21) and 0.1 million (2011: 0.7 million; 2010: 1.2 million) in relation to the Brion retention bonus plan. ASML ANNUAL REPORT 2012 F-28

114 ASML has a performance related bonus plan for senior management, who are not members of the Board of Management. Under this plan, the bonus amount is dependent on actual performance against corporate, departmental and personal targets. The bonus for members of senior management can range between 0.0 percent and 40.0 percent, or 0.0 percent and 70.0 percent, of their annual salaries, depending upon their seniority. The performance targets are set for each half year. The bonus of the first half of 2012 was paid in the second half of The bonus of the second half is accrued for in the consolidated balance sheet as of December 31, 2012 and is expected to be paid in the first quarter of Our bonus expenses under this plan were: Year ended December 31 (in thousands) Bonus expenses 14,588 13,131 9,694 Profit-sharing plan ASML has a profit-sharing plan covering all European and US non-sales employees who are not members of the Board of Management or senior management. Under the plan, eligible employees receive an annual profit-sharing, based on a percentage of net income relative to sales ranging from 0.0 to 20.0 percent of annual salary. The profit sharing for the years 2012, 2011 and 2010 was 18.0 percent or 64.5 million, 20.0 percent or 64.0 million and 18.0 percent or 52.2 million, respectively. Our profit is also one of the criteria for the individual variable pay programs for employees in Asia and employees eligible to the sales reward plan which amount to 24.4 million for 2012 (including 2.6 million for the sales reward plan), 23.2 million for 2011 and 23.1 million for Share-based compensation We have adopted various share (option) plans for our employees. Each year, the Board of Management determines, by category of ASML personnel, the total available number of stock options and maximum number of shares that can be granted in that year. The determination is subject to the approval of our Supervisory Board. For members of the Board of Management ASML has separate share-based payment plans, for details on service and vesting conditions see below and for additional information see note 21. Our current share-based payment plans do not provide cash settlement of options and shares. The total gross amount of recognized compensation expenses associated with share-based payments (including share based payments to the Board of Management) was 18.7 million in 2012, 12.4 million in 2011 and 12.1 million in The tax benefit recognized related to the recognized expenses amounts to 0.9 million in 2012, 0.5 million in 2011 and 1.0 million in Total compensation expenses related to non-vested awards to be recognized in future periods amount to 30.4 million as per December 31, 2012 (2011: 23.3 million; 2010: 16.7 million). The weighted average period over which these costs are expected to be recognized is calculated at 2.0 years (2011: 1.9 years; 2010: 2.0 years). Option plans Options granted under ASML s stock option plans have fixed exercise prices equal to the closing price of our ordinary shares on NYSE Euronext Amsterdam or NASDAQ on the applicable grant-dates. Granted stock options generally vest over a three-year period with any unexercised stock options expiring ten years after the grant-date. ASML has five different stock option plans: Employee plan Option purchase plan Brion stock option plan Senior management plan Stock option extension plan The Option purchase plan and Stock option extension plan have no service and vesting conditions. The other plans typically have a three to four year service condition. Furthermore senior management and Board of Management plans have vesting conditions based on performance. The fair value of the stock options is determined using a Black-Scholes option valuation model. ASML ANNUAL REPORT 2012 F-29

115 The Black-Scholes option valuation of our stock options is based on the following assumptions: Year ended December Weighted average share price (in ) Volatility (in percentage) Expected life (in years) Risk free interest rate Expected dividend yield (in ) Forfeiture rate As of year end for each of the three years ended December 31, forfeitures are estimated to be nil. When establishing the expected life assumption we annually take into account the contractual terms of the stock options as well as historical employee exercise behavior. Other details with respect to stock options are set out in the following table: -denominated USD-denominated Year ended December Weighted average fair value of stock options granted Weighted average share price at the exercise date of stock options Aggregate intrinsic value of stock options exercised (in thousands) 71,331 30,204 22,720 12,684 11,323 13,669 Aggregate remaining contractual term of currently exercisable options (years) Aggregate intrinsic value of exercisable stock options (in thousands) 34,438 39,384 54,109 21,882 20,492 25,780 Aggregate intrinsic value of outstanding stock options (in thousands) 35,671 45,141 65,240 22,433 20,791 28,024 The number and weighted average exercise prices of stock options as of December 31, 2012, and changes during the year then ended are presented below: -denominated Weighted average USD-denominated Weighted average exercise price per ordinary share () exercise price per ordinary share (USD) Number of options Number of options Outstanding, January 1, ,133, ,792, Granted 32, , Exercised (2,928,641) (362,071) Forfeited (5,530) (350) Expired (1,103,566) (946,089) Outstanding, December 31, ,128, , Exercisable, December 31, ,060, , Details with respect to the stock options outstanding are set out in the following table: Range of exercise prices () -denominated Number of outstanding options at December 31, 2012 Weighted average remaining contractual life of outstanding options (years) Range of exercise prices (USD) USD-denominated Number of outstanding options at December 31, 2012 Weighted average remaining contractual life of outstanding options (years) , , , , , , , , , , , , Total 1,128, Total 494, ASML ANNUAL REPORT 2012 F-30

116 In 2012, 2011 and 2010 only repurchased shares were used to satisfy the option rights upon exercise. For more information with respect to repurchased shares we refer to Note 27. Share plans Shares granted under ASML s share plans include a three to four year service period and for some plans performance conditions. The fair value of shares is determined based on the closing trading price of our shares on NYSE Euronext Amsterdam or NASDAQ on the grant date. ASML has six different share plans: Employee plan Share purchase plan New hire performance share plan Brion performance share plan Senior management plan Board of management performance share plan (we refer to Note 21) The Share purchase plan has no service and vesting conditions. The employee plan has only service conditions. The other plans have service conditions which are similar and have vesting conditions which are based on performance. Details with respect to shares are set out in the following table: -denominated USD-denominated Year ended December Total fair value at vesting date of shares vested during the year (in thousands) 16,179 9,155 6,165 5,392 1,956 8,856 Weighted average fair value of shares granted A summary of the status of conditionally outstanding shares as of December 31, 2012, and changes during the year ended December 31, 2012, is presented below: Weighted average fair value at grant denominated USDdenominated Weighted average fair value at grant Number of shares date () Number of shares date (USD) Conditional shares outstanding at January 1, ,479, , Granted 678, , Vested/Issued (421,902) (106,500) Forfeited (42,290) (19,762) Conditional shares outstanding at December 31, ,693, , Other plans Stock Option Extension Plans and Financing In 2002, employees were offered an extension of the option period for options granted in As a result the option period was extended until Employees who accepted the extension became subject to additional exercise periods in respect of their options. At the modification date, there was no intrinsic value of the modified award because the exercise price under each plan still exceeded ASML s stock price on the modification date. As a result, these stock option extensions did not result in recognition of any additional compensation expense in accordance with ASC 718. Stock option plans that were issued before 2001 were constructed with a virtual financing arrangement in compliance with the applicable laws and after obtaining the necessary corporate approvals, whereby ASML loaned the tax value of the options granted to employees subject to the Dutch tax-regime. The interest-free loans issued under this arrangement were repayable to ASML on the exercise date of the respective option, provided that the option was actually exercised. If the options expired unexercised, the loans were forgiven. ASML s Supervisory Board approved the Stock Option Plans 2000 at the time, including the interest-free loans, as these were part of the Stock Option Plan. In 2006, we launched a stock option plan for Dutch employees holding stock options granted in 2000 (option A ), which expired in In this plan we granted options (option B ) which only became effective after option A expired unexercised in During 2012 option type A expired and option type B has been fully exercised and all amounts due to ASML under the virtual financing arrangement were repaid upon exercise of the option. No amounts are outstanding under this virtual financing arrangement as of December 31, No compensation expenses in relation to ASML ANNUAL REPORT 2012 F-31

117 these specific Stock Option Extension Plans are recognized in the consolidated statements of operations for the years 2012, 2011 and Employee Purchase Plan Every quarter, ASML offers its worldwide payroll employees the opportunity to buy ASML shares or ASML stock options against fair value out of their net salary. The fair value for shares is determined based on the closing price of the ordinary shares on NYSE Euronext Amsterdam on the grant-date. The fair value of the stock options is determined using a Black-Scholes option valuation model. For the assumptions on which the Black-Scholes option valuation model is used, see the disclosure above under the caption Option Plans. The maximum net amount for which employees can participate in the plan amounts to 10.0 percent of gross base salary. When employees retain the shares and/or stock options for a minimum of 12 months, ASML will pay out a 20.0 percent cash bonus on the net invested amount. Deferred compensation plans In July 2002, ASML adopted a non-qualified deferred compensation plan for its United States employees that allows a select group of management or highly compensated employees to defer a portion of their salary, bonus, and commissions. The plan allows ASML to credit additional amounts to the participants account balances. The participants divide their funds among the investments available in the plan. Participants elect to receive their funds in future periods after the earlier of their employment termination or their withdrawal election, at least three years after deferral. There were minor expenses relating to this plan in 2012, 2011 and As of December 31, 2012, and 2011, our liability under the deferred compensation plan was 11.8 million and 10.2 million, respectively. Pension plans ASML maintains various pension plans covering substantially all of its employees. Our employees in the Netherlands, 4,778 in full-time equivalents ( FTEs ), participate in a multi-employer union plan ( Bedrijfstakpensioenfonds Metalektro PME ) determined in accordance with the collective bargaining agreements effective for the industry in which ASML operates. This collective bargaining agreement has no expiration date. This multi-employer union plan covers approximately 1,220 companies and approximately 150,000 contributing members. ASML s contribution to the multi-employer union plan is less than 5.0% of the total contribution to the plan as per the annual report for the year ended December 31, The plan monitors its risks on a global basis, not by company or employee, and is subject to regulation by Dutch governmental authorities. By law (the Dutch Pension Act), a multi-employer union plan must be monitored against specific criteria, including the coverage ratio of the plan s assets to its obligations. This coverage ratio must exceed percent for the total plan. Every company participating in a Dutch multi-employer union plan contributes a premium calculated as a percentage of its total pensionable salaries, with each company subject to the same percentage contribution rate. The premium can fluctuate yearly based on the coverage ratio of the multi-employer union plan. The pension rights of each employee are based upon the employee s average salary during employment. ASML s net periodic pension cost for this multi-employer union plan for any period is the amount of the required contribution for that period. A contingent liability may arise from, for example, possible actuarial losses relating to other participating entities because each entity that participates in a multi-employer union plan shares in the actuarial risks of every other participating entity or any responsibility under the terms of a plan to finance any shortfall in the plan if other entities cease to participate. The coverage ratio of the multi-employer union plan increased to 93.9 percent as of December 31, 2012 (December 31, 2011: 90.0 percent). Because of the low coverage ratio, PME prepared and executed a so-called Recovery Plan which was approved by De Nederlandsche Bank (the Dutch central bank, which is the supervisor of all pension companies in the Netherlands). Due to the low coverage ratio and according to the obligation of the Recovery Plan the pension premium percentage is 24.0 in both 2013 and The coverage ratio is calculated by dividing the fund s capital by the total sum of pension liabilities and is based on actual market interest. ASML ANNUAL REPORT 2012 F-32

118 ASML also participates in several defined contribution pension plans, with ASML s expenses for these plans equaling the contributions made in the relevant period. Our pension and retirement expenses for all employees for the three years ended December 31, 2012, 2011 and 2010 were: Year ended December 31 (in thousands) Pension plan based on multi-employer union plan 34,525 31,819 29,643 Pension plans based on defined contribution 15,773 14,128 10,950 Pension and retirement expenses 50,298 45,947 40, Legal contingencies ASML is party to various legal proceedings generally incidental to our business. ASML also faces exposures from other actual or potential claims and legal proceedings. In addition, ASML customers may be subject to claims of infringement from third parties alleging that the ASML equipment used by those customers in the manufacture of semiconductor products, and/or the methods relating to use of the ASML equipment, infringes one or more patents issued to those third parties. If these claims were successful, ASML could be required to indemnify such customers for some or all of any losses incurred or damages assessed against them as a result of that infringement. We accrue for legal costs related to litigation in our statement of operations at the time when the related legal services are actually provided to ASML. In 2012, no estimated losses were recorded as a charge to our consolidated statements of operations (2011: no estimated losses were recorded and 2010: 1.5 million losses were recorded). From late 2001 through 2004, we were party to a series of civil litigations and administrative proceedings in which Nikon alleged ASML s infringement of Nikon patents relating to lithography. ASML in turn filed claims against Nikon. Pursuant to agreements executed on December 10, 2004, ASML, Zeiss and Nikon agreed to settle all pending worldwide patent litigation between the companies. The settlement included an exchange of releases, a patent Cross-License agreement related to lithography equipment used to manufacture semiconductor devices (the Nikon Cross-License Agreement ) and payments to Nikon by ASML and Zeiss. In connection with the settlement, ASML and Zeiss made settlement payments to Nikon from 2004 to The license period for certain patents subject to the Nikon Cross-License Agreement, which were not perpetually licensed, ended on December 31, Pursuant to the terms of the Nikon Cross-License Agreement, the parties have agreed, from January 1, 2010 to December 31, 2014 (the Cross-License Transition Period ), not to bring suit for claims related to infringement of those patents or for claims related to infringement of patents issued during the Cross-License Transition Period. However, beginning on January 1, 2015, the parties may bring suit for infringement of patents subject to the Nikon Cross- License Agreement, including any infringement that occurred during the Cross-License Transition Period. Damages related to claims for patent infringement occurring during the Cross-License Transition Period are limited to three percent of the net sales price of products utilizing patents that are valid and enforceable. 19. Income taxes The components of the provision for income taxes are as follows: Year ended December 31 (in thousands) Current tax (79,255) (129,127) (180,613) Deferred tax 74,993 (52,548) (40,090) Provision for income taxes (4,262) (181,675) (220,703) The Dutch statutory tax rate was 25.0 percent in 2012 and 2011 and 25.5 percent in Tax amounts in other jurisdictions are calculated at the rates prevailing in the relevant jurisdictions. ASML ANNUAL REPORT 2012 F-33

119 The reconciliation of the provision for income taxes shown in the consolidated statements of operations, based on the effective tax rate, with the Dutch statutory tax rate, is as follows: Year ended December 31 (in thousands) 2012 % 2011 % 2010 % Income before income taxes 1,150, ,648, ,242, Income tax provision based on ASML s domestic rate (287,644) 25.0 (412,159) 25.0 (316,843) 25.5 Effects of tax rates in foreign jurisdictions 9,786 (0.9) 20,663 (1.3) 15,878 (1.3) Adjustments in respect of tax exempt income 23,532 (2.0) 19,134 (1.2) 19,987 (1.6) Adjustments in respect of changes in the applicable tax rate (569) 0.1 Adjustments in respect of tax incentives 143,160 (12.4) 180,096 (10.9) 66,881 (5.4) Adjustments in respect of prior years current taxes 18,275 (1.6) 9,097 (0.6) 25,648 (2.1) Movements in the liability for unrecognized tax benefits 95,465 (8.3) 6,634 (0.4) (28,796) 2.3 Other credits and non-taxable items (6,836) 0.6 (5,140) 0.4 (2,889) 0.3 Provision for income taxes (4,262) 0.4 (181,675) 11.0 (220,703) At the end of 2010, the Dutch government enacted a tax rate reduction from 25.5 percent in 2010 to 25.0 percent in Income tax provision based on ASML s domestic rate The provision for income taxes based on ASML s domestic rate is based on the Dutch statutory income tax rate and reflects the provision for income taxes that would have been applicable if all of our income was derived from our Dutch operations and there were no permanent book tax differences and no other tax facilities. Effects of tax rates in foreign jurisdictions A portion of ASML s results are realized in countries other than the Netherlands where different tax rates are applicable. Adjustments in respect of tax exempt income In certain jurisdictions part of the income generated is tax exempted. Adjustments in respect of tax incentives Adjustments in respect of tax incentives relate to reduced tax rates in several jurisdictions, mainly consisting of the agreement with the Dutch fiscal authorities of December 2010 regarding the application of the Innovation Box, and the research and development deduction ( RDA ). The Innovation box is a facility under Dutch corporate tax law pursuant to which income associated with R&D is partially exempted from taxation. This tax ruling has retroactive effect to January 1, 2007 and is valid through December 31, Thereafter the validity of this ruling may be extended or this ruling may be adapted depending on a possible change in law or change of circumstances. Adjustments in respect of prior years current taxes In 2012, we recognized a tax benefit of 18.3 million or 1.6 percent of income before taxes mainly attributable to the application of tax exemptions for prior years, which had a favorable effect on the effective tax rate for In 2010, we recognized a tax benefit of 25.6 million or 2.1 percent of income before income taxes mainly attributable to the application of the Innovation Box for prior years, which had a favorable effect on the effective tax rate for 2010 ( 37.5 million including interest or 3.0 percent). Movements in the liability for unrecognized tax benefits In 2012, ASML recognized a tax benefit of 95.5 million or 8.3 percent of income before income taxes mainly as a result of the successful conclusion of tax audits in different jurisdictions ( 92.5 million). Other credits and non-taxable items Other credits and non-taxable items reflect the impact on statutory rates of permanent non-taxable items such as non-deductible taxes, non-deductible interest expense, and non-deductible meals and entertainment, as well as the impact of (the reversal of) various tax credits on our provision for income taxes. ASML ANNUAL REPORT 2012 F-34

120 Income taxes recognized directly in shareholders equity Income taxes recognized directly in shareholders equity (including other comprehensive income) are as follows: Income tax recognized in shareholders equity (in thousands) Current tax Derivative financial instruments 1 (1,066) 6,257 8,262 Tax (benefit) deficit from share-based payments (2,116) 11 (106) Total income tax recognized in shareholders equity (3,182) 6,268 8,156 1 Recognized directly in Other Comprehensive Income. Liability for unrecognized tax benefits and deferred taxes The deferred tax position and liability for unrecognized tax benefits recorded on the consolidated balance sheets are as follows: As of December 31 (in thousands) Liability for unrecognized tax benefits (59,967) (155,432) Deferred tax position 114, ,946 Total 54,560 (17,486) Liability for unrecognized tax benefits The calculation of our liability for unrecognized tax benefits involves uncertainties in the application of complex tax laws. Our estimate for the potential outcome of any uncertain tax issue is highly judgmental. We believe that we have adequately provided for uncertain tax positions. However, settlement of these uncertain tax positions in a manner inconsistent with our expectations could have a material impact on our consolidated financial statements. Consistent with the provisions of ASC 740, as of December 31, 2012, ASML has a liability for unrecognized tax benefits of 60.0 million (2011: million) which is classified as non-current deferred and other tax liabilities. The total liability for unrecognized tax benefits, if reversed, would have a favorable effect on our effective tax rate. Expected interest and penalties related to income tax liabilities have been accrued for and are included in the liability for unrecognized tax benefits and in the provision for income taxes. The balance of accrued interest and penalties recorded in the consolidated balance sheets as per December 31, 2012 amounted to 21.4 million (2011: 24.5 million). Accrued interest and penalties recorded in the consolidated statement of operations of 2012 amounted to a tax benefit of 3.1 million (2011: tax benefit of 9.3 million; 2010: tax charge of 5.3 million). A reconciliation of the beginning and ending balance of the liability for unrecognized tax benefits is as follows: As of December 31 (in thousands) Balance, January 1 155, ,066 Gross increases tax positions in prior period 4,297 11,121 Gross decreases tax positions in prior period (92,521) (24,566) Gross increases tax positions in current period 3,255 21,258 Settlements - (10,403) Lapse of statute of limitations (10,496) (4,044) Total liability for unrecognized tax benefits 59, ,432 For 2012 the gross decreases in tax positions in prior period mainly relates to the release of tax positions after successful conclusion of tax audits in different jurisdictions. We estimate that the total liability for unrecognized tax benefits will decrease by 3.0 million within the next 12 months. The estimated changes to the liability for unrecognized tax benefits within the next 12 months are mainly due to expected settlements with tax authorities. We are subject to tax audits in our major tax jurisdictions for years from and including 2007 onwards in the Netherlands, for years from and including 2006 onwards in Hong Kong, and for years from and including 2001 onwards in the United ASML ANNUAL REPORT 2012 F-35

121 States. In the course of such audits, local tax authorities may challenge the positions taken by us. For the years 2006 through 2010, the partial exemption of taxable profits is subject to tax audits in certain tax jurisdictions. Deferred tax position The changes in deferred income tax assets and liabilities consist of the following elements: Changes in deferred tax assets and liabilities (in thousands) Balance, January 1 137, ,587 Consolidated statements of operations (20,242) (59,539) Effect of changes in exchange rates (3,177) 3,898 Balance, December , ,946 The deferred tax position is classified in the consolidated balance sheets as follows: As of December 31 (in thousands) Deferred tax assets current 103, ,720 Deferred tax assets non-current 39,443 38,735 Total deferred tax assets 143, ,455 Deferred tax liabilities current (271) (214) Deferred tax liabilities non-current (28,340) (21,295) Total deferred tax liabilities (28,611) (21,509) Total 114, ,946 The composition of total deferred tax assets and liabilities in the consolidated financial statements is as follows: Deferred tax assets composition of temporary differences (in thousands) January 1, Consolidated statements of Effect of changes in exchange December 31, 2012 operations rates 2012 Capitalized research and development expenditures 34,374 (6,465) (506) 27,403 Inventories 35,820 (7,351) (302) 28,167 Deferred revenue 23,892 (3,083) (237) 20,572 Provisions 14,515 7,296 (283) 21,528 Installation and warranty reserve 8,772 (1,508) (113) 7,151 Tax effect carry-forward losses 7,735 (2,219) 41 5,557 Fixed assets 6,495 1,454 (151) 7,798 Restructuring and impairment 5,146 (733) (77) 4,336 Alternative minimum tax credits 1 5, (30) 5,227 Bilateral advance pricing agreement 2 1,426 (1,278) Share-based payments (33) 1,433 Other temporary differences 15, (1,624) 13,818 Total 159,455 (13,002) (3,315) 143,138 1 Alternative minimum tax credits relate to prepaid US taxes which are credited against future taxable profits after the carry-forward losses used. 2 The Bilateral advance pricing agreement relates to intellectual property which is capitalized from a tax perspective resulting in a temporary difference. Deferred tax liabilities composition of temporary differences (in thousands) January 1, Consolidated statements of Effect of changes in exchange December 31, 2012 operations rates 2012 Fixed assets (19,108) (6,965) 183 (25,890) Borrowing costs (1,554) (404) - (1,958) Other temporary differences (847) 129 (45) (763) Total (21,509) (7,240) 138 (28,611) ASML ANNUAL REPORT 2012 F-36

122 Deferred tax assets composition of temporary differences (in thousands) January 1, Consolidated statements of Effect of changes in exchange December 31, 2011 operations rates 2011 Capitalized research and development expenditures 27,239 5,501 1,634 34,374 Inventories 71,124 (35,813) ,820 Deferred revenue 10,890 11,746 1,256 23,892 Provisions 21,828 (7,463) ,515 Installation and warranty reserve 8, ,772 Tax effect carry-forward losses 27,756 (18,695) (1,326) 7,735 Fixed assets 4,386 1, ,495 Restructuring and impairment 6,074 (1,063) 135 5,146 Alternative minimum tax credits 1 4, ,028 Bilateral advance pricing agreement 2 7,993 (6,583) 16 1,426 Share-based payments 1,678 (808) Other temporary differences 13, ,302 Total 205,437 (50,160) 4, ,455 1 Alternative minimum tax credits relate to prepaid US taxes which are credited against future taxable profits after the carry-forward losses used. 2 The Bilateral advance pricing agreement relates to intellectual property which is capitalized from a tax perspective resulting in a temporary difference. Deferred tax liabilities composition of temporary differences (in thousands) January 1, Consolidated statements of Effect of changes in exchange December 31, 2011 operations rates 2011 Fixed assets (9,661) (9,175) (272) (19,108) Borrowing costs (1,231) (323) - (1,554) Other temporary differences (958) 119 (8) (847) Total (11,850) (9,379) (280) (21,509) Tax effect carry-forward losses Deferred tax assets from carry-forward losses result predominantly from net operating loss carry-forwards incurred in the United States prior to Net operating losses qualified as tax losses under United States federal tax laws were fully utilized to offset taxable income during Net operating losses qualified as tax losses under United States state tax laws incurred by United States group companies can in general be offset against future profits realized in the 5 to 20 years following the year in which the losses are incurred. The period of net operating loss carry forward for United States state tax purposes depends on the state in which the tax loss arose. Our ability to use United States state tax loss carry forwards in existence at December 31, 2012, is subject to varying state statutes (providing for periods of between 5 and 20 years) and valuation allowances have been set up for state carry forward losses that are not expected to be realized before they expire. The total amount of losses carried forward under United States state tax laws as of December 31, 2012, is million tax basis or 5.6 million tax effect. ASML ANNUAL REPORT 2012 F-37

123 20. Segment disclosure Segment information has been prepared in accordance with ASC 280, Segment Reporting. ASML operates in one reportable segment for the development, production, marketing, sale and servicing of advanced semiconductor equipment systems exclusively consisting of lithography systems. In accordance with ASC 280, ASML s Chief Executive Officer has been identified as the chief operating decision-maker, who reviews operating results to make decisions about allocating resources and assessing performance for ASML. Management reporting includes net system sales figures of new and used systems. Net system sales for new and used systems were as follows: Year ended December 31 (in thousands) New systems 3,620,260 4,780,720 3,704,290 Used systems 181, , ,452 Net system sales 3,801,632 4,883,913 3,894,742 Net system sales decreased by 1,082.3 million, or 22.2 percent to 3,801.6 million in 2012 from 4,883.9 million in 2011 (2010: 3,894.7 million). The decrease in net system sales was mainly caused by decreased demand in Memory. During 2012, the majority of the system sales were generated from Logic. For geographical reporting, net sales are attributed to the geographic location in which the customers facilities are located. Identifiable assets are attributed to the geographic location in which these assets are located. Net sales and identifiable assets (total assets excluding goodwill and other intangible assets) by geographic region were as follows: Year ended December 31 (in thousands) Net sales Identifiable assets 2012 Japan 292, ,750 Korea 1,276,304 85,022 Singapore 98,554 15,696 Taiwan 1,479, ,010 Rest of Asia 197, ,392 Europe 256,192 5,412,758 United States 1,131, ,739 Total 4,731,555 7,251, Japan 405, ,264 Korea 1,318,777 56,765 Singapore 436,308 14,179 Taiwan 1,146,601 87,833 Rest of Asia 450, ,496 Europe 505,129 5,207,509 United States 1,387, ,359 Total 5,651,035 7,106, Japan 396, ,160 Korea 1,396,028 31,859 Singapore 215,357 17,189 Taiwan 1,380,400 77,125 Rest of Asia 239,914 1,749,879 Europe 203,548 3,382,117 United States 675, ,092 Total 4,507,938 6,025,421 In 2012, sales to the largest customer accounted for 1,236.1 million or 26.1 percent of net sales (2011: 1,311.7 million or 23.2 percent of net sales; 2010: 1,270.8 million or 28.2 percent of net sales). ASML s three largest customers (based on net sales) accounted for 58.9 percent of accounts receivable and finance receivables at December 31, 2012, 35.5 percent of accounts receivable and finance receivables at December 31, 2011, and 36.9 percent of accounts receivable and finance receivables at December 31, ASML ANNUAL REPORT 2012 F-38

124 Substantially all of ASML s sales were export sales in 2012, 2011 and Board of Management and Supervisory Board remuneration The remuneration of the members of the Board of Management is determined by the Supervisory Board on the advice of the Remuneration Committee. The 2010 Remuneration Policy, as adopted by the General Meeting of Shareholders on March 24, 2010, was not changed in The 2010 Remuneration Policy enables ASML to continue to attract, reward and retain qualified and experienced industry professionals in an international labor market. The remuneration structure and levels are assessed against a reference market by benchmarking. The total remuneration in 2012 consists of base salary, short-term performance incentives (in cash), long-term performance incentives (in shares) and other benefits. Total direct compensation, pension and other benefits The remuneration of the members of the Board of Management in 2012, 2011 and 2010 was as follows: Fixed Short-term (variable) Long-term (variable) Total Remuneration Other benefits Compensation and expense Base STI Option LTI (share Pension Pension reimbursement salary (Cash) 1 awards 2 awards) 3 Total 7 8 Premium 9 10 Year E. Meurice , ,500-2,079, ,511, , , , ,709-1,413, ,786, ,113 88, , , ,236 42, , ,301, , ,630 P.T.F.M , ,800-1,289, ,102,215 79,190-46,275 Wennink , , , ,654,536 85,994 94,455 44, , ,650 26, , ,355,372 84,229-43,627 M.A. van den , ,800-1,366, ,226,839 83,990-47,540 Brink , , , ,753,251 91, ,826 45, , ,405 28, , ,439,434 90,388-44,817 F.J. van Hout , ,000-1,131, ,843,676 69,110-37, , , ,201 1,515,460 75,134 9,735 35, , ,541 23, ,700 1,153,450 65,300-34,549 F.J.M , ,800-1,144,137 1,836,937 67,190-28,889 Schneider , , ,945 1,341,047 56,475 4,290 28,313 Maunoury , , , ,307 55,011-34,788 Other 1 Actual short-term incentives ( STI ) (cash) chargeable to us in the financial year (i.e. STI relating to performance in the current year but paid out in the next financial year). 2 The remuneration reported as part of the option awards is based on costs incurred under U.S. GAAP. The costs of the option awards are based on the actual vested number of option awards multiplied by the fair value of the option awards at grant date and are recorded in the consolidated statements of operations on a straight line basis over the vesting period. The use of performance stock options in the short term incentive plan was withdrawn as of The last performance option awards were granted in 2009 and became unconditional in The remuneration reported as part of the long-term incentives ( LTI ) (share awards) is based on costs incurred under U.S. GAAP. The costs of share awards are charged to the consolidated statements of operations over the 3 year vesting period based on the maximum achievable number of share awards. Therefore the costs for e.g. the financial year 2012 include costs of the Board of Management s performance share plan 2012, 2011 and Furthermore, the difference between the amount based on the maximum achievable number of share awards and the amount based on the actual number of share awards that vest, is released to the consolidated statements of operations in the financial year in which the share awards vest. 4 The remuneration reported as part of the LTI (share awards) for the year 2012 includes an adjustment for the Board of Management performance share plan 2009 based on the actual number of share awards vested in The adjustment for Mr. Meurice, Mr. Wennink, Mr. van den Brink and Mr. van Hout amounts to -106,266, -65,785, -69,831 and -57,838, respectively. 5 The remuneration reported as part of the LTI (share awards) for the year 2011 includes an adjustment for the Board of Management performance share plan 2008 based on the actual number of share awards vested in The adjustment for Mr. Meurice, Mr. Wennink and Mr. van den Brink amounts to -148,040, -91,645 and -97,281, respectively. 6 The remuneration reported as part of the LTI (share awards) for the year 2010 includes an adjustment for the Board of Management performance share plan 2007 based on the actual number of share awards vested in The adjustment for Mr. Meurice, Mr. Wennink and Mr. van den Brink amounts to -296,287, -183,612 and -191,972, respectively. 7 This total reflects base salary, STI (cash), option awards and LTI (share awards). 8 The pension arrangement has been adjusted upwards to match common market practice as from Furthermore, since the pension arrangement for members of the Board of Management is a defined contribution plan, we do not have additional pension obligations beyond the annual premium contribution. As per 2010, the employee contribution to the pension plan is 4.0 percent of the pension base. 9 In 2011, compensation was paid to the Board of Management regarding the risk premium for spouse/orphan pensions, to align the Board of Management pension arrangement with senior management. This concerned a reimbursement for risk premiums that were erroneously paid by the participants in the past. 10 Other benefits and expense reimbursement are gross amounts and may include housing costs, company car costs, travel expenses, social security costs, health and disability insurance costs and representation allowances. ASML ANNUAL REPORT 2012 F-39

125 Short-term incentive The annual performance-related cash incentive will have an on-target level of 75.0 percent of base salary for the Chief Executive Officer ( CEO ) and 60.0 percent for the other members of the Board of Management. The payouts are pro-rated, on a linear basis to the level of achievement of six performance criteria. Of the five quantitative performance criteria, three are based on the achievement of measurable financial targets, one on Technology Leadership Index (which also included qualitative elements) and one on achievements in the market position. Additionally, the qualitative target is based on the achievement of agreed key objectives. In principle, the weighting of each of the five quantitative criteria is equal (weighted 80.0 percent in total). The sixth target is based on qualitative objectives (weighted 20.0 percent). The setting and measuring period of the financial and technology based targets is semiannual, and for the market related and qualitative targets it is annual. The overall payout is annual and the cash incentive is accrued during the performance period. The Remuneration Committee evaluated the Board of Managements performance on above six criteria. Based on the 2012 evaluation, 6 out of 6 performance criteria were achieved on target or above target result, resulting in a cash payout of 1.8 million representing 75.0 percent of Mr. Meurice s base salary, 60.0 percent of Messrs. Wennink s, Van den Brink s, van Hout s and Schneider-Maunoury s base salary. Performance Stock Options In order to shift the focus from the short-term to the long-term, performance stock options are not a part of the 2010 Remuneration Policy. The value of this part of the remuneration has been moved into the long-term incentive plan which is paid in shares was the last year in which performance stock options were granted to the members of the Board of Management, which means the actual number of performance stock options for 2009 achievement were awarded for the last time in Once the options are unconditionally awarded after fulfillment of the performance conditions, the options will be retained (lock-up period) by the Board of Management member for at least two years after the date of unconditional award or until the termination of employment, whichever period is shorter. The fair value of the options granted is determined based on the Black-Scholes option valuation model. Details of vested options held by members of the Board of Management to purchase ordinary shares of ASML Holding N.V. are set out below: Share price on exercise date () Exercise price () Jan. 1, 2012 Exercised during 2012 Vested during 2012 Expired during 2012 Dec. 31, 2012 Expiration date E. Meurice 23,270 23, /19/ ,371 88, /18/ ,146 95, /17/ ,448 42, /4/ ,895 84, /2/2019 P.T.F.M. Wennink 31, , /20/ ,554 52, /2/2019 M.A. van den Brink 31, , /20/ ,894 27, /4/ ,788 55, /2/2019 F.J. van Hout 46,201 46, /2/2019 F.J.M. Schneider Maunoury Long-term incentive The members of the Board of Management are eligible to receive performance shares, which will be awarded annually under the condition of fulfillment of predetermined performance targets. These targets are measured over a period of three calendar years. The performance measures for obtaining performance targets will be ASML s relative Return On Average Invested Capital ( ROAIC ) position compared with the peer group (weighted 80.0 percent) and a qualitative target related to ASML s long-term ability to keep performing at high standards (weighted 20.0 percent). The maximum number of performance shares to be conditionally awarded will equal percent of base salary divided by the value of one performance share (i.e. reflecting maximum achievement). ASML defines stretching targets, whereas for on target achievement, the value of performance shares will be 80.0 percent of base salary. For the determination of the number of performance shares that will be conditionally awarded, ASML applies a fixed number approach. Under this approach, the number of shares is fixed for two consecutive years. Every two years, the fixed number is calculated using the maximum achievable value of percent of base salary divided by the value of the performance share at the moment of grant in the respective year. In 2012, the fixed number calculation has been conducted. ASML ANNUAL REPORT 2012 F-40

126 Once the shares are unconditionally awarded after fulfillment of the performance conditions, the shares will be retained (for a lock-up period) by the Board of Management member for at least two years after the date of unconditional award or until the termination of employment, whichever period is shorter. ASML accounts for this share award performance plan as a variable plan. Details of performance shares granted to members of the Board of Management are as follows: Number of Number of shares at grant date Fair value at grant date shares at vesting date Board of management Grant date Status Full control Vesting date End of lockup date E. Meurice 4/18/2012 Conditional No 73, /18/2015-4/18/2017 4/13/2011 Conditional No 88, /13/2014-4/13/2016 2/1/2010 Conditional No 88, /1/2013-2/1/2015 2/2/2009 Unconditional No 57, /2/ ,8591 2/2/2014 2/4/2008 Unconditional No 57, /4/ ,8591 2/4/2013 1/17/2007 Unconditional Yes 66, /17/ ,807 1/17/2012 P.T.F.M. Wennink 4/18/2012 Conditional No 45, /18/2015-4/18/2017 4/13/2011 Conditional No 54, /13/2014-4/13/2016 2/1/2010 Conditional No 54, /1/2013-2/1/2015 2/2/2009 Unconditional No 35, /2/ ,2461 2/2/2014 2/4/2008 Unconditional No 35, /4/ ,2461 2/4/2013 1/17/2007 Unconditional Yes 41, /17/ ,106 1/17/2012 M.A. van den Brink 4/18/2012 Conditional No 48, /18/2015-4/18/2017 4/13/2011 Conditional No 58, /13/2014-4/13/2016 2/1/2010 Conditional No 58, /1/2013-2/1/2015 2/2/2009 Unconditional No 37, /2/ ,1071 2/2/2014 2/4/2008 Unconditional No 37, /4/ ,1071 2/4/2013 1/17/2007 Unconditional Yes 42, /17/ ,565 1/17/2012 F.J. van Hout 4/18/2012 Conditional No 40, /18/2015 4/18/2017 4/13/2011 Conditional No 48, /13/2014-4/13/2016 2/1/2010 Conditional No 48, /1/2013-2/1/2015 2/2/2009 Unconditional No 31, /2/ ,5891 2/2/2014 F.J.M. Schneider- 4/18/2012 Conditional No 38, /18/2015 4/18/2017 Maunoury 4/13/2011 Conditional No 46, /13/2014-4/13/2016 2/1/2010 Conditional No 46, /1/2013-2/1/ The number of shares included in the lock-up period is reduced as a result of the synthetic share buyback due to an exchange for each 100 ordinary shares for 77 ordinary shares. The number of shares vested in 2012 after the synthetic share buyback for Mr. Meurice, Mr. Wennink, Mr. van den Brink and for Mr. van Hout are 37,621 shares, 23,289 shares, 24,722 shares and 20,474 shares, respectively. The number of shares vested in 2011 after the synthetic share buyback for Mr. Meurice, Mr. Wennink and for Mr. van den Brink are 37,621 shares, 23,289 shares and 24,722 share, respectively. Pension Benefits Members of the Board of Management are offered a pension plan based on defined contribution. The total defined contribution is a percentage of the pensionable salary and is dependent on the participant s age at the beginning of the year. In 2011, compensation was paid to the Board of Management regarding the spouse/orphan risk premium to align the Board of Management pension arrangement with senior management. This concerned a reimbursement for risk premiums that were erroneously paid by the participants in the past. Benefits upon termination of employment Term of appointment/employment Members of the Board of Management appointed after the 2004 amendment of the Articles of Association, are appointed for a period of four years, after which reappointment is possible for consecutive four-year terms. Messrs. P. Wennink and M. van den Brink s appointment to the Board of Management is for an indefinite period of time, as their initial appointment was before The existing employment contracts, including all rights and obligations under these contracts, will be honored. Severance agreement Employment agreements with the Board of Management members concluded prior to March 31, 2004 (i.e. Messrs. Wennink and Van den Brink) do not contain specific provisions regarding benefits upon termination of those agreements. Potential severance payments in such case will be according to applicable law (e.g. cantonal formula in the Netherlands). ASML ANNUAL REPORT 2012 F-41

127 Employment agreements for members of the Board of Management appointed after March 31, 2004 (i.e. Messrs. Meurice, Van Hout and Schneider-Maunoury) do contain specific provisions regarding benefits upon termination of those agreements. If we give notice of termination of the employment agreement for reasons which are exclusively or mainly found in acts or omissions on the side of the Board of Management member, no severance amount will be granted. If this is not the case, a severance amount equal to one year base salary or a severance consistent with the Dutch Labor laws will be made available upon the effective date of termination. This severance payment will also be made available in case the Board of Management member gives notice of termination of the employment agreement due to a significant difference of opinion between the respective executives and the Supervisory Board regarding his employment agreement, his function or our strategy. Change of control Board of Management members with an employment agreement dated after March 31, 2004 (i.e. Messrs. Meurice, Van Hout and Schneider-Maunoury) shall also be entitled to the aforementioned severance amount in the event ASML or its legal successor gives notice of termination due to a Change of Control (as defined in the employment agreement) or if the Board of Management member gives notice of termination, which is directly related to such Change of Control and such notice is given within twelve months from the date on which the Change of Control occurs. In order to comply with the highest standards of corporate governance, the Supervisory Board decided to mitigate the potential benefit of a Change of Control under the longterm incentive arrangements. This arrangement entails that the share price will be fixed on the average of i) the average closing share price over a period of 15 trading days prior to first public announcement of Change of Control negotiations, and ii) the average closing share price over a period of 30 trading days prior to closing of the transaction. ASML ANNUAL REPORT 2012 F-42

128 Supervisory Board The annual remuneration for Supervisory Board members covers the period from one Annual General Meeting of Shareholders ( AGM ) to the next one. The annual remuneration is paid in quarterly installments starting after the AGM. In 2011 the Supervisory Board proposed and the General Meeting of Shareholders approved an adjustment of the remuneration of the Supervisory Board, effective as per April 1, Furthermore the General Meeting of Shareholders approved a further increase of the annual (fixed) fee with a maximum amount of 5,000 depending on circumstances, which the Supervisory Board implemented per April 1, The following table sets forth an overview of the remuneration awarded to Supervisory Board Members in 2012 and 2011: Selection and nomination Technology and strategy Supervisory Audit Remuneration Year ended December 31, 2012 Total board committee committee committee committee Other 1,2 Arthur P.M. van der Poel 94,750 68,750 10,000-8,000 8,000 - Jos W.B. Westerburgen 96,116 48,750-12,000 12,000-23,3663 OB Bilous 104,750 78, ,000 8,000 10,000 Fritz W. Fröhlich 68,750 48,750 15, ,000 Hendrika (Ieke) C.J. van den Burg 56,750 48,750-8, William T. Siegle 90,750 78, ,000 - Pauline F.M. van der Meer Mohr 56,750 48,750-8, Wolfgang H. Ziebart 72,750 48,750 10,000 6,0004-8,000 - Total 641, ,000 35,000 34,000 28,000 36,000 38,366 Selection and nomination Technology and strategy Supervisory Audit Remuneration Year ended December 31, 2011 Total board committee committee committee committee Other 1,2 Arthur P.M. van der Poel 88,250 62,500 10,000-7,875 7,875 - Jos W.B. Westerburgen 66,750 43,750-11,500 11, OB Bilous 99,500 73, ,875 7,875 10,000 Fritz W. Fröhlich 62,500 43,750 15, ,750 Hendrika (Ieke) C.J. van den Burg 51,625 43,750-7, William T. Siegle 85,250 73, ,500 - Pauline F.M. van der Meer Mohr 51,625 43,750-7, Wolfgang H. Ziebart 61,625 43,750 10, ,875 - Total 567, ,750 35,000 27,250 27,250 35,125 13,750 1 To compensate for certain obligations ASML has towards the U.S. government as a result of the acquisition of Silicon Valley Group in 2001, one U.S. member receives an additional 10,000 to fulfill these obligations. 2 In addition to the annual fixed fee, the Vice-Chairman of the Supervisory Board receives 5,000 per year to fulfill this role. As the adjustment of the Supervisory Board s remuneration became effective as per April 1, 2011, the Vice-Chairman fee paid over the financial year 2011 amounted to 3, In 2012 Jos Westerburgen received a provisional payment related to the supervisory board remuneration for the period January to April As legislation regarding VAT registration for Supervisory Board members will change as from 2013 and Jos Westerburgen will resign in 2013 it was discussed and agreed with the Dutch tax authorities to pay the remuneration fee in advance. 4 During 2012 Wolfgang H. Ziebart was appointed as member of the Remuneration Committee and therefore received a partial fee. In addition, a net cost allowance was paid to each Supervisory Board member in 2012, amounting to 1,800 per year, and 2,400 per year for the Chairman of the Supervisory Board. Members of the Board of Management and/or Supervisory Board are free to acquire or dispose ASML shares or options for their own account, provided they comply with the applicable ASML Insider Trading Rules. Those securities are not part of members remuneration and are therefore not included. None of the members of the Supervisory Board currently owns shares or options on ASML shares. ASML ANNUAL REPORT 2012 F-43

129 22. Selected operating expenses and additional information Personnel expenses for all payroll employees were: Year ended December 31 (in thousands) Wages and salaries 711, , ,683 Social security expenses 58,180 52,550 42,468 Pension and retirement expenses 50,298 45,947 40,593 Share-based payments 18,714 12,430 12,109 Personnel expenses 838, , ,853 The average number of payroll employees in FTEs employed during 2012, 2011 and 2010 was 8,140, 7,627 and 6,785 respectively. The total number of payroll and temporary personnel employed in FTEs per sector was: As of December Customer Support 2,538 2,478 2,236 SG&A Industrial Engineering Manufacturing & Logistics 2,856 2,852 2,659 R&D 3,736 3,417 3,225 Total employees (in FTEs) 10,636 9,890 9,245 Less: Temporary employees (in FTEs) 2,139 1,935 2,061 Payroll employees (in FTEs) 8,497 7,955 7,184 The average number of payroll employees in FTEs in our operations in the Netherlands during 2012, 2011 and 2010 was 4,620, 4,313 and 3,805 respectively. 23. Research and development costs R&D costs include credits for an amount of 17.9 million, 25.1 million, 29.5 million during 2012, 2011 and 2010 respectively. R&D credits relate to world-wide (inter-)governmental funding for certain strategic development programs. 24. Interest income and expense Interest income of 16.6 million (2011: 41.2 million and 2010: 15.1 million) mainly relates to interest income on deposits, short-term investments, money market funds and on bank accounts. Interest expense of 22.8 million (2011: 33.8 million and 2010: 23.3 million) mainly consists of net interest expense of our Eurobond and related interest rate swaps. Interest on cash pools is reported on a gross basis in the consolidated statements of operations under both interest income and interest expense. From an economic and legal perspective the interest on cash pools of 4.2 million (2011: 6.8 million and 2010: 3.6 million) recorded in interest income nets off against the same amount recorded in interest expense. 25. Vulnerability due to certain concentrations ASML relies on outside vendors to manufacture the components and subassemblies used in its systems, each of which is obtained from a sole supplier or a limited number of suppliers. ASML s reliance on a limited group of suppliers involves several risks, including a potential inability to obtain an adequate supply of required components and reduced control over pricing and timely delivery of these subassemblies and components. In particular, from time to time, the number of systems ASML has been able to produce has been limited by the production capacity of Zeiss. Zeiss is currently ASML s sole external supplier of lenses and other critical optical components and is capable of producing these lenses only in limited numbers and only through the use of its manufacturing and testing facility in Oberkochen and Wetzlar, Germany. During 2012, ASML s production was not limited by the deliveries from Zeiss. For our light source technology used in our EUV systems we also depend on a limited number of suppliers. Our main supplier for light source technology is Cymer. We have agreed to acquire Cymer, subject to certain closing conditions. We believe that the acquisition of Cymer, if completed, will help us achieving our strategic objective of delivering an economically viable EUV scanner to semiconductor manufacturers as soon as reasonably possible. We believe that combining Cymer s expertise in EUV light sources with our expertise in lithography systems design and integration will reduce the risks related to the successful development of and accelerate the introduction of EUV technology. Without ASML ANNUAL REPORT 2012 F-44

130 the acquisition, we do not believe that Cymer would have sufficient resources to complete the development of the EUV source and as a result, the only way to make the EUV source development successful without additional delay is through the acquisition of Cymer. In addition we believe that the acquisition will allow us to more effectively partition responsibilities between Cymer, its suppliers and us with respect to EUV light source development, reducing risk and increasing development speed. Completion of the acquisition is subject to customary closing conditions, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act and receipt of approvals under other foreign competition laws. On february 5, 2013, the Cymer Stockholders approved the merger agreement. We expect the transaction to close in the first half of 2013, there is no assurance that the transaction will be completed within the expected time period or at all. Business failure or insolvency of one of our main customers may have an adverse effect on our business, financial condition and results of operations. See Note Shareholders equity Share capital ASML s authorized share capital amounts to 126,000,000 and is divided into: 700,000,000 cumulative preference shares with a nominal value of 0.09 each; 699,999,000 ordinary shares with a nominal value of 0.09 each; and 9,000 ordinary shares B with a nominal value of 0.01 each. Per December 31, 2012, 419,852,467 ordinary shares with a nominal value of 0.09 each were issued and fully paid in, of which 12,687,246 ordinary shares are held by us in treasury. No ordinary shares B and no cumulative preference shares are issued. 96,566,077 depositary receipts for ordinary shares are issued with our cooperation. Our Board of Management has the power to issue ordinary shares and cumulative preference shares insofar as the Board of Management has been authorized to do so by the General Meeting of Shareholders (either by means of a resolution or by an amendment to our Articles of Association). The Board of Management requires approval of the Supervisory Board for such an issue. The authorization by the General Meeting can only be granted for a certain period not exceeding five years and may be extended for no longer than five years on each occasion. In case the General Meeting of Shareholders has not authorized the Board of Management to issue shares, the General Meeting of Shareholders shall have the power to issue shares upon the proposal of the Board of Management, provided that the Supervisory Board has approved such proposal. Shares issued in Customer Co-Investment Program On September 12, 2012, we issued 62,977,877 ordinary shares to Stichting Administratiekantoor MAKTSJAB ( Intel Stichting ) and 12,595,575 ordinary shares to Stichting Administratiekantoor Samsung and on October 31, 2012, ASML issued 20,992,625 ordinary shares to Stichting Administratiekantoor TSMC with respect to the Customer Co- Investment Program. We received an amount of 3,853.9 million in relation to the shares issued under the Customer Co-Investment Program. For further details on our Customer Co-Investment Program see Note 28. Synthetic Share Buyback At the Extraordinary General Meeting of Shareholders ( EGM ) held on September 7, 2012, several changes in the Articles of Association of ASML were adopted, in connection with the Synthetic Share Buyback effectuated in connection with the Customer Co-Investment Program. Consequently, on November 24, 2012 the Articles of Association were amended as follows. Upon the first amendment the ordinary shares to be held for the benefit of the participants to the Customer Co-Investment Program were converted into ordinary shares M and all other ordinary shares were converted into ordinary shares A. Upon the second amendment the par value per ordinary share A was increased from 0.09 to 9.24 at the expense of the share premium reserve. Upon the third amendment, the nominal value per ordinary share A was reduced to an amount of 0.06, by decreasing the nominal value per ordinary share A by an amount of 9.18, which resulted in a repayment of the same amount per share to holders of ordinary shares into which the ordinary shares A were converted. The fourth amendment provided for the consolidation of the ordinary shares A through the exchange of each 100 ordinary shares for 77 ordinary shares, resulting in an increase of the nominal value per ordinary share from 0.06 to 0.09, whereby the aggregate difference is booked at the expense of the share premium reserve. The fifth and last amendment provided for the deletion of the share class M for participants to the ASML ANNUAL REPORT 2012 F-45

131 Customer Co-Investment Program and the share class A for the other shareholders. The ordinary shares M and A were converted thereafter into ordinary shares without a specific letter mark attached to it. These amendments in substance constitute a Synthetic Share Buyback in which we effectively repurchased 93,411,216 shares at an average price of for a total amount of 3,728.3 million. The difference of million between the capital repayment of 3,728.3 million and the net proceeds from issuance of shares of 3,853.9 million relates to the capital repayment on ASML s treasury shares which was also part of the Synthetic Share Buyback. Ordinary shares Each ordinary share consists of 900 fractional shares. Fractional shares entitle the holder thereof to a fractional dividend but do not entitle the holder thereof to voting rights. Only those persons who hold shares directly in the share register in the Netherlands, held by us at our address at 5504 DR Veldhoven, de Run 6501, the Netherlands, or in the New York share register, held by JP Morgan Chase Bank, N.A., P.O. Box 64506, St. Paul, MN , United States, can hold fractional shares. Persons who hold ordinary shares through the deposit system under the Dutch Securities Bank Giro Transactions Act ( Wet giraal effectenverkeer ; the Giro Act ) maintained by the Dutch central securities depository ( Nederlands Centraal Insituut voor Giraal Effectenverkeer B.V., Euroclear Nederland ) or through the Depositary Trust Company ( DTC ) cannot hold fractional shares. An ordinary share entitles the holder thereof to cast nine votes in the General Meeting of Shareholders. At our EGM held on September 7, 2012, the Board of Management was authorized from September 7, 2012 through October 25, 2013, subject to the approval of the Supervisory Board, to issue shares and/or rights thereto representing up to a maximum of 5.0 percent of our issued share capital at April 25, 2012, plus an additional 5.0 percent of our issued share capital at April 25, 2012 that may be issued in connection with mergers, acquisitions and/or (strategic) alliances. Holders of ASML s ordinary shares have a preemptive right of subscription, in proportion to the aggregate nominal amount of the ordinary shares held by them, to any issuance of ordinary shares for cash, which right may be restricted or excluded. Ordinary shareholders have no pro rata preemptive right of subscription to any ordinary shares issued for consideration other than cash or ordinary shares issued to employees. If authorized for this purpose by the General Meeting of Shareholders (either by means of a resolution or by an amendment to our Articles of Association), the Board of Management has the power subject to approval of the Supervisory Board, to restrict or exclude the preemptive rights of holders of ordinary shares. At our EGM held on September 7, 2012, the Board of Management was authorized from September 7, 2012 through October 25, 2013, subject to approval of the Supervisory Board, to restrict or exclude preemptive rights of holders of ordinary shares up to a maximum of 10.0 percent of our issued share capital at April 25, With this authorization, the corresponding authorization granted at the AGM held on April 25, 2012, ceased to apply to the extent not already used. We may repurchase our issued ordinary shares at any time, subject to compliance with the requirements of Dutch law and our Articles of Association. Any such repurchases are and remain subject to the approval of the Supervisory Board and the authorization of shareholders at ASML s AGM, which authorization may not be for more than 18 months. At the AGM held on April 25, 2012, the Board of Management has been authorized, subject to Supervisory Board approval, to repurchase through October 25, 2013, up to a maximum of two times 10.0 percent of our issued share capital at April 25, 2012, at a price between the nominal value of the ordinary shares purchased and percent of the market price of these securities on NYSE Euronext Amsterdam or NASDAQ. At our AGM to be held on April 24, 2013, we shall request the authorization for the Board of Management to repurchase and cancel shares for a period of 18 months as of the 2013 AGM, i.e. until October 24, 2014, all in conformity with the provisions of the law and our Articles of Association. Ordinary shares B As part of the most recent changes in our Articles of Association, adopted at the EGM held on September 7, 2012, the 9,000 ordinary shares B with a nominal value of 0.01 were introduced. A person who holds (a multiple of) 100 fractional shares, may exchange those fractional shares for an ordinary share B. Every holder of an ordinary share B is entitled to one-ninth (1/9) of a dividend. Each ordinary share B entitles the holder thereof to cast one vote at the General Meeting. Cumulative preference shares In 1998, we granted to the preference share foundation, Stichting Preferente Aandelen ASML (the Foundation ) an option to acquire cumulative preference shares in our capital (the Preference Share Option ). This option was amended and extended in 2003 and A third amendment to the option agreement between the Foundation and ASML became effective on January 1, 2009, to clarify the procedure for the repurchase and cancellation of the preference shares when issued. ASML ANNUAL REPORT 2012 F-46

132 Per the amendment of our Articles of Association of May 6, 2011, the nominal value of the cumulative preference shares was increased to The number of cumulative preference shares included in the authorized share capital was decreased to 700,000,000. This was done to simplify the Articles of Association, and to give each share the right to cast one vote in the General Meeting of Shareholders. The Foundation may exercise the preference share option in situations where, in the opinion of the Board of Directors of the Foundation, our interests, our business or the interests of our stakeholders are at stake. This may be the case if a public bid for our shares has been announced or has been made, or the justified expectation exists that such a bid will be made without any agreement having been reached in relation to such a bid with us. The same may apply if one shareholder, or more shareholders acting in concert, hold a substantial percentage of our issued ordinary shares without making an offer or if, in the opinion of the Board of Directors of the Foundation, the (attempted) exercise of the voting rights by one shareholder or more shareholders, acting in concert, is materially in conflict with our interests, our business or our stakeholders. The objectives of the Foundation are to look after the interests of ASML and of the enterprises maintained by ASML and of the companies which are affiliated in a group with ASML, in such a way that the interests of ASML, of those enterprises and of all parties concerned are safeguarded in the best possible way, and influences in conflict with these interests which might affect the independence or the identity of ASML and those companies are deterred to the best of the Foundation s ability, and everything related to the above or possibly conducive thereto. The Foundation seeks to realize its objects by the acquiring and holding of cumulative preference shares in the capital of ASML and by exercising the rights attached to these shares, particularly the voting rights attached to these shares. The preference share option gives the Foundation the right to acquire a number of cumulative preference shares as the Foundation will require, provided that the aggregate nominal value of such number of cumulative preference shares shall not exceed the aggregate nominal value of the ordinary shares that have been issued at the time of exercise of the Preference Share Option for a subscription price equal to their nominal value. Only one-fourth of the subscription price is payable at the time of initial issuance of the cumulative preference shares, with the other three-fourths of the nominal value only being payable when we call up this amount. Exercise of the preference share option could effectively dilute the voting power of the outstanding ordinary shares by one-half. Cancellation and repayment of the issued cumulative preference shares by us requires the authorization by the General Meeting of Shareholders of a proposal to do so by the Board of Management approved by the Supervisory Board. If the preference share option is exercised and as a result cumulative preference shares are issued, we, at the request of the Foundation, will initiate the repurchase or cancellation of all cumulative preference shares held by the Foundation. In that case we are obliged to effect the repurchase and cancellation respectively as soon as possible. A cancellation will have as a result a repayment of the amount paid and exemption from the obligation to pay up on the cumulative preference shares. A repurchase of the cumulative preference shares can only take place when such shares are fully paid up. If the Foundation will not request us to repurchase or cancel all cumulative preference shares held by the Foundation within 20 months after issuance of these shares, we will be obliged to convene a General Meeting of Shareholders in order to decide on a repurchase or cancellation of these shares. The Foundation is independent of ASML. The Board of Directors of the Foundation comprises four independent voting members from the Dutch business and academic communities. As of January 1, 2012, the members of the Board of Directors of the Foundation are: Mr. A. Baan, Mr. M.W. den Boogert, Mr. J.M. de Jong and Mr. A.H. Lundqvist. Dividend proposal As part of our financing policy, we aim to pay an annual dividend that will be stable or growing over time. Annually, the Board of Management will, upon prior approval from the Supervisory Board, submit a proposal to the AGM with respect to the amount of dividend to be declared with respect to the prior year. The dividend proposal in any given year will be subject to the availability of distributable profits or retained earnings and may be affected by, among other factors, the Board of Management s views on our potential future liquidity requirements, including for investments in production capacity, the funding of our research and development programs and for acquisition opportunities that may arise from time to time; and by future changes in applicable income tax and corporate laws. Accordingly, it may be decided to propose not to pay a dividend or to pay a lower dividend with respect to any particular year in the future. For 2012, a proposal to declare a dividend of 0.53 per ordinary share of 0.09 nominal value will be submitted to the AGM to be held on April 24, ASML ANNUAL REPORT 2012 F-47

133 27. Purchases of Equity Securities by the Issuer and Affiliated Purchasers In addition to dividend payments, we intend to return cash to our shareholders on a regular basis through share buybacks or capital repayment, subject to our actual and anticipated level of liquidity requirements, our current share price, other market conditions and other relevant factors. On April 25, 2012, the General Meeting of Shareholders authorized the repurchase of up to a maximum of two times 10.0 percent of our issued share capital as of the date of authorization through October 25, On January 19, 2011, we announced our intention to repurchase up to 1.0 billion of our own shares within the next two years. On January 18, 2012, we announced to increase the size of the program to a maximum amount of 1,130 million. During the period from January 1, 2012 up to and including November 22, 2012, when the program was completed, we had purchased 11,278,058 of our shares for a total amount of million at an average price of per share. These shares are intended to be cancelled in Furthermore, on January 18, 2012, we announced our intention to purchase up to 2.2 million of additional shares during 2012 for the purpose of covering outstanding employee stock and stock option plans. During the period from November 22, 2012 up to and including December 14, 2012, when the program was completed, a total number of 2.2 million shares was purchased for a total amount of million at an average price of per share. These shares will be held as treasury shares pending delivery pursuant to such plans. Both programs had been suspended between July 10, 2012 and October 18, 2012 following the announcement of the Customer Co-Investment Program on July 9, The following table provides a summary of our repurchased shares in 2012 (excluding the Synthetic Share Buyback effectuated in November 2012): Period Total number of shares purchased Average price paid per Share () Total number of shares purchased as part of publicly announced plans or programs Maximum value of shares that may yet be purchased under the program 1 () Maximum number of shares that may yet be purchased under the program 2 January 20-31, ,132, ,132, ,369,363 2,200,000 February 1-28, ,025, ,157, ,780,615 2,200,000 March 1-31, , ,107, ,820,741 2,200,000 April 1-30, , ,761, ,501,698 2,200,000 May 2-31, ,219, ,981, ,530,029 2,200,000 June 1-30, ,133, ,114, ,764,616 2,200,000 July 1-29, , ,542, ,366,940 2,200,000 August 1-31, ,542, ,366,940 2,200,000 September 1-30, ,542, ,366,940 2,200,000 October 3-31, ,153, ,695, ,099,413 2,200,000 November 1-30, ,240, ,935,909-1,542,149 December 1-31, ,542, ,478, Total 13,478, Program to purchase shares up to a maximum amount of 1,130 million. We have or will cancel these shares. 2 Program to purchase up to 2.2 million shares for the purpose of covering outstanding employee stock and stock option plans At the EGM held on September 7, 2012, a resolution was passed to amend the Articles of Association in connection with the Synthetic Share Buyback to be effected in connection with the Customer Co-Investment Program. We refer to Note 26 for a summary description of these amendments. On November 24, 2012, we effectuated the amendments consisting of a repayment to shareholders (excluding participating customers) of 9.18 per ordinary share and the exchange of each 100 ASML ordinary shares for 77 ASML ordinary shares. As a result of these amendments, which in substance constitute a Synthetic Share Buyback, we effectively repurchased 93,411,216 shares at an average price of for a total amount of 3,728.3 million. ASML ANNUAL REPORT 2012 F-48

134 28. Customer Co-Investment Program Overview On July 9, 2012, we announced our Customer Co-Investment Program to accelerate our development of EUV technology beyond the current generation and our development of future 450mm silicon wafer technology. The participating customers agreed to fund 1.38 billion of our research and development projects from 2013 through This program creates risk sharing with some of our largest customers while the results of ASML s development programs will be available to every semiconductor manufacturer with no restrictions. The R&D funding program in the Customer Co-Investment Program consists of two funding projects: a 450mm technology development project and a next-generation EUV development project. ASML has entered into Non Recurring Engineering ( NRE ) funding agreements with the participating customers. In addition to the funding commitments described above, the participating customers have invested in ordinary shares equal, in aggregate, to 23 percent of ASML s issued share capital (calculated giving effect to our Synthetic Share Buyback in November 2012). The proceeds of the share issuance, 3.85 billion, were returned to the holders of ordinary shares (excluding the participating customers) through a Synthetic Share Buyback executed in November For further information regarding the Synthetic Share Buyback, see Note 26 to our consolidated financial statements. Description of Investment Agreements, Shareholder Agreements and NRE Funding Agreements In connection with the Customer Co-Investment Program, ASML entered into an investment agreement, a shareholder agreement and NRE funding agreements with each of the participating customers. Intel is the largest participant in the program, with an aggregate funding commitment of 829 million and an investment in 15 percent of our ordinary shares (calculated giving effect to our Synthetic Share Buyback in November 2012). A description of the investment agreement, shareholders agreement and NRE funding agreements between ASML and Intel is set out below. The agreements between ASML and the other program participants TSMC (which acquired 5 percent of our shares and made an 277 million funding commitment) and Samsung (which acquired 3 percent of our shares and made an 276 million funding commitment) are on substantially the same terms as those agreed with Intel. Shares were acquired by Dutch foundations ( Stichtingen ) established for each participant. Investment Agreements Pursuant to the investment agreement between ASML and Intel, dated July 9, 2012 ( the Intel Investment Agreement ), ASML has issued and delivered to Intel Stichting ordinary shares equal to 15 percent of the issued ordinary shares with simultaneous issuance by the Intel Stichting to Intel of the corresponding depositary receipts. Pursuant to the investment agreement between ASML and TSMC, dated August 5, 2012 (the TSMC Investment Agreement ) ASML has issued and delivered to Stichting Administratiekantoor TSMC ( TSMC Stichting ) ordinary shares equal to 5 percent of the issued ordinary shares with simultaneous issuance by the TSMC Stichting to TSMC of the corresponding depositary receipts. Pursuant to the investment agreement between ASML and Samsung, dated August 27, 2012 (the Samsung Investment Agreement and together with the Intel Investment Agreement and TSMC Investment Agreement, the Investment Agreements ), ASML has issued and delivered to the Samsung Stichting ordinary shares equal to 3 percent of the issued ordinary shares with simultaneous issuance by the Samsung Stichting to Samsung of the corresponding depositary receipts. The subscription price for the ordinary shares under the Investment Agreements was per ordinary share, which is the average of the volume weighted average price of the ordinary shares on NYSE Euronext Amsterdam for the twenty trading days up to and including July 6, Based upon the subscription price ( 39.91) included in the Investment Agreements, the equity participation of Intel (15 percent), TSMC (5 percent) and Samsung (3 percent) amount to 2,513 million, 838 million and 503 million, respectively. Under the Intel Investment Agreements, ASML has agreed to indemnify the participating customers and their affiliates for certain losses and expenses related to breaches of representations, warranties, covenants and agreements in the Investment Agreements and with respect to certain legal proceedings related thereto, subject to certain limitations. ASML ANNUAL REPORT 2012 F-49

135 Shareholder Agreements In connection with the issuance of shares pursuant to the Intel Investment Agreement, on September 12, 2012 ASML, Intel and the Intel Stichting entered into a shareholder agreement (the Shareholder Agreement ) which governs certain matters relating to the holding of and further investment by Intel in ordinary shares of ASML, directly and indirectly through the Intel Stichting, including the matters described below. The shareholder agreements between ASML and the other program participants (TSMC and Samsung) are on substantially the same terms as those agreed with Intel. Voting Restrictions Pursuant to the Intel Shareholder Agreement, Intel (and the Intel Stichting) will not be entitled to vote the ordinary shares that were acquired by the Intel Stichting as part of the Customer Co-Investment Program or any other ordinary shares otherwise transferred to the Intel Stichting (under the circumstances described under Standstill; Additional Purchases below) prior to a Shareholder Agreement Termination Event (as defined below), except when a Suspension Event (as described below) occurs and is continuing or where the following matters are proposed at any General Meeting (the Voting Restrictions ): (i) an issuance of ASML shares or grant of rights to subscribe for ASML shares representing 25 percent or more of the issued and outstanding share capital of ASML or the restriction or exclusion of pre-emption rights relating thereto (in each case, on an aggregate basis during the preceding 12 months) or the designation of the Board of Management as the authorized body to resolve on these matters; (ii) an authorization to repurchase 25 percent or more of ASML s issued and outstanding share capital on an aggregate basis during the preceding 12 months; (iii) the approval of a significant change in the identity or nature of ASML or our business, including a transfer of all or substantially all business or assets of ASML and our subsidiaries to a third party, the establishment or cancellation of a long-lasting cooperation of essential importance with a third party and an acquisition or disposition of an interest in the capital or assets of a person with a value of at least one third of the assets of ASML (on a consolidated basis); (iv) an amendment to ASML s Articles of Association that would materially affect the specific voting rights of Intel, would materially affect the identity or nature of ASML or our business, or would disproportionately (or uniquely) and adversely affect the rights or benefits attached to or derived from the ordinary shares held by Intel through the Intel Stichting as compared to the shareholders; (v) the dissolution of ASML; and (vi) any merger or demerger which would result in a material change in the identity or nature of ASML or its business. Standstill, Lock-up and Orderly Market Arrangements Standstill; Additional Purchases Subject to certain exceptions, pursuant to the Shareholder Agreement, Intel (or its affiliates) may not, prior to the six-year anniversary of the date of the Intel Shareholder Agreement (the Standstill Period ), acquire more than 19.9 percent of the outstanding share capital of ASML without ASML s prior approval (the Standstill Restriction ). There is an exception from the Standstill Restriction in the case of a suspension event, which includes certain circumstances where a third party has acquired or made an offer to acquire at least 20 percent of ASML s outstanding shares, and the Standstill Restriction will terminate upon the occurrence of a Shareholder Agreement Termination Event. The Shareholder Agreement permits Intel (and its affiliates) to acquire up to 4.99 percent of ASML s outstanding shares (other than shares acquired through the Customer Co-Investment Program) that may be held outside the Intel Stichting. For any additional ASML shares that Intel (or its affiliates) acquires in excess of 4.99 percent of the outstanding shares of ASML, Intel is required to deposit such shares with the Intel Stichting in exchange for Depositary Receipts. Shares held directly by Intel or its affiliates (and which not required to be deposited with the Intel Stichting) are not subject to the Voting Restrictions, or Lock-Up Restrictions (as defined below), but are subject to the Standstill Restriction. The Intel Stichting will continue to hold ASML shares owned by Intel (notwithstanding termination of the Standstill Period) until the earlier of (i) such time as Intel owns (directly or through the Intel Stichting) less than 2 percent of ASML s outstanding shares (the relevant percentage is 1 percent for the other participating customers) (ii) the date of notification to ASML by participating customers that the aggregate amount of ASML s outstanding shares owned by Intel and the other participating customers represents less than 5 percent of ASML s outstanding shares and (iii) a Shareholder Agreement Termination Event (as defined below), following which time Depositary Receipts will be exchanged for the underlying ASML shares. In case Intel would acquire ASML shares within 18 months after an event described under (i) or (ii) above, any ASML shares held by Intel in excess of 4.99 percent of the outstanding shares of ASML must be transferred to (and held by) the Intel Stichting. ASML ANNUAL REPORT 2012 F-50

136 Lock-up; Orderly Sell Down Intel may not, without prior written consent of ASML, transfer any ordinary shares or Depositary Receipts until the earliest of (i) two years and six months after the date of the Intel Shareholder Agreement, (ii) termination of the NRE funding agreements, and (iii) the occurrence of a Shareholder Agreement Termination Event ((i), (ii) and (iii) together, the Lock-Up Restriction ). The Lock-Up Restriction does not apply in certain circumstances where a third party offers to acquire at least 20 percent of ASML s shares. Intel is not permitted to transfer the ASML ordinary shares it acquired in the program in connection with an offer (before the end of the offer), or make any public statement in support of such offer, that is not recommended by the ASML Supervisory Board or Management Board, except in limited circumstances. In addition, Intel may not (even after the Lock-Up Period has ended), without written consent of ASML, transfer on NYSE Euronext Amsterdam, NASDAQ or another securities exchange more than (i) in respect of Intel, 4 percent of the outstanding shares of ASML (the relevant percentage is 1.5 percent for Samsung and 2.5 percent for TSMC). There are also restrictions on Intel s ability to transfer ASML shares to certain competitors or customers of ASML. Termination The Intel Shareholder Agreement will terminate upon the occurrence of the following events (each a Shareholder Agreement Termination Event ) (i) certain change of control transactions were the shareholders of ASML prior to such a transaction are no longer entitled to exercise at least 50 percent of the votes in the General Meeting following such transaction, (ii) in the event of a delisting of the Ordinary Shares from NYSE Euronext Amsterdam or delisting from NASDAQ (except for certain voluntary delistings from NASDAQ), (iii) the winding up or liquidation of ASML, or (vi) in the event that all Depositary Receipts are exchanged for ASML shares and Intel does not acquire ASML shares in excess of 4.99 percent of the outstanding ASML shares within 18 months of such exchange (see Standstill; Additional Purchases above). NRE Funding Agreements On July 9, 2012, ASML and Intel entered into two NRE funding agreements pursuant to which Intel will support ASML s R&D costs and project expenditures. One agreement relates to the development of 450mm lithography equipment (the Intel 450mm NRE Funding Agreement ) and the other relates to the development of EUV lithography equipment (the Intel EUV NRE Funding Agreement and together with the Intel 450mm NRE Funding Agreement, the Intel NRE Funding Agreements ). Intel has committed to provide 553 million in funding under the Intel 450mm NRE Funding Agreement and 276 million in funding under the Intel EUV NRE Funding Agreement, payable over the respective terms ( ) of the Intel NRE Funding Agreements. On August 5, 2012, ASML and TSMC entered into the TSMC NRE funding agreement (the TSMC NRE Funding Agreement ) pursuant to which TSMC will support ASML s R&D costs and project expenditures relating to the development of 450mm lithography equipment and EUV platforms. TSMC has committed to provide 277 million in funding payable over the term ( ) of the TSMC NRE Funding Agreement. On August 27, 2012, ASML and Samsung entered into the Samsung NRE funding agreement (the Samsung NRE Funding Agreement ) pursuant to which Samsung will support ASML s R&D costs and project expenditures relating to the development of 300mm/450mm EUV platforms. Samsung has committed to provide 276 million in funding payable over the term ( ) of the Samsung NRE Funding Agreement. Under the Intel NRE Funding Agreements, the TSMC NRE Funding Agreement, and the Samsung NRE Funding Agreement (together the NRE Funding Agreements ), ASML will retain sole control over the development of 450mm photo lithography equipment and EUV platforms and will own all intellectual property created by ASML in connection therewith. The NRE Funding Agreements provide that if ASML, in its reasonable discretion, determines to abandon either the 450mm or EUV development project, as a result of technical infeasibility or lack of sufficient industry demand, or if the then remaining funding exceeds the expenditure estimate for the development project (450mm or EUV) then the parties may agree on an alternative development project, and if no alternative is agreed, ASML may invoice the participating customers for the remaining due portion of committed funding during each year of the remaining funding period in which ASML s actual gross R&D expenditures exceed a minimum threshold specified in the NRE Funding Agreements. The NRE Funding Agreements will terminate on December 31, 2017 or upon pre-payment by the participating customer of the aggregate amount of funding owed under its respective NRE Funding Agreement. ASML ANNUAL REPORT 2012 F-51

137 Commercial Agreement On July 9, 2012, ASML and Intel entered into a Commercial Agreement, pursuant to which ASML and Intel established a contractual framework for Intel to purchase equipment related to the 450mm and EUV next-generation lithography equipment. Under this agreement, Intel has committed to purchase specified numbers of 450mm and EUV tools. The agreement sets forth pricing terms for the tools as well as milestones related to product deliveries, and provides for certain commercial discounts in the form of credits in exchange for Intel s early purchase commitments and volume purchase commitments and for specified additional credits in the event that certain schedules are not met. In addition, subject to certain conditions, ASML has agreed to install sufficient capacity to meet Intel s forecasted 450mm lithography equipment needs through Accounting Policies The Investment Agreements, Shareholder Agreements, NRE Funding Agreements and Commercial Agreement are accounted for as a multiple-element arrangement with each of the participating customers. Based upon ASC Multiple-Element Arrangements guidance, the following two separate elements are identified for each arrangement: (1) the share issuance (governed by the Investment Agreement and the Shareholder Agreement) and (2) the NRE funding and commercial discounts and credits (governed by the NRE Funding Agreement(s) and the Commercial Agreement). The shares issued to the participating customers are recorded at fair value based on quoted share prices ( 3,968.7 million) with the remaining aggregate arrangement consideration allocated to the NRE funding and commercial discounts and credits. The difference between the fair value of the shares and the subscription price of the shares ( 39.91) is recorded as a deduction from shareholders equity upon issuance of the shares ( million). Shareholders equity is increased to the fair value of the shares as the portion of the NRE funding allocable to the shares is received over the NRE funding period ( ). The amounts are deemed receivables from the participating customers in their capacity as shareholders of ASML. A significant related party relationship exists between ASML and Intel as a result of the equity investment made by Intel as part of the Customer Co-Investment Program. Based on the commercial discounts and credits (governed by the Commercial Agreement) and the significant related party relationship, all NRE funding will be deferred and recognized in the consolidated income statement only when the commercial discounts and credits are earned. The portion of the NRE funding from TSMC and Samsung, not allocable to the shares, will be recognized in the consolidated income statement when the R&D costs relating to the development of 450mm lithography equipment and EUV platforms are recognized over the NRE funding period. For further details regarding the share issuances to the participating customers and the Synthetic Share Buyback effectuated in connection with our Customer Co-Investment Program, see Note 26. ASML ANNUAL REPORT 2012 F-52

138 29. Related Party Transactions Consistent with our corporate responsibilities to our surrounding community and together with several other companies in the region, in prior year ASML entered into a loan agreement with a local sports club PSV N.V.; pursuant to which ASML provided PSV N.V., as of August 1, 2011, a 14 year, interest free, subordinated loan of 5.0 million. As of June 30, 2012 the chairman of the Supervisory Board of ASML, Mr. Arthur van der Poel and Chief Financial Officer of ASML, Mr. Peter Wennink resigned as members of the Supervisory Board of PSV N.V., therefore the loan agreement with PSV N.V. is concluded to no longer classify as a related party transaction from that date onwards. On July 9, 2012, we announced our Customer Co-Investment Program to accelerate our development of EUV technology beyond the current generation and our development of future 450mm silicon wafer technology. One of the participating customers, Intel, agreed to fund 829 million for our R&D projects. In addition Intel also agreed to invest in ordinary shares equal to 15 percent of our issued share capital. Due to the equity investment, Intel is considered a related party of ASML as of July 9, We have entered into various agreements with Intel and have recognized sales and incurred costs of systems, services and field options provided by ASML since the date that Intel became a related party. We believe that all such transactions have been entered into in the ordinary course of business, with the exception of certain terms included in the agreements entered into as part of the Customer Co-Investment Program: Investment Agreement: Pursuant to the Intel Investment Agreement, ASML agreed to issue to Intel Stichting ordinary shares equal to 15 percent of the issued ordinary shares which the Intel Stichting then issued to Intel a corresponding number of depositary receipts representing these shares. The subscription price for the ordinary shares under the investment agreement was per ordinary share, which is the average of the volume weighted average price of the ordinary shares on Euronext for the twenty trading days up to and including July 6, Under the investment agreement, ASML has agreed to indemnify Intel and its affiliates for certain losses and expenses related to breaches of representations, warranties, covenants and agreements in the investment agreement and with respect to certain legal proceedings related thereto, subject to certain limitations. Shareholder Agreement: In connection with the issuance of the ordinary shares to the Intel Stichting, Intel and its relevant subsidiaries, the Intel Stichting and ASML have entered into the shareholder agreement, which governs certain matters relating to the holding and disposing of and further investments in ordinary shares by Intel, directly and indirectly through the Intel Stichting. NRE Funding Agreement: On July 9, 2012, ASML and Intel entered into the Intel NRE Funding Agreement pursuant to which Intel has agreed to provide funding for certain of ASML s R&D costs and project expenditures. One agreement relates to the development of 450mm lithography equipment (the Intel 450mm NRE Funding Agreement ) and the other relates to the development of EUV lithography equipment (the Intel EUV NRE Funding Agreement ). Intel has committed to provide funding in an aggregate amount of 553 million under the Intel 450mm NRE Funding Agreement and funding in an aggregate amount of 276 million under the Intel EUV NRE Funding Agreement, payable over the term of the relevant agreement ( ). ASML will retain sole control over the development of 450mm photo lithography equipment and EUV platforms and will own all intellectual property created by ASML in connection therewith. The Intel NRE Funding Agreements provide that if ASML, in its reasonable discretion, determines to abandon either the 450mm or EUV development project, as a result of technical infeasibility or lack of sufficient industry demand, or if the then remaining funding exceeds the expenditure estimate for the development project (450mm or EUV) then the parties may agree on an alternative development project if no alternative is agreed, ASML may invoice Intel for the remaining due portion of committed funding during each year of the remaining funding period in which ASML s actual gross R&D expenditures exceed a minimum threshold specified in the relevant agreement. The NRE funding agreements will terminate on December 31, 2017 or upon pre-payment by Intel of the aggregate amount of funding owed under the relevant funding agreement. Commercial Agreement: On July 9, 2012, ASML and Intel entered into the Commercial Agreement, pursuant to which ASML and Intel established a contractual framework for Intel to purchase equipment related to the 450mm and next-generation EUV lithography equipment. Under this agreement, Intel has committed to purchase specified numbers of 450mm and EUV tools. The agreement sets forth pricing terms for the tools as well as milestones related to product deliveries, and provides for certain commercial discounts in the form of credits in exchange for Intel s early purchase commitments and volume purchase commitments and for specified additional credits in the event that certain schedules are not met. In addition, subject to certain conditions, ASML has agreed to install sufficient capacity to meet Intel s forecasted 450mm lithography equipment needs through The total net sales to Intel (and its affiliates) for the period from July 9, 2012 to December 31, 2012 amounted to million whereas the outstanding balances as of December 31, 2012 amount to 65.0 million. Except for the above, there have been no transactions during our most recent fiscal year, and there are currently no transactions, between ASML or any of its subsidiaries, and any other significant shareholder and any director or officer ASML ANNUAL REPORT 2012 F-53

139 or any relative or spouse thereof other than ordinary course compensation arrangements. During our most recent fiscal year, there has been no, and at present there is no, outstanding indebtedness to ASML owed or owing by any director or officer of ASML or any associate thereof, other than the virtual financing arrangement with respect to shares and stock options as described under Note 17. All amounts due to ASML under the virtual financing arrangement were repaid during Subsequent Events On february 5, 2013, the Cymer Stockholders approved the previously announced merger agreement, dated October 16, 2012 at the special meeting of Cymer Stockholders. See Note 25 for additional information. Veldhoven, the Netherlands February 12, 2013 /s/ Eric Meurice, Eric Meurice, Chief Executive Officer /s/ Peter T.F.M. Wennink, Peter T.F.M. Wennink, Chief Financial Officer ASML ANNUAL REPORT 2012 F-54

140 Report of Independent Registered Public Accounting Firm To the Supervisory Board and Shareholders of ASML Holding N.V.: We have audited the accompanying consolidated balance sheets of ASML Holding N.V. and subsidiaries (collectively, the Company ) as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive income, shareholders equity, and cash flows for each of the three years in the period ended December 31, 2012 (all expressed in euros). We also have audited the Company s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company s internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company s internal control over financial reporting is a process designed by, or under the supervision of, the company s principal executive and principal financial officers, or persons performing similar functions, and effected by the company s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company s assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ASML Holding N.V. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. /s/ Deloitte Accountants B.V. Eindhoven, The Netherlands February 12, 2013 ASML ANNUAL REPORT 2012 F-55

141

142 Exhibits

143 Exhibit Index Exhibit No. Description 1 Articles of Association of ASML Holding N.V. (English translation) (Incorporated by reference to Amendment No. 13 to the Registrant s, Registration Statement on Form 8-A/A, filed with the Commission on February 8, 2013) 2.1 Fiscal Agency Agreement between ASML Holding N.V., Deutsche Bank AG, London Branch and Deutsche Bank Luxembourg S.A. relating to the Registrant s 5.75 percent Notes due 2017 (Incorporated by reference to the Registrant s Annual Report for the year ended December 31, 2008) 4.1 Agreement between ASM Lithography B.V. and Carl Zeiss, dated March 17, 2000 (Incorporated by reference to the Registrant s Annual Report on Form 20-F for the fiscal year ended December 31, 2000) Agreement between ASML Holding N.V. and Carl Zeiss, dated October 24, 2003 (Incorporated by reference to the Registrant s Annual Report on Form 20-F for the year ended December 31, 2003) Form of Indemnity Agreement between ASML Holding N.V. and members of its Board of Management (Incorporated by reference to the Registrant s Annual Report on Form 20-F for the year ended December 31, 2003) 4.4 Form of Indemnity Agreement between ASML Holding N.V. and members of its Supervisory Board (Incorporated by reference to the Registrant s Annual Report on Form 20-F for the year ended December 31, 2003) 4.5 Form of Employment Agreement for members of the Board of Management (Incorporated by reference to the Registrant s Annual Report on Form 20-F for the fiscal year ended December 31, 2003) 4.6 Nikon-ASML Patent Cross-License Agreement, dated December 10, 2004, between ASML Holding N.V. and Nikon Corporation (Incorporated by reference to the Registrant s Annual Report on Form 20-F for the fiscal year ended December 31, 2004) ASML/Zeiss Sublicense Agreement, 2004, dated December 10, 2004, between Carl Zeiss SMT AG and ASML Holding N.V. (Incorporated by reference to the Registrant s Annual Report on Form 20-F for the fiscal year ended December 31, 2004) ASML New Hires and Incentive Stock Option Plan For Management (Version 2003) (Incorporated by reference to the Registrant s Statement on Form S-8, filed with the Commission on September 2, 2003 (File No )) 4.9 ASML Incentive and New Hire Option Plan for Board of Management (Incorporated by reference to the Registrant s Registration Statement on Form S-8, filed with the Commission on June 9, 2004 (File No )) 4.10 ASML Option Plan for Management of ASML Holding Group Companies (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on June 30, 2005 (file No )) 4.11 ASML Stock Option Plan for New Hire Options granted to Members of the Board of Management (Version April 2006) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on August 7, 2006 (file No )) 4.12 ASML Stock Option Plan for Incentive or New Hire Options granted to Senior and Executive Management (Version April 2006) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on August 7, 2006 (file No )) 4.13 ASML Stock Option Plan for Incentive or New Hire Options granted to Senior and Executive Management (Version July 2006) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on August 7, 2006 (file No )) 4.14 ASML Stock Option Plan for Incentive or New Hire Options granted to Senior and Executive Management (Version October 2006) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on August 7, 2006 (file No )) 4.15 ASML Restricted Stock Plan (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on March 7, 2007 (file No )) 4.16 Brion Technologies, Inc., 2002 Stock Option Plan (as amended on March 25, 2005; March 24, 2006; and November 17, 2006) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on April 20, 2007 (file No )) 4.17 ASML Stock Option Plan for Incentive or New Hire Options granted to Senior and Executive Management (Version January 2007) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on July 5, 2007 (file No )) 4.18 ASML Stock Option Plan for Incentive or New Hire Options granted to Senior and Executive Management (Version April 2007) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on July 5, 2007 (file No )) 4.19 ASML Stock Option Plan for Incentive or New Hire Options granted to Senior and Executive Management (Version July 2007) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on July 5, 2007 (file No )) 4.20 ASML Stock Option Plan for Incentive or New Hire Options granted to Senior and Executive Management (Version October 2007) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on July 5, 2007 (file No )) 4.21 ASML Performance Stock Plan for Members of the Board of Management (Version 1) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on July 5, 2007 (file No ))

144 4.22 ASML Performance Stock Option Plan for Members of the Board of Management (Version 2) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on July 5, 2007 (file No )) 4.23 ASML Stock Option Plan from Base Salary for Senior & Executive Management (Version October 2007) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on November 2, 2007 (file No )) 4.24 ASML Performance Stock Option Plan for Senior and Executive Management (version 1) (Incorporated by reference to the Registrant s. Registration Statement on Form S-8 filed with the Commission on August 29, 2008 (file No )) 4.25 ASML Performance Share Plan for Senior and Executive Management (version 1) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on August 29, 2008 (file No )) 4.26 ASML Restricted Stock Plan (version 2) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on August 29, 2008 (file No )) 4.27 ASML Performance Stock Plan for Members of the Board of Management (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on October 13, 2009 (file No )) 4.28 ASML Performance Stock Option Plan for Senior and Executive Management (version 1) (Incorporated by reference to the Registrant s. Registration Statement on Form S-8 filed with the Commission on October 13, 2009 (file No ))

145 Exhibit No. Description 4.29 ASML Performance Share Plan for Senior and Executive Management (version 1) (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on October 13, 2009 (file No )) 4.30 ASML Share and Option Purchase Plan for Employees (Incorporated by reference to the Registrant s Registration Statement on Form S-8 filed with the Commission on October 20, 2010 (file No )) 4.31 Investment Agreement between ASML Holding N.V. and Intel Corporation, dated July 9, mm NRE Funding Agreement between ASML Holding N.V., and Intel Corporation, dated July 9, EUV NRE Funding Agreement between ASML Holding N.V., and Intel Corporation, dated July 9, Shareholder Agreement between ASML Holding N.V. and Intel Holdings B.V., Intel Corporation and Stichting Administratiekantoor MAKTSJAB dated September 12, Agreement and Plan of Merger by and among ASML Holding N.V., Kona Acquisition Company, Inc. Cymer, Inc. and certain other parties set forth therein, date October 16, 2012 (incorporated by reference to Annex A to the Registrant s Registration Statement on Form F-4 filed with the Commission on November 21, 2012 (file No )) 8.1 List of Main Subsidiaries 12.1 Certification of CEO and CFO Pursuant to Rule 13a-14(a) of the Securities Exchange Act of Certification of CEO and CFO Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of Consent of Deloitte Accountants B.V. 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE XBRL Instance Document XBRL Taxonomy Extension Schema Document 2 2 XBRL Taxonomy Extension Calculation Linkbase Document XBRL Taxonomy Extension Definition Linkbase Document XBRL Taxonomy Extension Label Linkbase Document XBRL Taxonomy Extension Presentation Linkbase Document Certain information omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission. 2 Filed at the Commission herewith , 2 1, 2

146

147

148 Exhibit 4.31 INVESTMENT AGREEMENT by and between ASML HOLDING N.V. and INTEL CORPORATION Dated as of July 9, 2012

149 TABLE OF CONTENTS ARTICLE I AGREEMENT TO PURCHASE AND SELL SHARES 1 Section 1.1 Agreement to Purchase and Sell Shares 1 Section 1.2 The Closings 1 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY 3 ARTICLE III REPRESENTATIONS AND WARRANTIES OF INVESTOR 3 ARTICLE IV COVENANTS 3 Section 4.1 Other Investor Offers 3 Section 4.2 Use of Proceeds 4 Section 4.3 Admission to Listing and Trading; Prospectus 5 Section 4.4 [Reserved] 5 Section 4.5 Shareholder Approval; Synthetic Buyback 5 Section 4.6 Stichting 7 Section 4.7 Changes; Encumbrances; Capital 7 Section 4.8 Reasonable Efforts 10 Section 4.9 Confidentiality; Public Disclosure 12 Section 4.10 Notice of Certain Events. 12 Section 4.11 Further Actions 13 ARTICLE V CONDITIONS TO THE COMPANY S AND INVESTOR S OBLIGATIONS AT THE INITIAL CLOSING 14 Section 5.1 Conditions to Investor s Obligations at the Initial Closing 14 Section 5.2 Conditions to the Company s Obligations at the Initial Closing 16 ARTICLE VI CONDITIONS TO THE COMPANY S AND INVESTOR S OBLIGATIONS AT THE ADDITIONAL CLOSING 17 Section 6.1 Conditions to Investor s Obligations at the Additional Closing 17 Section 6.2 Conditions to the Company s Obligations at the Additional Closing 19 ARTICLE VII INDEMNIFICATION 20 Section 7.1 Survival of Representations 20 Section 7.2 Indemnification 21 Section 7.3 Limitations 21 Section 7.4 No Effect 22 ARTICLE VIII TERMINATION 22 Section 8.1 Termination Prior to Initial Closing 22 Section 8.2 Termination Prior to Additional Closing 23 Section 8.3 Effect of Termination; Survival 24 ARTICLE IX MISCELLANEOUS 25 Section 9.1 Notices 25 Section 9.2 No Third-Party Beneficiaries 27 Page

150 TABLE OF CONTENTS (continued) Section 9.3 Entire Agreement 27 Section 9.4 Assignment; Successors 27 Section 9.5 Severability 27 Section 9.6 Amendments and Modifications 27 Section 9.7 Interpretation; References 27 Section 9.8 No Presumption Against Drafting Party 28 Section 9.9 Civil Law Notary 28 Section 9.10 No Rescission 28 Section 9.11 Specific Performance 28 Section 9.12 Remedies Cumulative 29 Section 9.13 Waivers 29 Section 9.14 Governing Law 29 Section 9.15 Dispute Resolution; Jurisdiction; Jury Trial Waiver 29 Section 9.16 Fees and Expenses 30 Section 9.17 Attorneys Fees 30 Section 9.18 Language 30 Section 9.19 Further Assurances 30 Section 9.20 Counterparts; Electronic Signature 30 iii Page

151 TABLE OF ANNEXES Annex A Definitions TABLE OF SCHEDULES Schedule I Schedule II Schedule III Representations and Warranties of the Company Representations and Warranties of Investor Other Knowledge Employees TABLE OF EXHIBITS Exhibit A Exhibit B Exhibit C Exhibit D Exhibit E Form of Deed of Issue Form of Investor Rights Agreement Form of Shareholder Agreement Resolutions Articles Amendment iv

152 INVESTMENT AGREEMENT This Investment Agreement (this Agreement ) is entered into as of July 9, 2012, by and between ASML Holding N.V., a public limited liability company organized under the laws of The Netherlands, with its corporate seat at Veldhoven, the Netherlands (the Company ), and Intel Corporation, a Delaware corporation ( Investor ). RECITALS A. The Company desires to sell and issue to Investor, and Investor desires to purchase from the Company, Ordinary Shares and securities convertible into Ordinary Shares of the Company. B. Concurrently with the execution of this Agreement, the Company and Investor are entering into the Signing Agreements. AGREEMENT In consideration of the representations, warranties, covenants and agreements herein contained, and intending to be legally bound hereby, the Parties agree as follows: ARTICLE I AGREEMENT TO PURCHASE AND SELL SHARES Section 1.1 Agreement to Purchase and Sell Shares. Subject to the terms and conditions hereof, the Company agrees to issue and deliver to the Stichting, and Investor agrees to purchase for issuance and delivery to the Stichting by way of administration ( ten titel van beheer) with simultaneous issuance and delivery by the Stichting to Investor (or its Investor Designee) of corresponding Depositary Receipts: (a) on the Initial Closing Date, 41,985,250 validly issued Ordinary Shares (the Initial Shares ) at a price of per Share, less any reduction provided under Section 4.7(b) (the Issue Price ), for an aggregate purchase price equal to the product of the number of Initial Shares times the Issue Price (the Initial Shares Price ); and (b) on the Additional Closing Date, validly issued Additional Shares at a price per Ordinary Share equal to the Issue Price, for an aggregate purchase price equal to the product of the number of Additional Shares times the Issue Price (the Additional Shares Price ). Section 1.2 The Closings. (a) The Initial Closing. The issue, purchase and sale of the Initial Shares (the Initial Closing ) will take place at the offices of De Brauw Blackstone Westbroek N.V., Claude Debussylaan 80, 1082 MD Amsterdam, The Netherlands, as soon as practicable and no later than the date that is three (3) Business Days after satisfaction or waiver of the Specified Initial Closing Conditions (or if the EGM has not occurred by such date, the date designated by Investor in writing that is not later than three (3) Business Days after the EGM), or at such other

153 place or on such other date or in such other manner as the Parties may agree in writing (the Initial Closing Date ). The Initial Closing may occur on the same date and simultaneously with the Additional Closing. At the Initial Closing: (i) Investor will (A) execute and deliver to the Company all Initial Transaction Documents requiring Investor s signature (other than the Signing Agreements), (B) deliver the Initial Shares Price to an escrow account (the Escrow Account ), at the London office of Citibank International plc or such other financial institution as the Parties may mutually designate (the Escrow Holder ), which Escrow Holder shall hold the Initial Shares Price for the account of the Investor until the execution by the Civil Law Notary of the Deeds of Issue, upon which execution the Escrow Holder shall hold the Initial Shares Price for the account of the Company and shall transfer the Initial Shares Price from the Escrow Account to an account designated by the Company in written instructions delivered to Escrow Holder with a copy to Investor at least three (3) Business Days prior to the Initial Closing all in accordance with an escrow agreement to be entered into by the Parties and the Escrow Holder (the Escrow Agreement ) and (C) deliver to the Company and the Civil Law Notary an executed and, to the extent required by the Civil Law Notary, apostilled Power of Attorney; (ii) the Company will (A) execute and deliver to Investor all Initial Transaction Documents requiring the Company s signature (other than the Signing Agreements), (B) deliver to Investor the certificates contemplated by Section 5.1(f) and Section 5.1(g) for the Initial Closing and (C) deliver to Investor and the Civil Law Notary an executed and, to the extent required by the Civil Law Notary, apostilled Power of Attorney; and (iii) following completion of the actions set forth in clauses (i) and (ii), the Company and Investor will cause the Civil Law Notary to execute the Deeds of Issue, pursuant to which deed the Company will issue the Initial Shares to the Stichting, and the Company will register the issuance of the Initial Shares to the Stichting in the Company s shareholders register and deliver confirmation of such registration to Investor and the Parties shall cause the Stichting to deliver to Investor (or its Investor Designee) Depositary Receipts in respect of the Initial Shares pursuant to the Stichting Documentation. (b) The Additional Closing. The issue, purchase and sale of the Additional Shares, if any (the Additional Closing ), will take place at the offices of De Brauw Blackstone Westbroek N.V., Claude Debussylaan 80, 1082 MD Amsterdam, The Netherlands, as soon as practicable and no later than the date that is three (3) Business Days after satisfaction or waiver of the Specified Additional Closing Conditions or at such other place or on such other date or in such other manner as the Parties may agree in writing (the Additional Closing Date ). At the Additional Closing: (i) Investor will (A) execute and deliver to the Company all Additional Transaction Documents requiring Investor s signature, (B) deliver the Additional Shares Price to the Escrow Account, at which Escrow Account the Escrow Holder shall hold the 2

154 Additional Purchase Price for the account of the Investor until the execution by the Civil Law Notary of the Deed(s) of Issue, upon which execution the Escrow Holder shall hold the Additional Shares Price for the account of the Company and shall transfer the Additional Shares Price from the Escrow Account to an account designated by the Company in written instructions delivered to Escrow Holder with a copy to Investor at least three (3) Business Days prior to the Additional Closing all in accordance with the Escrow Agreement (C) deliver to the Company and the Civil Law Notary an executed and, to the extent required by the Civil Law Notary, apostilled Power of Attorney; (ii) the Company will (A) execute and deliver to Investor all Additional Transaction Documents requiring the Company s signature, (B) deliver to Investor the certificates contemplated by Section 6.1(f) and Section 6.1(g) for the Additional Closing and (C) deliver to Investor and the Civil Law Notary an executed and, to the extent required by the Civil Law Notary, apostilled Power of Attorney; and (iii) following completion of the actions set forth in clauses (i) and (ii), the Company and Investor will cause the Civil Law Notary to execute the Deed(s) of Issue, pursuant to which deed(s) the Company will issue the Additional Shares to the Stichting, and the Company will register the issuance of the Additional Shares in the Company s shareholders register and deliver confirmation of such registration to Investor (or its Investor Designee) and the Parties shall cause the Stichting to deliver to Investor (or its Investor Designee) Depositary Receipts in respect of the Additional Shares pursuant to the Stichting Documentation. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby, upon the date of this Agreement and at each of the Initial Closing and the Additional Closing, represents and warrants to Investor as set forth in Schedule I. ARTICLE III REPRESENTATIONS AND WARRANTIES OF INVESTOR Investor hereby, upon the date of this Agreement and at each of the Initial Closing and the Additional Closing, represents and warrants to the Company as set forth in Schedule II. ARTICLE IV COVENANTS Section 4.1 Other Investor Offers. Notwithstanding the covenants of the Company set forth in Section 4.7, the Parties acknowledge that, from the date hereof until the earlier of the termination of this Agreement in accordance with Article VIII ( Termination ) and the third (3 rd ) Business Day prior to the Synthetic Buyback, the Company will make offers to Persons that are customers of the Company to (i) purchase Ordinary Shares that will be issued and delivered to a stichting administratiekantoor by way of administration ( ten titel van beheer ) with simultaneous issuance and delivery by such stichting to the Other Investors of corresponding depositary receipts and (ii) make a corresponding NRE Commitment in connection therewith (each, an 3

155 Other Investor Offer ) as provided in this Section 4.1. From the date hereof until the earlier of the termination of this Agreement in accordance with Article VIII ( Termination ) and the third (3 rd ) Business Day prior to the Synthetic Buyback, the Company will enter into agreements in respect of and issue or transfer and sell Ordinary Shares to Persons who are customers solely in accordance with the following (and each customer who enters into any such agreement will be an Other Investor ): (a) The aggregate number of Ordinary Shares issuable to Other Investors pursuant to the Other Investor Offers will not exceed the Maximum Offer Amount. (b) The ratio of Ordinary Shares to the amount of NRE Commitment of any Other Investor may vary from that of Investor; provided, that the ratio of Ordinary Shares issuable to each Other Investor to the amount of the NRE Commitment to be made by each such Other Investor will not exceed the ratio of Ordinary Shares issuable to Investor pursuant to this Agreement and the Transaction Documents to the amount of Investor s NRE Commitment. (c) The rights provided by the Company to, and the contractual restrictions imposed by the Company on, any Other Investor, in the aggregate, with respect to an Other Investor Offer shall be no more favorable to such Other Investor than those applicable to Investor. Offer. (d) The price per Other Investor Share shall not be less than the Issue Price for any Other Investor that accepts an Other Investor (e) The Company will require that the consummation of the Additional Closing and the consummation of the issuance and sale of any Other Investor Shares to any Other Investors pursuant hereto be completed by the third (3 rd ) Business Day prior to the Synthetic Buyback and in compliance with Applicable Law. The Ordinary Shares issued to the Other Investors will be issued and delivered to a stichting administratiekantoor by way of administration ( ten titel van beheer ) with simultaneous issuance and delivery by such stichting to the Other Investors of corresponding depositary receipts and treated in the manner reflected in the Articles Amendment implementing Resolution (2 (a) through (e) in respect of the Class M Shares on the same terms as the Additional Shares. (f) The Company will deliver to Investor, three (3) Business Days before each of (i) the Additional Closing and (ii) the Synthetic Buyback, a statement by an authorized officer of the Company certifying (A) the total number of Ordinary Shares subscribed by each of the Other Investors as of such date and (B) the Company s compliance with all terms applicable to the offer and issuance to the Other Investors set forth in this Agreement. Section 4.2 Use of Proceeds. If the shareholders of the Company approve the Resolutions at the EGM, the Company will use the proceeds from the sale of the Shares to Investor and the sale of the Other Investor Shares to the Other Investors to fund a Synthetic Buyback. If the shareholders of the Company do not approve the Resolutions at the EGM, the Company will use the proceeds from the sale of the Initial Shares to Investor for the funding of 450mm tool development and roadmap acceleration (including with respect to 450mm EUV tools) and, with respect to any remainder, for general corporate purposes. 4

156 Section 4.3 Admission to Listing and Trading; Prospectus. (a) Subject to approval of the Resolutions by the shareholders of the Company at the EGM, the Company will prepare and file for approval with the Dutch Authority for the Financial Markets ( Autoriteit Financiële Markten, the AFM ) and make publicly available a prospectus in accordance with the Act on Financial Supervision ( Wet op het financieel toezicht, the Prospectus ). The Company will file a draft Prospectus with the AFM as soon as practicable following the Additional Closing Date. The Company will thereafter use all commercially reasonable efforts to obtain prompt approval of the Prospectus. (b) The Company will cause the Prospectus, on the date it is published to comply with all Applicable Laws of the Netherlands (including the Act on Financial Supervision), the Prospectus Directive and the Prospectus Regulation. The Company will also take all necessary action such that all requirements of the AFM in connection with the approval of the Prospectus and all conditions to such approval and any derogations or variations from the requirements or policies of the AFM or of the Prospectus Directive and the Prospectus Regulation granted by the AFM in connection with such approval, will be satisfied or complied with. (c) The Company will apply for admission to trading of the Shares on Euronext Amsterdam as soon as reasonably practicable, and in any case within ninety (90) days after (i) the Initial Closing Date, with respect to the Initial Shares and (ii) the Additional Closing Date, with respect to the Additional Shares, in each case in accordance with Rule 61002/1 sub (ii) of Euronext Rule Book I: Harmonised Rules. (d) Investor acknowledges that until the Shares are admitted to listing and trading on Euronext Amsterdam, such Shares will not be tradable via Euronext Amsterdam. As soon as reasonably practicable (and no later than eight (8) Business Days) following the Synthetic Buyback (or as soon as reasonably practicable (and no later than eight (8) Business Days following the EGM), in the event that the shareholders of the Company do not approve the Resolutions at the EGM, for the Initial Shares), the Parties shall cause the Shares to be included in the giro deposit and cause the Stichting to obtain a co-ownership interest in a joint deposit, both as referred to in the Dutch Securities Book Entry Transfer Act ( Wet giraal effectenverkeer ). Investor and the Company shall cause the Stichting to provide on a timely basis the information required for such inclusion (including details of one or more Dutch securities accounts of the Stichting at one or more affiliated institutions ( aangesloten instellingen ), designated for that purpose by Investor. Section 4.4 [Reserved]. Section 4.5 Shareholder Approval; Synthetic Buyback. (a) As soon as reasonably practicable after the date of this Agreement, and no later than the date that is fifteen (15) days after the date of this Agreement, the Company will issue and deliver a notice of convocation and agenda, together with explanatory notes to the agenda describing the material terms of the matters for which approval is sought (the EGM Materials ) for an extraordinary general meeting of its shareholders (the EGM ) to be held as 5

157 soon as reasonably practicable after the date of this Agreement, in order that the Company s shareholders may adopt the Resolutions. Unless otherwise agreed between the Company and Investor, the matters proposed for approval by the shareholders of the Company at the EGM shall consist solely of the Resolutions. The EGM Materials will comply with all requirements under Applicable Law and the Company Organizational Documents. Within a reasonable period of time prior to the issuance and delivery by the Company of the notice of convocation, agenda and explanatory notes for the EGM, and any additional materials published by the Company in connection with the EGM, the Company will furnish the draft of such materials to Investor and its counsel for their review and comment and incorporate such comments as are reasonably requested by Investor and its counsel to such documents. One or more Representatives of Investor will be entitled to attend the EGM to observe the EGM proceedings. (b) The Supervisory Board and Board of Management will unanimously recommend the adoption by the shareholders of the Resolutions. The Company will use its best efforts to (i) solicit from its shareholders proxies in favor of adoption of the Resolutions and (ii) obtain the adoption of the Resolutions by the Shareholders. (c) If the shareholders of the Company approve the Resolutions 1(a) and (b) and 2(a) through (e) at the EGM, the Company will (i) promptly, and in any event within five (5) Business Days after the EGM, deliver such notices and make such notices as necessary and appropriate to commence any creditor objection period as may be required by Applicable Law in connection with the Synthetic Buyback and use all commercially reasonable efforts to resolve any objection arising during such creditor objection period; and (ii) on or before the date that is the later of (x) in the absence of any objection being validly lodged during such objection period, the tenth (10th) Business Day following expiration of such objection period, (y) in the event of any objection being validly lodged during such objection period, the tenth (10th) Business Day following the withdrawal or dismissal of any such objection and (z) the seventh (7th) Business Day following the Additional Closing Date, cause the Civil Law Notary to execute deeds of amendment of the Articles of Association implementing Resolutions 2(a) through (e) in accordance with this Section 4.5(c); and (iii) determine the amount of the increase of the nominal value of each Ordinary Share (other than the Class M Shares) as contemplated by Resolution 2(b) and the amount of the decrease of the nominal value of each Ordinary Share (other than the Class M Shares) as contemplated by Resolution 2(c) so that the aggregate amount of the capital distribution as contemplated by Resolution 2(c) shall be as close as commercially reasonably practicable to the aggregate amount of the Initial Shares Price, the Additional Shares Price and the aggregate price of the Other Investor Shares, but not more than an amount equal to the number of Ordinary Shares to be reduced pursuant to the share consolidation as contemplated by clause (iv) below multiplied by the weighted average of the Initial Shares Price, the Additional Shares Price and the prices paid for the Other Investor Shares; and 6

158 (iv) determine the ratio for the share consolidation as contemplated by Resolution 2(d) so that either (A) the number of Ordinary Shares in Issuance immediately prior to the Synthetic Buyback is reduced by a number of Ordinary Shares equal to or more than the aggregate number of Initial Shares, Additional Shares and Other Investor Shares; or (B) the number of Ordinary Shares in Issuance immediately prior to the Synthetic Buyback is reduced by a number of Ordinary Shares as close as commercially reasonably practicable to, but less than, the aggregate number of Initial Shares, Additional Shares and Other Investor Shares. (v) In the event that (B) applies, the Company shall either (i) transfer such number of Shares held by it or (b) issue such number of Ordinary Shares to the Stichting by way of administration ( ten titel van beheer ) with simultaneous issuance and delivery by the Stichting to Investor of a corresponding number of Depositary Receipts, prior to or immediately after the Synthetic Buyback free of payment and in compliance with Applicable Law and the Company s stated intent in respect of the use of Shares held by it, so that the Stichting would hold immediately thereafter no less than both (x) the proportion of outstanding Ordinary Shares and (y) the proportion of Issued Ordinary Shares, that it would have held after giving effect to the provisions of Clause (A). In clarification of the foregoing, the Parties intend that Investor will own Depositary Receipts in respect of not less than fifteen percent (15%) of the Issued Ordinary Shares following the Synthetic Buyback (except in the event, and adjusted to the extent, that Investor has not made use of its rights pursuant to Section 4.7(a)(ii)(D) or that Ordinary Shares are issued after the Additional Closing). Section 4.6 Stichting. A reasonable time prior to the Initial Closing, the Company will establish a Stichting that will be governed by the Stichting Documentation and upon each applicable Closing, issue to Investor all Depositary Receipts in respect of the Ordinary Shares issued and delivered to such Stichting by way of administration ( ten titel van beheer ). The initial board of the Stichting will be selected from professional, reputable trust companies with Netherlands experience and will be mutually agreed upon by the Company and Investor in good faith. Section 4.7 Changes; Encumbrances; Capital. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement in accordance with its terms and the Additional Closing, except to the extent permitted in Section 4.1 or consented to in writing by Investor, the Company will not, directly or indirectly, and will not permit any of its Subsidiaries to: (a) issue, transfer, sell or grant rights to subscribe for share capital (including treasury shares) or other equity securities of any kind, including any securities exercisable for, convertible into or exchangeable for, share capital of the Company or any Subsidiary (other than transactions involving the issue, transfer, sale or grant of rights with respect to share capital of a 7

159 Subsidiary to the Company or another Subsidiary of the Company) or authorize or enter into any agreements to do any of the foregoing, other than: (i) during the period from the date of this Agreement through the Initial Closing: (A) Ordinary Shares, first using the Company s treasury shares until such treasury shares no longer remain available for such use, pursuant to options granted to employees of the Company or its Subsidiaries prior to the date of this Agreement under existing share-based incentive plans identified in the SEC Documents filed with or furnished to the SEC prior to the date of this Agreement or pursuant to any renewal or customary extensions or replacements thereof in the ordinary course consistent with past practice ( Company Plans ); (B) Ordinary Shares, first using the Company s treasury shares until such treasury shares no longer remain available for such use, issued or transferred to employees of the Company or its Subsidiaries after the date of this Agreement under any Company Plans in the ordinary course of business consistent in timing and amount with the Company s past practice and not exceeding 1,500,000 Ordinary Shares in the aggregate; (C) Cumulative Preference Shares issuable to Stichting Preferente Aandelen ASML (SPAA); (ii) during the period from the Initial Closing through the Additional Closing: (A) Ordinary Shares issued or transferred pursuant to Company Plans; (B) Ordinary Shares, first using the Company s treasury shares until such treasury shares no longer remain available for such use, issued or transferred to employees of the Company or its Subsidiaries after the date of this Agreement under any Company Plans in the ordinary course of business consistent in timing and amount with the Company s past practice and not exceeding 1,500,000 Ordinary Shares in the aggregate; (C) Cumulative Preference Shares issuable to Stichting Preferente Aandelen ASML (SPAA); (D) issuances of Ordinary Shares or transfers of the Company s treasury shares in connection with one or more Permitted Acquisitions constituting no more than Twenty-Five Percent (25%) of the outstanding share capital of the Company as of the date of this Agreement, or (E) other issuances of Ordinary Shares constituting no more than five percent (5%) of the outstanding share capital of the Company as of the date of this Agreement, provided that the Company notifies Investor of such issuance (or transfer, as the case may be) within five (5) days after the date thereof; provided further, however, that in the event of any issuance or transfer permitted under the foregoing clause (D), Investor shall have the right at the Initial Closing (or if the Initial Closing has theretofore occurred, at the Additional Closing) to acquire from the Company, and if Investor exercises such right, the Company shall issue at such Closing to the Stichting, a number of Ordinary Shares equal to the product of the number of Ordinary Shares issued in such issuance or transfer (and any securities issued or issuable in exchange for or with respect to the ordinary shares of the Company by way of a share dividend, share split or combination of shares, subdivision, consolidation, capitalization issue, recapitalization, merger, consolidation, scheme of arrangement, reorganization, reclassification or similar transaction after the date of such issuance) times , at a price per share (rounded to two significant digits) equal to the average of the VWAP per Ordinary Share for the twenty (20) trading days on the Euronext Amsterdam ending two (2) Business Days prior to the applicable Closing Date (subject to adjustments for any such share dividend, share split or combination of shares, subdivision, consolidation, capitalization issue, recapitalization, 8

160 merger, consolidation, scheme of arrangement, reorganization, reclassification or similar transaction after the date of such issuance); (b) declare, set aside, make or pay any dividend or other distribution (excluding share repurchases pursuant to the Buyback Program), payable in any form, including cash, shares, property or otherwise, with respect to any of the Company s share capital, except that the Company may declare and pay a cash dividend or other distribution on the Ordinary Shares (i) in connection with the Synthetic Buyback and (ii) in an amount of up to 0.50 per Ordinary Share for all such dividends or distributions in the aggregate; provided, however, that the Issue Price for any Closing occurring after the record date for such dividend or distribution shall be reduced by the amount per share of such dividend or distribution (subject to appropriate adjustments for any share dividend, share split or combination of shares, subdivision, consolidation, capitalization issue, recapitalization, merger, consolidation, scheme of arrangement, reorganization, reclassification or similar transaction after the date of this Agreement); (c) implement or set a record date for any reclassification, combination, split, subdivision or similar transaction (other than in connection with the Synthetic Buyback) with respect to any of the Company s share capital, unless such reclassification, combination, split, subdivision or similar transaction provides to Investor a substantially identical economic benefits (taking into account any Taxes that may be payable by Investor in respect of such transaction or the provision of such benefits) in respect of the Shares that Investor purchases or has purchased at the Initial Closing or Additional Closing, as the case may be; (d) retire or cancel any of the Company s treasury shares issued as of the date of this Agreement; (e) unless the Company and Investor otherwise agree in writing, consummate, agree to consummate or announce or disclose to any Person any intention or proposal to consummate (i) any investment in or acquisition of any of the equity securities or other voting securities (including any convertible or exchangeable securities or rights to acquire any equity securities or other voting securities) of any Person, whether by purchase or by means of a merger, consolidation, acquisition or similar transaction; (ii) any merger, combination with or consolidation with any Person; or (iii) acquisition of any business, division or operating unit or a significant portion of the assets of any Person or of any business, division or operating unit of any Person; provided, however, that the Company may consummate or agree to consummate, and thereafter announce or disclose, (A) any transaction constituting a Change of Control of the Company, provided that the Company has complied with Section 4.7(f)(i), (B) any Permitted Acquisition, provided that the Company has complied with Section 4.7(f)(ii), (C) any receipt of equity securities of any insolvent or bankrupt Person as part of a general settlement (pursuant to any applicable insolvency or bankruptcy Law) of the Company s claims as a creditor of such Person with respect to debt of such Person to the Company incurred by such Person in the ordinary course of the Company s business, or (D) after receipt of Investor s prior written consent (which will not be unreasonably withheld or delayed), any acquisition of the equity or assets of a supplier for cash in an amount less than Twenty Million Euros ( 20 million) individually or Fifty Million Euros ( 50 million) in the aggregate; or 9

161 actions: (f) directly or indirectly, take any of the following actions or permit any of its Affiliates or Representatives to take any of such (i) (A) solicit, initiate, induce, knowingly encourage or knowingly facilitate any proposal, offer, inquiry or expression of interest for any Change of Control of any Person, or (B) participate in or continue any negotiations regarding, or agree to, accept, approve, endorse or recommend any such Change of Control of any Person, in each case except in response to a bona fide, unsolicited written proposal, offer, inquiry or expression of interest made after the date hereof, that did not result from or arise out of a breach of this Section 4.7(f) and that the Company Supervisory Board determines in good faith is in the best interests of the Company; or (ii) (A) solicit, initiate, induce, knowingly encourage or knowingly facilitate any proposal, offer, inquiry or expression of interest for any acquisition of equity securities or other voting securities of or merger, combination or consolidation with, or acquisition of all or a significant portion of the assets of, any Permitted Acquired Company by a Person other than the Company, (B) participate in or continue any discussions regarding, or agree to, accept, approve, endorse or recommend any proposal, offer, inquiry or expression of interest for any acquisition of equity securities or other voting securities of or merger, combination or consolidation with, or acquisition of all or a significant portion of the assets of, any Permitted Acquired Company by the Company or any of its Subsidiaries, other than a Permitted Acquisition but only if such Permitted Acquired Company has theretofore received a bona fide, written proposal for a transaction constituting a Change of Control of such Permitted Acquired Company from a Person other than the Company and its Affiliates and Representatives, which proposal was not submitted by such Person as a result of the actions of the Company or any of its Affiliates and Representatives; provided, however, that notwithstanding the foregoing, the Company may discuss with any Permitted Acquired Company the possibility of any such transaction with the Company or any of its Subsidiaries to be consummated at a future date not earlier than the Additional Closing or (if earlier) the termination of this Agreement in accordance with Article VIII ( Termination ). Section 4.8 Reasonable Efforts. (a) Each of the Parties to this Agreement agrees to use all commercially reasonable efforts, and to cooperate with each other Party, to take, or cause to be taken, all appropriate action to do, or cause to be done, all things necessary, proper or advisable under Applicable Law or otherwise to consummate and make effective the Transactions and the Transaction Documents as promptly as practicable, including, subject to any applicable limitations set forth in this Agreement, causing the satisfaction of the respective conditions set forth in Article V and Article VI and executing and delivering such other instruments and doing and performing such other acts and things as may be necessary or reasonably desirable for effecting the consummation of the Transactions. (b) Without prejudice to the foregoing, as promptly as possible after the date of this Agreement, if required by any Applicable Law, each of the Parties (i) will file with the Federal Trade Commission (the FTC ) and the Antitrust Division of the U.S. Department of 10

162 Justice (the Antitrust Division ) a notification in accordance with the HSR Act with respect to the Transactions, and (ii) will file any recommended or required antitrust notification or application to obtain approval in any other jurisdiction as determined by the Company and Investor after consultation. The Parties will share equally the cost of any applicable filing fees required in respect of any such filings. Each of the Parties will furnish promptly to the FTC, the Antitrust Division and any other requesting Governmental Entity any additional information requested by either of them pursuant to the HSR Act or any other Applicable Law in connection with such filings. Each Party will notify the other promptly upon the receipt of any communication or comments from any officials of any Governmental Entity in connection with any filings made pursuant to this Section 4.8(b). To the extent permitted by Applicable Law and subject to all applicable privileges (including the attorney-client privilege), each of the Parties will consult and cooperate with one another and consider in good faith the views of one another, in connection with any filings, responses, analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals to the HSR Act or any other applicable Antitrust Law. Each of the Parties will cooperate reasonably with each other in connection with the making of all such filings or responses. Each of the parties will provide the other parties outside legal counsel with copies of all correspondence, filings and written communications between them (including any subsidiary, affiliate or representative) and any Governmental Entity with respect to this Agreement, provided that a Party will not be required to exchange Party documents that such Party determines in good faith contains commercially sensitive information. In addition, each of the Parties agrees not to participate in any meeting or have any oral communication with any Governmental Entity unless it has given the other Party s antitrust counsel (both internal legal counsel, which may include the General Counsel of a Party, and external legal counsel) an opportunity to consult with it in advance and, to the extent permitted by such Governmental Entity, given the other Party s antitrust counsel (both internal counsel, which may include the General Counsel of a Party, and external counsel) the opportunity to attend and participate therein. (c) Notwithstanding anything to the contrary herein, other than pursuant to Section 4.7, nothing in this Agreement (including the other provisions of this Section 4.8) will require, in connection with any inquiry, investigation or review pursuant to Antitrust Laws, (i) Investor, the Company, or any of their respective Subsidiaries or Affiliates to refrain from making, or agreeing to make, any investments in or any acquisitions of any assets, business or any Person, whether by merger, consolidation or any other manner or (ii) Investor, the Company or any of their respective Subsidiaries or Affiliates to (and the Company shall not except with the prior written consent of Investor), take any action or allow any of their Subsidiaries to consent or proffer to, execute or carry out any agreement or submit to any order providing for any Party or any of their respective Affiliates to, or otherwise; divest, hold separate, or enter into any license or similar Contract with respect to; agree to restrict the ownership or operation of, any business or assets of Investor, the Company or any of their respective Subsidiaries or Affiliates; or take any other action, if such other action would reasonably be expected to dilute materially the benefits to Investor or the Company of the transactions contemplated by this Agreement or any other Transaction Document or have a material adverse effect on the business of the Company and its Subsidiaries, taken as a whole, or their consolidated results of operations or financial position. 11

163 (d) Notwithstanding anything to the contrary herein (including the other provisions of this Section 4.8), in no event will Investor, the Company or any of their respective Subsidiaries or Affiliates be obligated to litigate or contest or participate in the litigation of any Legal Proceeding, whether judicial or administrative, brought by any Governmental Entity or appeal any decree, judgment, injunction or other order, whether temporary, preliminary or permanent brought by or before an administrative tribunal, court or other similar tribunal or body (i) challenging or seeking to make illegal, delaying materially or otherwise directly or indirectly restraining or prohibiting the consummation of the Transactions or seeking to obtain from Investor, the Company or any of their respective Subsidiaries or Affiliates any damages in connection therewith, (ii) seeking to prohibit or limit in any respect, or place any conditions on, the ownership or operation by the Company, Investor or any of their respective Subsidiaries or Affiliates of all or any portion of the business or assets of the Company, Investor or any of their respective Subsidiaries or Affiliates or to require any such Person to dispose of, license (whether pursuant to an exclusive or nonexclusive license) or hold separate all or any portion of the business or assets of the Company, Investor or any of their respective Subsidiaries or Affiliates, in each case as a result of, or in connection with, the Transactions, (iii) seeking, directly or indirectly, to impose or confirm any limitation or restrictions on the ability of Investor, the Company or any of their respective Subsidiaries or Affiliates to freely conduct their businesses or to acquire or hold, or exercise full rights of ownership of, any shares of capital shares of the Company, (iv) seeking to require divestiture by the Company, Investor or any of their respective Subsidiaries or Affiliates of any capital shares of the Company or any business or assets of the Company or its Subsidiaries or Investor or its Subsidiaries or Affiliates, or (v) that would reasonably be expected to impede, interfere with, prevent or materially delay the Transactions or that would reasonably be expected to dilute materially the benefits to Investor or the Company of the transactions contemplated by this Agreement or any Transaction Document. Section 4.9 Confidentiality; Public Disclosure. The Parties agree to treat this Agreement as confidential information under the terms and conditions of the Corporate Non-Disclosure Agreements No dated May 14, 2002, and No dated September 19, 2011, and Addendum No. 1 to the Corporate Non-Disclosure Agreement # , effective June 10, 2012, previously executed by the Parties, as supplemented by any agreement between the Parties dated on or after the date hereof. Section 4.10 Notice of Certain Events. (a) If, at any time prior to the Initial Closing or the Additional Closing, the Company determines that, as a result of an event, occurrence or change in circumstances beyond the Company s control (including any change as a result of claims made or investigations instigated and any change in the relationship of the Company with any of its customers or suppliers, including a modification of the relationship of the Company by one or more of the Company s customers or suppliers resulting from the announcement of the Transactions, provided that to the Knowledge of the Company at the date of this Agreement, the Company does not reasonably expect such a change or any modification of the relationship by any particular customer or supplier or particular group of customers or suppliers) that occurs after the date of this Agreement, the Company will be unable to provide the certificate required under Section 5.1(f) or Section 6.1(f), respectively, because one or more representations and warranties of the Company set forth in Schedule I, other than any Fundamental Representation, 12

164 will not be true and correct as of the Initial Closing Date or Additional Closing Date, as applicable, the Company will promptly (and in any event, not later than 9:00 p.m. Central Europe Time on the date immediately preceding the date on which the applicable Closing would otherwise occur pursuant to Section 1.2), provide to Investor written notice (each such notice, a Closing Notice ) specifying the representation and warranty in Schedule I that will not be true and correct at the applicable Closing and, to the extent not described in the Company SEC Documents or AFM Documents filed after the date of this Agreement and prior to the Closing Notice, describing in reasonable detail the event, occurrence or change in circumstances that renders such representation and warranty untrue or incorrect. The Company shall provide to Investor as soon as practicable and to the maximum extent such disclosure is not prohibited by Applicable Law such additional information and documents as Investor may reasonably request for the purpose of evaluating such circumstance, event or occurrence and determining whether to proceed with the applicable Closing. (b) If and to the extent that (i) the Company provides a Closing Notice in accordance with Section 4.10(a), (ii) the representation and warranty specified in the Closing Notice is not a Fundamental Representation and was true and correct when given at the date of this Agreement, (iii) the event, occurrence or change in circumstances described in the Closing Notice occurred after the date of this Agreement and did not result wholly or in part from any breach by the Company of any of its covenants under this Agreement, then Investor may either: (A) waive the condition precedent in Section 5.1(b) and (f) or Section 6.1(b) and (f), as applicable, with respect to the failure of the applicable representations and warranties to be true and correct on the applicable Closing Date as a result of the event, occurrence or change in circumstances described in the Closing Notice and proceed with the applicable Closing; or (B) terminate this Agreement under Section 8.1(c) or Section 8.2(c). In no event will Investor (or any other Indemnitees) be entitled to indemnification (and Investor agrees that the Company shall have no liability) for any failure of such representation and warranty to be true and accurate as of the applicable Closing to the extent such failure results from such event, occurrence or change of circumstances after the date of this Agreement as specified in the Closing Notice. For the avoidance of doubt, regardless of whether Investor elects to proceed with the Closing or terminate this Agreement, nothing herein shall affect the Investor s rights, including its right to indemnification, resulting from (1) any failure of any Fundamental Representation to be true and correct at any time, (2) any failure of the representations or warranties to be true and correct at either the date of this Agreement or, if the Closing Notice is provided after the Initial Closing and prior to the Additional Closing, on the Initial Closing Date, (3) any failure of any other representations or warranties brought down to the applicable Closing Date under the certificate required to be delivered under Section 5.1(f) or Section 6.1(f) to be true and correct; or (4) any breach by the Company of any of its covenants or agreements under this Agreement. Section 4.11 Further Actions. If, at any time after the Closing Date, any further action is necessary or desirable to carry out the purposes of this Agreement, to vest the Stichting with full right and title of the Shares and to vest Investor with full right and title to the Depositary Receipts in respect of such Shares, each Party authorizes the officers and directors of each of Investor and the Company, in the name of their respective corporation or otherwise, to take all such lawful and necessary action to the extent consistent with the terms of this Agreement and without any further authorization or consent of the Parties to this Agreement being required. 13

165 ARTICLE V CONDITIONS TO THE COMPANY S AND INVESTOR S OBLIGATIONS AT THE INITIAL CLOSING Section 5.1 Conditions to Investor s Obligations at the Initial Closing. The obligation of Investor to purchase the Initial Shares at the Initial Closing is subject to the fulfillment, on or prior to the Initial Closing Date, of the following conditions, unless otherwise waived in writing; provided, that in each case, such conditions will not apply to, nor take into account, such matters as are relevant solely to the Additional Transactions: (a) Representations and Warranties. (i) The Fundamental Representations made by the Company will be true and correct as of the date of this Agreement and as of the Initial Closing Date with the same force and effect as if made as of such date (except such representations and warranties that are made as of a specified date will be true and correct as of such specified date and except that, for purposes of this Section 5.1 only, all references in the Fundamental Representations to the Closing will be deemed to be to the Initial Closing, all references therein to the Transactions will be deemed to be to the transactions contemplated by this Agreement to be consummated at or prior to the Initial Closing, all references therein to the Shares will be deemed to be to the Initial Shares and all references therein to the Transaction Documents will be deemed to be to the Initial Transaction Documents ). (ii) The representations and warranties made by the Company in Schedule I that are not Fundamental Representations will be true and correct in all material respects (except for those representations and warranties qualified by material, material adverse effect or other similar qualifiers, which will be true in all respects) as of the date of this Agreement and as of the Initial Closing Date with the same force and effect as if made as of such date (except that representations and warranties that are made as of a specified date will be true and correct as of such specified date and except that, for purposes of this Section 5.1 only, all references in the such representations and warranties to the Closing will be deemed to be to the Initial Closing, all references therein to the Transactions will be deemed to be to the transactions contemplated by this Agreement to be consummated at or prior to the Initial Closing, all references therein to the Shares will be deemed to be to the Initial Shares and all references therein to the Transaction Documents will be deemed to be to the Initial Transaction Documents ); provided, that for purposes of this Section 5.1(a)(ii) only, the term in all material respects shall have the meaning set forth in the definition of material or material adverse effect as defined in Annex A to this Agreement, provided that clause (i) of such definition shall instead read for such purpose only (i) be material (as such term is understood without reference to this definition) to the Company and would require disclosure by the Company in an SEC Document or an AFM Document heretofore or hereafter by the Company or. (b) Performance of Obligations. The Company will have performed, complied with and satisfied in all material respects all covenants, agreements, obligations and 14

166 conditions under this Agreement that are required to be performed, complied with or satisfied by it on or before the Initial Closing. (c) Antitrust Matters. Any waiting period (and any extension thereof) under the HSR Act or any other Antitrust Law applicable to the transactions contemplated by this Agreement to be consummated at or prior to the Initial Closing will have expired or will have been terminated and no investigation or inquiry under any Antitrust Law of the transactions contemplated by this Agreement or the Transaction Documents shall be pending. (d) Consents and Waivers. The Company and Investor will have obtained any and all approvals, consents, clearances and waivers of any Governmental Entity necessary or appropriate for consummation of the transactions contemplated by this Agreement to be consummated at or prior to the Initial Closing, including any authorizations, approvals, clearances or permits of any Governmental Entity that are required in connection with the lawful issuance and sale of the Initial Shares, and such approvals, consents, clearances and waivers will be in effect, and neither revoked nor expired, as of the Initial Closing. (e) Third-Party Consents. The Company will have obtained any and all non-governmental Entity third-party consents necessary or appropriate for consummation of the Transactions. (f) Compliance Certificate. At the Initial Closing, the Company will deliver to Investor a certificate, dated as of the Initial Closing Date and signed by the Company s Chief Executive Officer, certifying that the conditions specified in Section 5.1(a) and Section 5.1(b) have been fulfilled; provided, that such certification as to the conditions specified in Section 5.1(a) may be qualified to the extent that the Company has delivered a Closing Notice to Investor prior to the Initial Closing in accordance with Section 4.10 and Investor has elected to proceed with the Initial Closing under Section 4.10(b)(A). (g) Secretary s Certificate. At the Initial Closing, the Company will deliver to Investor a certificate, dated as of the Initial Closing Date and signed by the Company s Secretary, certifying that the resolutions of the Board of Management and Supervisory Board attached to such certificate, which approve this Agreement, the Transaction Documents to be executed and delivered under this Agreement at or prior to the Initial Closing and the transactions contemplated by this Agreement to be consummated at or prior to the Initial Closing, including the issuance of the Initial Shares, are true, correct and complete and have not been amended since the date such resolutions were passed. (h) No Violation or Pending Claim. No Law will have been enacted or exist (that has not been repealed or otherwise rendered ineffective or inapplicable) that would prohibit the transactions contemplated by this Agreement to be consummated at or prior to the Initial Closing or the consummation of the Initial Closing. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other restraint or prohibition of any Governmental Entity preventing the consummation of the transactions contemplated by this Agreement to be consummated at or prior to the Initial Closing will be in effect, nor will any action have been taken by any Governmental Entity seeking any of the foregoing that remains pending. No Legal Proceeding will have been instituted or threatened 15

167 in writing against the Company, Investor or any of its Affiliates by any shareholder of the Company with respect to the Agreement or the Transactions. (i) No Material Adverse Effect. There will not have been, as of the Initial Closing, any Material Adverse Effect. (j) Transaction Documents. The Company will have executed and delivered to Investor this Agreement and all other Initial Transaction Documents to which it is a party. Section 5.2 Conditions to the Company s Obligations at the Initial Closing. The obligations of the Company under this Agreement are subject to the fulfillment, on or prior to the Initial Closing, of the following conditions, unless otherwise waived in writing; provided, that in each case, such conditions will not apply to, nor take into account, such matters as are relevant solely to the Additional Transactions: (a) Representations and Warranties. Each of the representations and warranties made by Investor in Schedule II will be true and correct in all material respects (except for those representations and warranties qualified by material, material adverse effect or other similar qualifiers, which will be true in all respects) as of the date of this Agreement and as of the Initial Closing Date with the same force and effect as if made as of such date (except that representations and warranties that are made as of a specified date will be true and correct as of such specified date and except that, for purposes of this Section 5.2 only, all references in such representations and warranties to the Closing will be deemed to be to the Initial Closing, all references therein to the Transactions will be deemed to be to the transactions contemplated by this Agreement to be consummated at or prior to the Initial Closing, all references therein to the Shares will be deemed to be to the Initial Shares and all references therein to the Transaction Documents will be deemed to be to the Initial Transaction Documents ). (b) Payment of Purchase Price. Investor will have delivered to the Company the Initial Shares Price. (c) Performance of Obligations. Investor will have performed, complied with and satisfied all covenants, agreements, obligations and conditions in all material respects under this Agreement that are required to be performed, complied with or satisfied by it on or before the Initial Closing. (d) Antitrust Matters. Any waiting period (and any extension thereof) under the HSR Act or any other Antitrust Law applicable to the transactions contemplated by this Agreement to be consummated at or prior to the Initial Closing will have expired or will have been terminated and no investigation or inquiry under any Antitrust Law of the transactions contemplated by this Agreement or the Transaction Documents shall be pending. (e) Consents and Waivers. The Company and Investor will have obtained any and all approvals, consents, clearances and waivers of any Governmental Entity necessary or appropriate for consummation of the transactions contemplated by this Agreement to be consummated at or prior to the Initial Closing, including any authorizations, approvals, clearances or permits of any Governmental Entity that are required in connection with the lawful 16

168 issuance and sale of the Initial Shares, and such approvals, consents, clearances and waivers will be in effect, and neither revoked nor expired, as of the Initial Closing. (f) No Violation. No Law will have been enacted or exist (that has not been repealed or otherwise rendered ineffective or inapplicable) that would prohibit the transactions contemplated by this Agreement to be consummated at or prior to the Initial Closing or the consummation of the Initial Closing. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other restraint or prohibition of any Governmental Entity preventing the consummation of the transactions contemplated by this Agreement to be consummated at or prior to the Initial Closing will be in effect, nor will any action have been taken by any Governmental Entity seeking any of the foregoing that remains pending. (g) Transaction Documents. Investor will have executed and delivered to the Company this Agreement and all other Transaction Documents to be executed and delivered under this Agreement at or prior to the Initial Closing to which it is a party. ARTICLE VI CONDITIONS TO THE COMPANY S AND INVESTOR S OBLIGATIONS AT THE ADDITIONAL CLOSING Section 6.1 Conditions to Investor s Obligations at the Additional Closing. The obligation of Investor to purchase the Additional Shares at the Additional Closing is subject to the fulfillment, on or prior to the Additional Closing Date, of the following conditions, unless otherwise waived in writing; provided, that in each case, such conditions will not apply to, nor take into account, such matters as are relevant solely to the Initial Transactions: (a) Representations and Warranties. (i) The Fundamental Representations made by the Company will be true and correct as of the date of this Agreement and as of the Additional Closing Date with the same force and effect as if made as of such date (except such representations and warranties that are made as of a specified date will be true and correct as of such specified date and except that, for purposes of this Section 6.1 only, all references in the Fundamental Representations to the Closing will be deemed to be to the Additional Closing, all references therein to the Transactions will be deemed to be to the transactions contemplated by this Agreement to be consummated at or prior to the Additional Closing, all references therein to the Shares will be deemed to be to the Additional Shares and all references therein to the Transaction Documents will be deemed to be to the Additional Transaction Documents ). (ii) The other representations and warranties made by the Company in Schedule I that are not Fundamental Representations will be true and correct in all material respects (except for those representations and warranties qualified by material, material adverse effect or other similar qualifiers, which will be true in all respects) as of the date of this Agreement and as of the Additional Closing Date with the same force and effect as if made as of such date (except that representations and warranties that are 17

169 made as of a specified date will be true and correct as of such specified date and except that, for purposes of this Section 6.1 only, all references in such representations and warranties to the Closing will be deemed to be to the Additional Closing. all references therein to the Transactions will be deemed to be to the transactions contemplated by this Agreement to be consummated at or prior to the Additional Closing, all references therein to the Shares will be deemed to be to the Additional Shares and all references therein to the Transaction Documents will be deemed to be to the Additional Transaction Documents ); provided, that for purposes of this Section 6.1(a)(ii) only, the term in all material respects shall have the meaning set forth in the definition of material or material adverse effect as defined in Annex A to this Agreement, provided that clause (i) of such definition shall instead read for such purpose only (i) be material (as such term is understood without reference to this definition) to the Company and would require disclosure by the Company in an SEC Document or an AFM Document heretofore or hereafter by the Company or. (b) Performance of Obligations. The Company will have performed, complied with and satisfied in all material respects all covenants, agreements, obligations and conditions under this Agreement that are required to be performed, complied with or satisfied by it on or before the Additional Closing. (c) Antitrust Matters. Any waiting period (and any extension thereof) under the HSR Act or any other Antitrust Law applicable to the transactions contemplated by this Agreement to be consummated at or prior to the Additional Closing will have expired or will have been terminated and no investigation or inquiry under any Antitrust Law of the transactions contemplated by this Agreement or the Transaction Documents shall be pending. (d) Consents and Waivers. The Company and Investor will have obtained any and all approvals, consents, clearances and waivers of any Governmental Entity necessary or appropriate for consummation of the Transactions, including any authorizations, approvals, clearances or permits of any Governmental Entity that are required in connection with the lawful issuance and sale of the Additional Shares, and such approvals, consents, clearances and waivers will be in effect, and neither revoked nor expired, as of the Additional Closing. (e) Third-Party Consents. The Company will have obtained any and all third-party consents necessary or appropriate for consummation of the Transactions (f) Compliance Certificate. At the Additional Closing, the Company will deliver to Investor a certificate, dated as of the Additional Closing Date and signed by the Company s Chief Executive Officer, certifying that the conditions specified in Section 6.1(a) and Section 6.1(b) have been fulfilled; provided, that such certification as to the conditions specified in Section 6.1(a) may be qualified to the extent that the Company has delivered a Closing Notice to Investor prior to the Additional Closing in accordance with Section 4.10 and Investor has elected to proceed with the Additional Closing under Section 4.10(b)(A). (g) Secretary s Certificate. At the Additional Closing, the Company will deliver to Investor a certificate, dated as of the Additional Closing Date and signed by the Company s Secretary, certifying that the resolutions of the Board of Management and 18

170 Supervisory Board approving this Agreement, the Transaction Documents and the Transactions, including the issuance of the Additional Shares, are true, correct and complete and have not been amended since the date such resolutions were passed. (h) No Violation. No Law will have been enacted or exist (that has not been repealed or otherwise rendered ineffective or inapplicable) that would prohibit the Transactions or the consummation of the Additional Closing. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other restraint or prohibition of any Governmental Entity preventing the consummation of the Transactions will be in effect, nor will any action have been taken by any Governmental Entity seeking any of the foregoing that remains pending. (i) No Material Adverse Effect. There will not have been, as of the Additional Closing, any Material Adverse Effect. (j) Transaction Documents. The Company will have executed and delivered to Investor this Agreement and all other Transaction Documents to which it is a party. (k) Shareholder Approval. The Resolutions will have been adopted in the EGM. Section 6.2 Conditions to the Company s Obligations at the Additional Closing. The obligations of the Company under this Agreement are subject to the fulfillment, to the satisfaction of the Company on or prior to the Additional Closing, of the following conditions, unless otherwise waived in writing; provided, that in each case, such conditions will not apply to, nor take into account, such matters as are relevant solely to the Initial Transactions: (a) Representations and Warranties. Each of the other representations and warranties made by Investor in Schedule II will be true and correct in all material respects (except for those representations and warranties qualified by material, material adverse effect or other similar qualifiers, which will be true in all respects) as of the date of this Agreement and as of the Additional Closing Date with the same force and effect as if made as of such date (except that representations and warranties that are made as of a specified date will be true and correct as of such specified date and except that, for purposes of this Section 6.2 only, all references in the such representations and warranties to the Closing will be deemed to be to the Additional Closing, all references therein to the Transactions will be deemed to be to the transactions contemplated by this Agreement to be consummated at or prior to the Additional Closing, all references therein to the Shares will be deemed to be to the Additional Shares and all references therein to the Transaction Documents will be deemed to be to the Additional Transaction Documents ). (b) Payment of Purchase Price. Investor will have delivered to the Company the Additional Shares Price. (c) Performance of Obligations. Investor will have performed, complied with and satisfied all covenants, agreements, obligations and conditions in all material respects under this Agreement that are required to be performed, complied with or satisfied by it on or before the Additional Closing. 19

171 (d) Antitrust Matters. Any waiting period (and any extension thereof) under the HSR Act or any other Antitrust Law applicable to the Transactions will have expired or will have been terminated and no investigation or inquiry under any Antitrust Law of the transactions contemplated by this Agreement or the Transaction Documents shall be pending. (e) Consents and Waivers. The Company and Investor will have obtained any and all approvals, consents, clearances and waivers of any Governmental Entity necessary or appropriate for consummation of the Transactions, including any authorizations, approvals, clearances or permits of any Governmental Entity that are required in connection with the lawful issuance and sale of the Additional Shares, and such approvals, consents, clearances and waivers will be in effect, and neither revoked nor expired, as of the Additional Closing. (f) No Violation. No Law will have been enacted or exist that would prohibit the Transactions or the consummation of the Additional Closing. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other restraint or prohibition of any Governmental Entity preventing the consummation of the Transactions will be in effect, nor will any action have been taken by any Governmental Entity seeking any of the foregoing that remains pending. (g) Transaction Documents. Investor will have executed and delivered to the Company this Agreement and all other Transaction Documents to be executed and delivered under this Agreement at or prior to the Additional Closing to which it is a party. (h) Shareholder Approval. The Resolutions (1)(a) and (b) and (2)(a) through (e) will have been adopted in the EGM. ARTICLE VII INDEMNIFICATION Section 7.1 Survival of Representations. The Post-Closing Covenants will survive the Closing Dates in accordance with their terms. The representations and warranties of the Company contained in this Agreement will survive and continue until the date that is the later of (a) twelve (12) months after the Additional Closing Date (or if this Agreement is terminated prior to the Additional Closing pursuant to Section 8.2, twelve (12) months after the Initial Closing) and (b) sixty (60) days following the date upon which the Company files its Annual Report on Form 20-F, including audited consolidated financial statements, for its year ended December 31, 2013 with the SEC (the General Expiration Date ), except that (i) IP Representations will survive and continue until the date that is thirty-six (36) months from the Additional Closing Date (or if this Agreement is terminated prior to the Additional Closing pursuant to Section 8.2, the Initial Closing Date) (the IP Expiration Date ), (ii) Fundamental Representations and any claim of fraud or intentional misrepresentation with respect to this Agreement will survive indefinitely and (iii) if, in accordance with this Article VII, (A) any claims for indemnification under this Article VII (each such claim, an Indemnification Claim ) arising from any failure of the representations and warranties to be true and correct or any breach of any representations and warranties other than IP Representations or Fundamental Representations are asserted prior to the General Expiration Date, (B) any Indemnification Claims arising from any failure of the representations and warranties to be true and correct or 20

172 any breach of any IP Representations are asserted prior to the IP Expiration Date or (C) any Indemnification Claims arising from any failure of the representations and warranties to be true and correct or any breach of any Fundamental Representations or from any breach of any Post- Closing Covenant or any claims of fraud or intentional misrepresentation are asserted at any time after the date hereof (but in the case of any Post-Closing Covenant, prior to the expiration, if any, of such Post-Closing Covenant in accordance with its terms), such Indemnification Claims will continue until the final amount of recoverable Losses are determined by final agreement, settlement, judgment or award binding on the Company and Investor in accordance with this Article VII. Section 7.2 Indemnification. (a) Subject to the provisions of this Article VII, and subject to Section 4.10(b), the Company will indemnify and hold harmless Investor and each of its Affiliates and Representatives (collectively, the Indemnitees ) from any and all Losses that any Indemnitee may suffer or incur as a result of or relating to (i) any failure of the representations and warranties made by the Company in this Agreement to be true and correct, (ii) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement, (iii) any failure of any certificate delivered pursuant to Section 5.1(f) or Section 6.1(f) of this Agreement to be true and correct or (iv) any Legal Proceeding, claim or allegation (including by any shareholder or shareholders of the Company) alleging any facts which, if proven to be true, would constitute a failure of any Fundamental Representation to be true and correct or any breach of any Fundamental Representation. (b) If Investor becomes aware of a third-party Legal Proceeding against any Indemnitee that Investor believes, in good faith, may result in an Indemnification Claim, Investor will promptly notify the Company of such Legal Proceeding, provided that any failure to provide such notice shall not relieve the Company from its obligations under this Article VII except to the extent that the Company is materially prejudiced thereby. Investor will conduct the defense of such Legal Proceeding and will, to the extent reasonably requested by the Company from time to time, give updates as to the status of such Legal Proceeding, and the Company will be entitled to participate in any such defense at its sole cost and expense and will provide reasonable assistance to the Indemnitee in the defense of the Legal Proceeding. Investor may agree to any settlement or compromise of any such Legal Proceeding in its sole discretion, so long as such settlement or compromise (i) does not obligate the Company to take or refrain from taking any action and (ii) provides for a complete release of the Company by such third party. In all other events, Investor will seek the consent of the Company in connection with Investor s agreement to any settlement or compromise of any such Legal Proceeding, which consent will not be unreasonably withheld or delayed by the Company. Section 7.3 Limitations. (a) Notwithstanding anything to the contrary in this Agreement, the Company s liability for any Indemnification Claim based on any failure of any representations or warranties to be true and correct or any breach of any representations or warranties of the Company (other than Fundamental Representations) will not exceed thirty percent (30%) of the sum of the Aggregate Investor Commitment. The Company s liability for any Indemnification 21

173 Claim based on the Fundamental Representations (including any indemnity under Section 7.2(a)(iii)), fraud or intentional misrepresentation or any breach of the Company s covenants or agreements in this Agreement is not limited. (b) Except as otherwise provided herein or in the case of fraud or willful misconduct, Investor acknowledges and agrees that, in the event that the Initial Closing and/or the Additional Closing occurs, the remedies provided for in this Article VII shall be Investor s sole and exclusive remedies for monetary damages for any failure of the representations and warranties to be true and correct or any breach of the representations and warranties contained in this Agreement. Section 7.4 No Effect. (a) Except as provided in Section 4.10(b), an Indemnitee s right to indemnification under this Article VII based on any failure of the representations and warranties to be true and correct or any breach of any representation or warranty, including any Fundamental Representation, will not be diminished or otherwise affected in any way as a result of such Indemnitee s knowledge of such breach or such failure to be true and correct, regardless of whether such knowledge exists as a result of the Indemnitee s investigation or as a result of disclosure by the Company or any of its Subsidiaries. (b) Except as provided in Section 4.10(b)(A), the waiver of any condition to a Closing based upon the truth and correctness of any representation or warranty, or on the performance of or compliance with any covenant or agreement, will not affect the right to indemnification or other remedy based on such representations and warranties (including Fundamental Representations), covenants and agreements. ARTICLE VIII TERMINATION Section 8.1 Termination Prior to Initial Closing. At any time prior to the Initial Closing, this Agreement may be terminated by written notice: (a) by either Investor or the Company, if the Initial Closing has not occurred by April 15, 2013 or such other date that Investor and the Company may agree upon in writing (the Termination Date ); provided, however, that (i) the right to terminate this Agreement under this Section 8.1(a) will not be available to the Company if a breach of this Agreement by the Company has resulted in the failure of the Initial Closing to occur on or before the Termination Date and (ii) the right to terminate this Agreement under this Section 8.1(a) will not be available to Investor if a breach of this Agreement by Investor has resulted in the failure of the Initial Closing to occur on or before the Termination Date; (b) by either Investor or the Company, if any court of competent jurisdiction or other Governmental Entity will have issued a final order, decree, or ruling or taken any other final action restraining, enjoining or otherwise prohibiting the Initial Closing and such order, decree, ruling or other action is or will have become final and nonappealable; 22

174 (c) by Investor, if (i) the Company will have breached any representation, warranty, covenant or agreement contained herein such that the conditions to the Initial Closing in Section 5.1 would not be then met and such breach will not have been cured within ten (10) days after receipt by the Company of written notice of such breach ( provided, however, that no such cure period will be available or applicable to any such breach which by its nature cannot be cured) and if not cured within such ten (10)-day period and at or prior to the Initial Closing, such breach would result in the failure of any of the conditions set forth in Section 5.1 to be satisfied, or (ii) any representation and warranty of the Company under this Agreement would not be true and correct, such that the conditions to the Initial Closing set forth in Section 5.1 would not be met on the date that the Specified Initial Closing Conditions are met and failure will not have been cured within ten (10) days after receipt by the Company of written notice of such failure ( provided, however, that no such cure period will be available or applicable to any such breach which by its nature cannot be cured) and if not cured within such ten (10)-day period and at or prior to the Initial Closing, such breach would result in the failure of any of the conditions set forth in Section 5.1 to be satisfied; or (iii) the Company has delivered a Closing Notice; (d) by the Company, if Investor will have breached any representation, warranty, covenant or agreement contained herein such that the conditions to the Initial Closing set forth in Section 5.2 would not be met and such breach will not have been cured within ten (10) days after receipt by Investor of written notice of such breach ( provided, however, that no such cure period will be available or applicable to any such breach which by its nature cannot be cured) and if not cured within such ten (10)-day period and at or prior to the Initial Closing, such breach would result in the failure of any of the conditions set forth in Section 5.2 to be satisfied; Effect; or (e) by Investor, if between the date of this Agreement and the Initial Closing, there will have occurred or exist any Material Adverse (f) by Investor, if between the date of this Agreement and the Initial Closing, there will have occurred or exist any Extraordinary Corporate Event. Section 8.2 Termination Prior to Additional Closing. At any time following the Initial Closing and prior to the Additional Closing, this Agreement may be terminated by written notice: (a) by either Investor or the Company, if the Additional Closing has not occurred by the Termination Date; provided, however, that (i) the right to terminate this Agreement under this Section 8.2(a) will not be available to the Company if a breach of this Agreement by the Company has resulted in the failure of the Additional Closing to occur on or before the Termination Date and (ii) the right to terminate this Agreement under this Section 8.2(a) will not be available to Investor if a breach of this Agreement by Investor has resulted in the failure of the Additional Closing to occur on or before the Termination Date; (b) by either Investor or the Company, if (i) any court of competent jurisdiction or other Governmental Entity will have issued a final order, decree, or ruling or taken any other final action restraining, enjoining or otherwise prohibiting the Additional Closing and such order, decree, ruling or other action is or will have become final and nonappealable or (ii) the Resolutions are not approved at the EGM; provided, however, that the 23

175 right to terminate this Agreement under clause (ii) will not be available to the Company if such failure of the Resolutions to be approved at the EGM results from a violation of the Company s covenants and agreements in this Agreement; (c) by Investor, if (i) the Company will have breached any representation, warranty, covenant or agreement contained herein such that the conditions to Additional Closing in Section 6.1 would not be then met and such breach will not have been cured within ten (10) days after receipt by the Company of written notice of such breach ( provided, however, that no such cure period will be available or applicable to any such breach which by its nature cannot be cured) and if not cured within such ten (10)-day period and at or prior to the Additional Closing, such breach would result in the failure of any of the conditions set forth in Section 6.1 to be satisfied, or (ii) any representation and warranty of the Company under this Agreement would not be true and correct, such that the conditions to the Additional Closing set forth in Section 6.1 would not be met on the date that the Specified Additional Closing Conditions are met and failure will not have been cured within ten (10) days after receipt by the Company of written notice of such failure ( provided, however, that no such cure period will be available or applicable to any such breach which by its nature cannot be cured) and if not cured within such ten (10)-day period and at or prior to the Additional Closing, such breach would result in the failure of any of the conditions set forth in Section 6.1 to be satisfied; or (iii) the Company has delivered a Closing Notice (other than a Closing Notice provided prior to the Initial Closing (if the Initial Closing has at that time already occurred) and which was the subject of an election by Investor to consummate the Initial Closing pursuant to Section 4.10(b)(A)); (d) by the Company, if Investor will have breached any representation, warranty, covenant or agreement contained herein such that the conditions to the Additional Closing set forth in Section 6.2 would not be met and such breach will not have been cured within ten (10) days after receipt by Investor of written notice of such breach ( provided, however, that no such cure period will be available or applicable to any such breach which by its nature cannot be cured) and if not cured within such ten (10)-day period and at or prior to the Additional Closing, such breach would result in the failure of any of the conditions set forth in Section 6.2 to be satisfied; or Effect; or (e) by Investor, if between the Initial Closing and the Additional Closing, there will have occurred or exist any Material Adverse (f) by Investor, if between the Initial Closing and the Additional Closing, there will have occurred or exist any Extraordinary Corporate Event. Section 8.3 Effect of Termination; Survival. (a) Except as provided in this Section 8.3, this Agreement will forthwith become void and there will be no liability or obligation on the part of Investor, the Company or their respective officers, directors, shareholders, Affiliates or Representatives in the event of termination of this Agreement as provided in Section 8.1 or Section 8.2; provided, however, that (a) in the event of termination of this Agreement under Section 8.1, the provisions of this Section 8.3, Section 4.9 ( Confidentiality), Section 4.10 (Notice of Certain Events), Article VII ( Indemnification ) and Article IX ( Miscellaneous ) will remain in full force and effect and survive 24

176 any termination of this Agreement and (b) in the event of termination of this Agreement under Section 8.2, the provisions of this Section 8.3, Article II ( Representations and Warranties of the Company ) (other than the representations and warranties regarding the Additional Closing and the Additional Shares), Article III ( Representations and Warranties of Investor ), Section 4.1 ( Other Investor Offers), Section 4.2 ( Use of Proceeds), Section 4.3 ( Admission to Listing and Trading; Prospectus), Section 4.8 ( Reasonable Efforts), Section 4.9 ( Confidentiality), Section 4.10 ( Notice of Certain Events), and Section 4.11( Further Actions), Article VII ( Indemnification ) and Article IX ( Miscellaneous ) will remain in full force and effect and survive any termination of this Agreement and (b) nothing herein will relieve any Party from liability in connection with any breach of such Party s representations, warranties, covenants or agreements contained herein. For the avoidance of doubt, if Investor terminates this Agreement pursuant to Section 8.1(c)(iii) or Section 8.2(c)(iii), Investor s right to indemnification shall be subject to Section 4.10(b). (b) In the event Investor terminates this Agreement pursuant to Section 8.1(e) prior to the Initial Closing or Section 8.2(e) prior to the Additional Closing, Investor will pay to the Company the Termination Expense Payment within ten (10) Business Days of such notice of termination by Investor. (c) In the event Investor terminates this Agreement pursuant to Section 8.1(f) prior to the Initial Closing or Section 8.2(f) prior to the Additional Closing, the Company will pay Investor the Termination Fee within ten (10) Business Days of such notice of termination by Investor. ARTICLE IX MISCELLANEOUS Section 9.1 Notices. All notices and other communications hereunder will be in writing and will be deemed duly given or delivered (a) on the date of delivery if delivered personally, (b) upon electronic confirmation of receipt by facsimile if by facsimile, but if not transmitted on a Business Day, the first Business Day following transmission; provided, that a copy of such notice or other communication is promptly mailed by registered or certified mail, return receipt requested, postage prepaid, following the transmission of such facsimile, (c) on the first Business Day following the date of dispatch if delivered utilizing a next-day service by a nationally recognized next-day courier (or in the case of any recipients sending or receiving notices outside of the United States, then on the second Business Day following the date of dispatch), (d) on the earlier of confirmed receipt or the fifth Business Day following the date of mailing if delivered by registered or certified mail, return receipt requested, postage prepaid or (e) on the date of transmission if by , but if not transmitted on a Business Day, the first Business Day following transmission; provided, that a copy of such notice or other communication is promptly confirmed following the transmission of such . All notices hereunder will be delivered to the addresses set forth below (or to such other address as the Person to whom notice is given may have previously furnished to the others in writing in the manner described herein): (a) If to Investor: 25

177 (b) Intel Corporation 2200 Mission College Boulevard Santa Clara, California USA Attn: Intel Capital, General Counsel Fax: +1 (408) with a copy to Gibson, Dunn & Crutcher LLP 1881 Page Mill Road Palo Alto, California USA Attn: Russell C. Hansen Fax: RHansen@gibsondunn.com and NautaDutilh N.V. Strawinskylaan XV Amsterdam The Netherlands Attn: Gaike Dalenoord Fax: Gaike.Dalenoord@nautadutilh.com If to the Company: ASML Netherlands B.V. De Run 6501, 5504 DR Veldhoven PO Box 324, 5500 AH Veldhoven The Netherlands Attn: General Counsel Fax: robert.roelofs@asml.com with a copy to De Brauw Blackstone Westbroek N.V. Claude Debussylaan AB Amsterdam The Netherlands Attn: Martin van Olffen Fax: martin.vanolffen@debrauw.com 26

178 Section 9.2 No Third-Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to confer upon any Person, other than the Parties and their successors and assigns, any rights or remedies under or by reason of this Agreement. Section 9.3 Entire Agreement. This Agreement and the other Transaction Documents constitute the entire understanding and agreement between the Parties with regard to the subjects hereof and thereof, and supersede any and all prior understandings and agreements, whether oral or written, between or among the Parties with respect to the specific subject matter hereof; provided, however, that nothing in this Agreement will be deemed to terminate or supersede the provisions of any confidentiality and nondisclosure agreements executed by the Company and Investor prior to or on the date hereof, which agreements will continue in full force and effect until terminated in accordance with their respective terms. Without limiting the foregoing, the Parties agree that any standstill agreement (other than as provided in the Shareholder Agreement) between the Parties will terminate upon the Initial Closing Date if not previously terminated or expired by its terms. Section 9.4 Assignment; Successors. This Agreement may not be assigned by operation of Law or otherwise; provided, however, that Investor may assign any or all of its rights and obligations under this Agreement to any direct or indirect wholly-owned Subsidiary of Investor (an Investor Designee ), and references to Investor herein shall refer to such Investor Designee, but no such assignment will relieve Investor of its obligations hereunder if such assignee does not perform such obligations. Any purported assignment of this Agreement in contravention of this Section 9.4 will be null and void and of no force or effect. Subject to the preceding sentences of this Section 9.4, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns. Section 9.5 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement will nevertheless remain in full force and effect, so long as the economic or legal substance of the transaction contemplated by this Agreement is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties will negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible, in a mutually acceptable manner, in order that the transactions contemplated by this Agreement be consummated as originally contemplated to the fullest extent possible. Section 9.6 Amendments and Modifications. This Agreement may not be amended, modified or supplemented in any manner, whether by course of conduct or otherwise, except by an instrument in writing specifically designated as an amendment hereto, signed by a duly authorized officer of each of the Parties. Section 9.7 Interpretation; References.Capitalized terms used in this Agreement but not otherwise defined shall have the meanings set forth in Annex A to this Agreement. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. All references in this Agreement to Sections, Annexes, Exhibits and Schedules are references to Sections, Annexes, Exhibits and Schedules, respectively, in and to this Agreement, unless otherwise specified. All 27

179 words used in this Agreement will be construed to be of such gender or number as the circumstances require. The words hereby, hereunder, hereto, hereof and herein and other words commencing with here will, unless the context clearly indicates to the contrary, refer to the whole of this Agreement and not to any particular section, clause or paragraph hereof. Reference to writing or similar expressions includes transmission by facsimile or electronic means. Unless otherwise expressly stated, all amounts and payments under this Agreement will mean and be made in Euro ( ). The words include or including mean include, without limitation or including, without limitation, as the case may be, and the language following include or including will not be deemed to set forth an exhaustive list. Any capitalized terms used in any Annex, Exhibit or Schedule but not otherwise defined therein will have the meaning as defined in this Agreement. All Annexes, Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth herein. Section 9.8 No Presumption Against Drafting Party. The Parties agree that they have been represented by counsel during the negotiation, drafting and execution of this Agreement. Therefore, the Parties hereby waive the application of any Law or rule of construction providing that ambiguities in an agreement or other document will be construed against the Party drafting such agreement or document, and if any issue arises at any time as to the meaning, intent or interpretation of any provision of this Agreement, no presumption or burden of proof will arise in favor of or against any Party solely as a result of the authorship of any provision of this Agreement. Section 9.9 Civil Law Notary. With reference to the Rules of Professional Conduct ( Verordening beroeps en gedragsregels ) of the Royal Dutch Organisation of Civil Law Notaries ( Koninklijke Notariële Beroepsorganisatie ), all Parties expressly agree that (a) De Brauw Blackstone Westbroek N.V. acts as counsel to the Company in connection with, or acts as counsel for or on behalf of the Company in the event of any dispute relating to, this Agreement and any of the other Transaction Documents and (b) the Civil Law Notary executes any of the Transaction Documents or associated deeds even though he works at De Brauw Blackstone Westbroek N.V. as civil law notary. Section 9.10 No Rescission. The Parties waive their rights, if any, to in whole or in part annul, rescind or dissolve this Agreement, except any such right that may exist as a result of a breach of a Fundamental Representation; provided, however, that nothing in this Section 9.10 will affect any right of Investor to indemnification for any breach of a Fundamental Representation pursuant to Article VII. Section 9.11 Specific Performance. The Parties agree (a) that the Shares are a unique asset, that any breach of this Agreement by a Party or any of its Affiliates would cause substantial and irreparable injury to the other Party and that money damages would not be a sufficient remedy for an actual or threatened breach of this Agreement, (b) that, in addition to all other remedies available at Law or equity, such other Party will be entitled to seek equitable relief, including injunction and specific performance, as a remedy for any such breach or threatened breach, without proof of actual damages, and (c) to waive any requirement for the securing or posting of any bond in connection with such remedy. 28

180 Section 9.12 Remedies Cumulative. In the event of a breach of this Agreement by any of the Parties, the other Party will be entitled to claim for damages (subject to Section 7.3) and/or specific performance. Except as otherwise limited by this Agreement, the rights and remedies of the Parties hereunder are independent, cumulative and in addition, and without prejudice, to any rights or remedies which they would otherwise have hereunder. Section 9.13 Waivers. (a) No failure or delay of a Party in exercising any right or remedy hereunder will operate as a waiver thereof, nor will any single or partial exercise of any right or power, or any abandonment or discontinuance of steps to enforce such right or power, or any course of conduct, preclude any other or further exercise thereof or the exercise of any other right or power. Any waiver on the part of any Party will be valid only if set forth in a written instrument executed and delivered by such Party. (b) Notwithstanding anything to the contrary in this Agreement, no Party shall, in any event, be liable to any other Party for any punitive damages of such other Party other than those sought or recovered by a third party from such other Party. Section 9.14 Governing Law. This Agreement will be interpreted, construed and governed by and any disputes, claims, controversies or other Legal Proceedings arising out of, in connection with or relating to this Agreement, including any question regarding its formation, existence, validity, enforceability, performance, interpretation or termination, shall be resolved in accordance with the laws of the state of New York without regard to its conflicts of laws rules (other than Section of the General Obligations Law of the State of New York). Section 9.15 Dispute Resolution; Jurisdiction; Jury Trial Waiver. (a) Any disputes, claims, controversies or other Legal Proceedings arising out of, in connection with or relating to this Agreement, including any question regarding its formation, existence, validity, enforceability, performance, interpretation or the transactions contemplated by this Agreement shall be brought in any state or federal court sitting in the State of New York, County of New York, including the federal district court for the Southern District of New York. Each of the Parties (a) consents to submit itself to the exclusive personal jurisdiction of any state or federal court sitting in the State of New York, County of New York, including the federal district court for the Southern District of New York, in any Legal Proceeding arising out of or relating to this Agreement or the transactions contemplated by this Agreement, (b) agrees that all claims in respect of such Legal Proceeding may be heard and determined in any such court, (c) agrees that it shall not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (d) agrees not to bring any Legal Proceeding arising out of or relating to this Agreement or the transactions contemplated by this Agreement in any other court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any Legal Proceeding so brought and waives any bond, surety or other security that might be required of any other Party with respect thereto. Any Party may make service on another Party by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving of notices in Section 9.1. Nothing in this Section 9.15, however, shall affect the right of any Party to serve legal 29

181 process in any other manner permitted by Law. Each of the Parties irrevocably waives any and all right to trial by jury in any Legal Proceeding arising out of or relating to this Agreement or the transactions contemplated by this Agreement. The Parties acknowledge that they have consulted with legal counsel regarding this Section 9.15 and that they have freely and voluntarily entered into it. (b) For the avoidance of doubt, nothing in this Section 9.15 will limit the ability of either Party to intervene or participate in any way in any Legal Proceeding initiated by third parties relating to this Agreement or the transactions contemplated hereby that may be brought in a court or other legal forum. Any such intervention or participation shall not constitute a waiver of the Party s rights under this Section Section 9.16 Fees and Expenses. Except as otherwise provided herein, all fees and expenses incurred in connection with or related to this Agreement, the other Transaction Documents and the Transactions will be paid by the Party incurring such fees or expenses, whether or not such Transactions are consummated. In the event of termination of this Agreement, the obligation of each Party to pay its own expenses will be subject to any rights of such Party arising from a breach of this Agreement by any other Party. Section 9.17 Attorneys Fees. Notwithstanding the foregoing, in the event that any Legal Proceeding is instituted concerning or arising out of this Agreement or any transaction contemplated hereunder, the prevailing Party will recover all of such Party s costs and attorneys fees incurred in each such Legal Proceeding, including any and all appeals or petitions therefrom. Section 9.18 Language. The language of this Agreement is English, which is to be the official language of this Agreement s text and interpretation, and all notices to be given in connection with this Agreement must be in English. All demands, requests, statements, certificates or other documents or communications to be provided in connection with this Agreement must be in English or accompanied by a certified English translation, in which case the English translation prevails unless the document or communication is a statutory or other official document or communication. Section 9.19 Further Assurances. Each party shall do or procure to be done all such further acts and things, and execute or procure the execution of all such other documents, as any other party hereto may from time to time reasonably require, whether at or after the Initial Closing or the Additional Closing or otherwise, for the purpose of giving to such other party the full benefit of all of the provisions of this Agreement. Section 9.20 Counterparts; Electronic Signature. This Agreement may be executed in multiple counterparts, each of which will be deemed to be an original but all of which will constitute one and the same agreement. Delivery of a counterpart of this Agreement by attachment or fax shall be an effective mode of delivery. [ Remainder of Page Intentionally Left Blank ] 30

182 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year herein above first written: Intel Corporation /s/ Brian M. Krzanich Brian M. Krzanich Senior Vice President, Chief Operating Officer ASML Holding N.V. /s/ Eric Meurice Eric Meurice Chief Executive Officer, Chairman of Management Board /s/ Peter Wennink Peter Wennink Chief Financial Officer, Member of the Management Board

183 ANNEX A CERTAIN DEFINITIONS For the purposes of this Agreement, the following capitalized terms will have the meanings set forth below (which will apply equally to both the singular and plural forms of such terms): Additional Closing has the meaning set forth in Section 1.2(b). Additional Closing Date has the meaning set forth in Section 1.2(b). Additional Shares means that number of Ordinary Shares equal to (a) fifteen percent (15%) of the Pre-Closing Reference Shares minus (b) the Initial Shares validly issued to the Stichting by way of administration ( ten titel van beheer ) Additional Shares Price has the meaning set forth in Section 1.1(b). Additional Transaction Documents means the Deeds of Issue for the issuance of the Additional Shares, and each of the other agreements, certificates, documents and instruments contemplated hereby for the Additional Closing and thereby, including all Annexes, Exhibits and Schedules thereto. Additional Transactions means the issuance of the Additional Shares, the payment therefore, all other transactions contemplated by the Transaction Documents to be consummated in connection with the sale and issuance of the Additional Shares at or prior to the Additional Closing, and the Synthetic Buyback. Affiliate means, with respect to any Person, any corporation, partnership, or other business or legal entity that, directly or indirectly, controls, is controlled by, or is under common control with such Person. The term control means, for purposes of this definition, the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities or by Contract. Control will be presumed if one entity owns, either of record or beneficially, fifty percent (50%) or more of the capital stock or share capital entitled to vote for the election of directors of the entity or fifty percent (50%) or more of equity or voting interest of the entity. AFM has the meaning set forth in Section 4.3(a). AFM Documents mean all reports, schedules, forms, notifications, filings, prospectuses and other documents (all of the foregoing and all exhibits included therein and any financial statements, financial information and documents included or incorporated by reference therein) filed with or furnished to (as applicable) the AFM by the Company, or otherwise publicly disclosed by the Company, under Applicable Laws of the Netherlands. Aggregate Investor Commitment means the sum of (i) the total amount of Partner Funding (as such term is defined in the NRE Funding Agreements) paid by Investor or which A-1

184 Investor is obligated to pay under the NRE Funding Agreement, (ii) the Initial Shares Price and (iii) if the Additional Closing has occurred, the Additional Shares Price. Agreement has the meaning set forth in the Preamble. Amsterdam Shares means the registered Ordinary Shares of the Company issued through the Amsterdam register. Antitrust Division has the meaning set forth in Section 4.8(b). Antitrust Laws means any antitrust, competition, trade regulation or merger control Law. Applicable Law means, with respect to any Person, any Law existing as of the date hereof or as of the Closing applicable to such Person or any of its respective properties, assets, officers, directors, employees, consultants or agents. Applicable Lookback Period means (i) with respect to the Initial Closing, the five (5) consecutive trading days immediately preceding the date upon which all of the Specified Initial Closing Conditions have been satisfied or (ii) with respect to an Additional Closing, the period of five (5) consecutive trading days immediately preceding the date upon which all of the Specified Additional Closing Conditions have been satisfied. Articles of Association means the Articles of Association of the Company. Articles Amendment means the Amendment to the articles of association in the form attached as Exhibit E to this Agreement. Audited Financial Statements has the meaning set forth in Section 1.6(a) of Schedule I. Board of Management means the Board of Management of the Company. Business Day means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in the City of New York or Amsterdam, The Netherlands. Buyback Program means the Company s repurchase of Ordinary Shares, the grant of authority for which was announced by the Company in its press release, dated April 25, 2012 and as further disclosed in its SEC Documents. Change of Control means any transaction or series of transactions (whether structured as a stock purchase, merger, consolidation, reorganization, change in organizational form, spin-off, split-off, recapitalization, sale of equity interests or other similar transaction or otherwise) that results directly or indirectly, in the shareholders of the Person immediately prior to such transaction or transactions ceasing to be entitled to exercise at least fifty per cent (50%) of the voting power of the shareholders of the Person as of result of such transaction or series of transactions. A-2

185 Civil Law Notary means any civil law notary ( notaris ) of De Brauw Blackstone Westbroek N.V. Class M Shares means the Class M ordinary shares of the Company issuable on the terms set forth in the Articles Amendment. Closing means each of the Initial Closing and the Additional Closing, as applicable. Closing Notice has the meaning set forth in Section 4.10(a). Commercial Agreement means the Commercial Agreement entered into by the Parties or their Affiliates simultaneously herewith, to be effective upon the Initial Closing. Company has the meaning set forth in the Preamble. Company Contract means a Contract to which the Company or any of its Subsidiaries is a party or to which it or its respective assets are bound. Company Organizational Documents means the currently effective articles of association, board rules, governance policies and codes of conduct of the Company. Company Plans has the meaning set forth in Section 4.7(a)(i). Contract means any contract, agreement, instrument, option, lease, license, sales and purchase order, warranty, note, bond, mortgage, indenture, obligation, commitment, binding application, arrangement or understanding, whether written or oral, express or implied, in each case as amended and supplemented from time to time. Damages means any losses, liabilities, obligations, claims, contingencies, diminution in value of Indemnitee s rights or property (including the Shares), impairment of rights to enjoy or realize appreciation in value of Indemnitee s rights or property (including the Shares), direct or indirect damages, consequential or incidental damages, costs and expenses (including Taxes), including all judgments, amounts paid in settlements, court costs and reasonable attorneys fees and costs of investigation and defense thereof. Deeds of Issue means the deeds of issue for the Initial Shares and the Additional Shares, substantially in the form attached hereto as Exhibit A. Depositary Receipts means the depositary receipts issued by the Stichting to Investor (or its Investor Designee) corresponding with any Ordinary Shares held by the Stichting by way of administration ( ten titel van beheer ) EGM has the meaning set forth in Section 4.5(a). EGM Materials has the meaning set forth in Section 4.5(a). Encumbrance means any charge, claim, limitation, condition, equitable interest, attachment, usufruct, mortgage, lien, option (including any right to acquire, right of preemption A-3

186 or conversion), pledge, hypothecation, security interest, title retention, easement, encroachment, right of first refusal or negotiation, adverse claim or restriction of any kind, including any restriction on or transfer or other assignment, as security or otherwise, of or relating to use, quiet enjoyment, voting, transfer, receipt of income or exercise of any other attribute of ownership, or any agreement to create any of the foregoing; provided, however, that the term Encumbrance will not include (i) statutory liens for Taxes that are not yet delinquent and (ii) statutory or common law liens in favor of carriers, warehousemen, mechanics and materialmen, to secure claims for labor, materials or supplies. Environmental Laws mean any and all Laws, whether civil, criminal or administrative, applicable to the Company and/or conduct of the Company s business and which have as a purpose or effect the protection or the provision of remedies in respect of the environment including: European Community or European Union regulations, directives, decisions and recommendations; statutes and subordinate legislation; regulations, orders and ordinances; permits; codes or practice, circulars, guidance notes and the like having a binding legal effect; and judgments, notices, orders, directions, instructions or awards of any competent authority, in each case having a binding legal effect. Escrow Account has the meaning set forth in Section 1.2(b). Escrow Agreement has the meaning set forth in Section 1.2(b). Escrow Holder has the meaning set forth in Section 1.2(b). Euro means the lawful single European currency introduced on January 1, 1999 at the third stage of the European economic and monetary union. Euronext Amsterdam means the stock exchange of Euronext Amsterdam by NYSE Euronext, the regulated market of Euronext Amsterdam N.V. Exchange Act means the U.S. Securities Exchange Act of 1934, as amended. Extraordinary Corporate Event means any announcement or occurrence of and/or entry into a definitive agreement relating to, or any recommendation of the Supervisory Board and Board of Management for acceptance of an offer for or adoption of a resolution for any of the following (or any adverse change or withdrawal of the recommendation of the Supervisory Board and/or Board of Management to the shareholders of the Company to adopt the Resolutions in connection with any of the following), except with the prior written consent of Investor: (i) any Change of Control of the Company; (ii) the transfer, divestment or disposal (including by license or lease) of any business, assets or rights of the Company or its Subsidiaries representing in value at least 25% of the assets of the Company and its Subsidiaries taken as a whole or assets that generate 25% or more of the consolidated revenues of the Company and its Subsidiaries, each as determined in accordance with the most recent consolidated financial statements of the Company included in the SEC Reports filed with the SEC); A-4

187 (iii) any of the matters set out in Section of the Shareholder Agreement; or (iv) the assignment or exclusive license of a significant portion of the Company s Intellectual Property to any Person other than a Subsidiary. FTC has the meaning set forth in Section 4.8(b). Fundamental Representations means the representations and warranties set forth in Section 1.1 of Schedule I ( Organization and Qualification ), Section 1.2 of Schedule I ( Capitalization; Shares ), Section 1.3 of Schedule I ( Authority ), Section 1.4 of Schedule I ( No Conflict; Required Consents and Approvals ), Section 1.5 ( Valid Issuance of the Shares ), and Section 1.19 of Schedule I ( Brokers ). furnished to means, with respect to the Company s submissions to the SEC, as applicable, furnished pursuant to applicable securities Laws and publicly available on the EDGAR link at and with respect to the Company s submissions to the AFM, provided and publicly available at the professionals/registers section on the AFM website at General Expiration Date has the meaning set forth in Section 7.1. Governmental Entity means any federal, national, supranational, state, provincial, local or similar government, governmental, regulatory, administrative or quasi-governmental authority, branch, office agency, commission or other body, or any court, tribunal, or arbitral or judicial body (including any grand jury) in any jurisdiction. Hazardous Material means any natural or artificial substance (whether solid, liquid or gas and whether alone or in combination with any other substance or radiation), capable of causing harm to any human or other living organism or the environment including any flammable explosives, petroleum products, petroleum by-products, radioactive materials, biological agents, hazardous wastes, hazardous substances and toxic substances. Health and Safety Laws means any and all Laws, whether civil, criminal or administrative, applicable to the Company and/or the Company s business concerning health and safety matters and all and any regulations or orders made or issued under any such legislation and any relevant codes of practice, guidance notes and the like issued by government agencies, in each case having a binding legal effect. HSR Act has the meaning set forth in Section 1.4(b) of Schedule I. IFRS has the meaning set forth in Section 1.6(a) of Schedule I. Indemnification Claims has the meaning set forth in Section 7.1. Indemnitees has the meaning set forth in Section 7.2(a). Initial Closing has the meaning set forth in Section 1.2(a). A-5

188 Initial Closing Date has the meaning set forth in Section 1.2(a). Initial Shares has the meaning set forth in Section 1.1(a). Initial Shares Price has the meaning set forth in Section 1.1(a). Initial Transaction Documents means this Agreement, Deed(s) of Issue for the issuance of the Initial Shares, the Stichting Documentation, the Investor Rights Agreement, the Shareholder Agreement, the Commercial Agreement, the NRE Funding Agreements and each of the other agreements, certificates, documents and instruments contemplated hereby for the Initial Closing and thereby, including all Annexes, Exhibits and Schedules hereto and thereto. Initial Transactions means the issuance of the Initial Shares, the payment therefore and all other transactions contemplated by the Transaction Documents to be consummated in connection with the sale and issuance of the Initial Shares at or prior to the Initial Closing. Intellectual Property means all intellectual property rights arising from or associated with the following, whether protected, created or arising under the Laws of the United States or any other jurisdiction: (i) trade names, trademarks and service marks (registered and unregistered), domain names and other Internet addresses or identifiers, trade dress and similar rights, and applications (including intent-to-use applications) to register any of the foregoing (collectively, Marks ); (ii) patents and utility models and applications with respect to the foregoing (collectively, Patents ); (iii) copyrights (registered and unregistered) and applications for registration of copyrights (collectively, Copyrights ); (iv) knowhow, inventions, methods, processes, technical data, specifications, research and development information, technology, product roadmaps, customer lists and any other information, in each case to the extent any of the foregoing derives economic value (actual or potential) from not being generally known to other Persons who can obtain economic value from its disclosure or use, excluding any Copyrights or Patents that may cover or protect any of the foregoing (collectively, Trade Secrets ); and (v) moral rights, publicity rights, data base rights and any other proprietary or intellectual property rights of any kind or nature that do not comprise or are not protected by Marks, Patents, Copyrights or Trade Secrets, including all software, documentation and other tangible embodiments of any of the foregoing. Investor has the meaning set forth in the Preamble. Investor Designee has the meaning set forth in Section 9.4. Investor Rights Agreement means the Investor Rights Agreement, substantially in the form attached hereto as Exhibit B. IP Expiration Date has the meaning set forth in Section 7.1. IP Representations means the representations and warranties set forth in Section 1.8 ( Intellectual Property ) of Schedule I. Issued or in Issuance, when used with reference to the Ordinary Shares, means all Ordinary Shares issued including all shares held by the Company (treasury shares). A-6

189 Issue Price has the meaning set forth in Section 1.1(a). Knowledge of the Company or any similar phrase means, with respect to any fact or matter, the knowledge, after due and diligent inquiry, of (i) the members of the Supervisory Board and Board of Management and (ii) the employees of the Company set forth on Schedule III. Law means any statute, law, treaty, ordinance, regulation, directive, rule, code, executive or other order, injunction, judgment, decree, writ or other requirement, including any successor provisions thereof, of any Governmental Entity. Legal Proceeding means any claim, action, cause of action, suit, demand, inquiry, proceeding, litigation, prosecution, audit or investigation by or before any Governmental Entity, or arbitration, mediation or similar proceeding. Losses means the amount of Damages (the Basic Amount ) plus (i) the amount (the Tax Amount ) of Taxes, if any, incurred by Indemnitee as determined by Indemnitee in good faith by reason of the receipt of or right to receive the Basic Amount, the Tax Amount and any Ownership Amount, net of benefits, if any, actually realized in the form of a refund or reduction in Tax otherwise actually payable by Indemnitee during the Inclusion Period (after reducing such benefits by Taxes resulting from such refund or reduction, whether or not incurred during the Inclusion Period) and resulting from the accrual or payment of damages giving rise to such Basic Amount or the payment of such Taxes and (ii) if in connection with any Indemnification Claim involving a Fundamental Representation (and without limitation of any right of Indemnitee, in any Indemnification Claim that does not involve a Fundamental Representation, to any additional increment to its Damages by the effect of any indemnity payment on the value of its ownership interest in the Company) an amount equal to the product of (A) a fraction equal to the number of outstanding Ordinary Shares of the Company at the time the Indemnification Claim is made, divided by the number of such shares owned by Persons other than Investor and its Affiliates at such time, multiplied by such Basic Amount and Tax Amount (the Ownership Amount ). For purposes of this definition, the Inclusion Period with respect to any Basic Amount is the taxable year of Indemnitee during which the related Tax Amount is paid or any prior taxable year. material or material adverse effect means, for purposes of the representations and warranties in Schedule I and Schedule II of the Investment Agreement and Section 5.1(a) subject to the proviso therein, 5.2(a), 6.1(a) subject to the proviso therein, and 6.2(a) only (except for the purposes of Sections 1.1(b), 1.1(c), 1.2(a), 1.2(d), 1.4(a) (as to the Company s ability to consummate the Transactions), 1.6(a), 1.6(c), 1.7, 1.9(f), 1.16, 1.17(a) and 1.17(b) of Schedule I for which this definition will not apply) a condition or effect (which, in the case of a material adverse effect, is adverse) on the Company and its Subsidiaries taken as a whole that does or would reasonably be expected to (i) require disclosure by the Company in an SEC Document or an AFM Document heretofore or hereafter by the Company or (ii) have an adverse impact of greater than (x) One Hundred Million Euro ( 100,000,000) on the Company s consolidated net income in the aggregate in any twelve (12) month period or (y) Four Hundred Million Euro ( 400,000,000) on the Company s consolidated net income in the aggregate in all periods, in A-7

190 each case as determined in accordance with US GAAP, consistently applied. For the avoidance of doubt, a material adverse effect does not mean a Material Adverse Effect. Material Adverse Effect means: (i) any event, condition, circumstance, development, occurrence, change, effect or fact that, individually or in the aggregate, has, results in or would reasonably be expected to have or result in, a material adverse effect on (A) the business, condition (financial or otherwise), results of operations, or prospects of the Company and its Subsidiaries, taken as a whole, or (B) the Company s ability to timely consummate the Transactions in accordance with the terms of this Agreement or to perform any of its obligations under this Agreement or any of the Transaction Documents; provided, however, that with respect to clause (A) above only, no event, condition, circumstance, development, occurrence, change, effect or fact to the extent arising out of or resulting from any of the following will be taken into account in determining whether a Material Adverse Effect has occurred or may or would occur after the date of this Agreement: (1) any change, event, circumstance, development or effect generally affecting the industry in which the business of the Company and its Subsidiaries operates (it being acknowledged by Investor that the Company has in past years experienced disproportionate effects on its business and results of operation as a result of general industry declines and may experience such disproportionate effects in the future in the event of such a decline hereafter, and the Company and Investor agree that any such disproportionate effect experienced by the Company as a result of a general industry decline hereafter shall not constitute a Material Adverse Effect under this clause (A)); (2) acts of war, sabotage or terrorism, unless the Company is disproportionately affected thereby; and (3) the announcement of the Transactions; or (ii) any event, condition, circumstance, development, occurrence, change, effect or fact that, individually or in the aggregate, has resulted, results in or would reasonably be expected to have or result in, a material adverse effect on conditions in the securities markets, credit markets, currency markets or other financial markets of the economies in which the Company and its Subsidiaries operate that would make it reasonably likely that the Company would be unable to, or would not reasonably be expected to, participate meaningfully in the future development of photolithography equipment for the semiconductor industry in the manner and substantially in the timeframe contemplated by the parties pursuant to the Transaction Documents, including in relation to both 450 millimeter and extreme ultraviolet technologies; or (iii) the Euro ceases to be the lawful currency of one or more of the member states of the European Union that as of the date of this Agreement have adopted the Euro as their lawful currency; or (iv) the average closing price of the Euro STOXX 50 Index, as reported on Bloomberg, shall have been below 1600 during the Applicable Lookback Period. Maximum Offer Amount means a number of Ordinary Shares equal to ten percent (10%) of the Pre-Closing Reference Shares. A-8

191 NASDAQ means The NASDAQ Stock Market, LLC. New York Shares means the registered Ordinary Shares of the Company listed for trading on NASDAQ and issued through the New York Transfer Agent. New York Transfer Agent means J.P. Morgan Chase Bank, N.A. or any successor thereto that the Company may appoint from time to time. NRE Commitment means the agreements to provide funding for the Company s research and development program as provided, in the case of Investor, in the NRE Funding Agreements, and as to any Other Investor, pursuant to agreements and on such other terms that will be determined by the Company and such Other Investor subject to Section 4.1. NRE Funding Agreements means the NRE Funding Agreements entered into by the Parties simultaneously herewith to be effective upon the Initial Closing or the Additional Closing, as applicable as provided therein, or such earlier date as the Parties may agree. Ordinary Shares means the ordinary shares of the Company, and any securities issued or issuable in exchange for or with respect to the ordinary shares of the Company by way of a share dividend, share split or combination of shares, subdivision, consolidation, capitalization issue, recapitalization, merger, consolidation, scheme of arrangement, reorganization, reclassification or similar transaction. For purposes of this Agreement, references to Ordinary Shares include both New York Shares and Amsterdam Shares. Other Investor has the meaning set forth in Section 4.1. Other Investor Offer has the meaning set forth in Section 4.1. Other Investor Shares means the Ordinary Shares of the Company to be issued to the Other Investors as contemplated by, and in accordance with, Section 4.1. Party means a party to this Agreement or any assignee of a Party as permitted pursuant to Section 9.4 (Assignment; Successors) upon and after such assignment. Permitted Acquired Company means a Person identified by the Company in writing prior to the date of this Agreement and accepted by Investor in writing concurrently with the execution and delivery of this Agreement. Permitted Acquisition means an acquisition of any of the shares or other equity or voting securities of, or any merger, consolidation or combination with, or any acquisition of a significant portion of the assets of, any Permitted Acquired Company, but only if (a) such Permitted Acquired Company has received a bona fide, written proposal for a transaction constituting a Change of Control of such Permitted Acquired Company from a Person other than the Company and its Affiliates and Representatives, which proposal was not submitted by such Person as a result of the actions of the Company or any of its Affiliates and Representatives, and (b) the Company has not violated any of the provisions of Section 4.7(f) with respect to such Permitted Acquired Company. A-9

192 Person means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization or other legal entity including any Governmental Entity. Post-Closing Covenants means covenants and agreements set forth in this Agreement that by their terms apply or are to be performed in whole or in part after the Closing Date. Pre-Closing Reference Shares means the number of Ordinary Shares in issuance immediately prior to the Additional Closing minus (a) the Initial Shares, (b) any Other Investor Shares issued prior to the Additional Closing and (c) any Ordinary Shares issued prior to the Additional Closing pursuant to a Permitted Acquisition in accordance with Section 4.7. Power of Attorney means a power of attorney authorizing the execution of any Deed of Issue, any Initial Transaction Document or any Additional Transaction Document, as applicable. Prospectus has the meaning set forth in Section 4.3(a). Prospectus Directive means the Prospectus Directive (Directive 2003/71/EC). Prospectus Regulation means Prospectus Regulation (EU No. 809/2004), as amended from time to time. Representatives means, with respect to any Person, such Person s officers, directors, principals, employees, bankers, attorneys, advisors, auditors, and agents. Resolutions means the shareholder resolutions set out in Exhibit E. SEC means the U.S. Securities and Exchange Commission. SEC Documents mean all reports, schedules, forms, registration statements and other documents (all of the foregoing and all exhibits included therein and any financial statements, financial information and documents included or incorporated by reference therein (exclusive of any redaction therefrom pursuant to any Freedom of Information Act confidentiality treatment request) filed with or furnished to (as applicable) the SEC by the Company under the Exchange Act or the Securities Act. Securities Act means the U.S. Securities Act of 1933, as amended. Shareholder Agreement means the Shareholder Agreement, substantially in the form attached hereto as Exhibit C. Shares means the Initial Shares and the Additional Shares. Signing Agreements means this Agreement, the NRE Funding Agreements, and the Commercial Agreement. A-10

193 Specified Additional Closing Conditions means the conditions set forth in Article VI (other than such conditions that would, by their terms, only be satisfied at the Additional Closing or on the date of the Additional Closing). Specified Initial Closing Conditions means the conditions set forth in Article V (other than such conditions that would, by their terms, only be satisfied at the Initial Closing or on the date of the Initial Closing). Statutory Annual Report has the meaning set forth in Section 1.6(c) of Schedule I. Stichting means the Stichting Administratiekantoor established pursuant to the Stichting Documentation to hold the Shares purchased by Investor pursuant to this Agreement. Stichting Documentation means the Conditions of Administration (including the Schedules thereto) and related documentation substantially in the form attached to the Shareholder Agreement. Subsidiary means, with respect to any Person, any corporation, partnership, limited liability company, association, trust, unincorporated association or other legal entity of which such Person (either alone or through or together with any other Subsidiary) (i) owns, directly or indirectly, 50% or more of the capital shares or other equity interests that are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity, or (ii) has the contractual or other power to designate a majority of the board of directors or other governing body (and, where the context permits, includes any predecessor of such an entity). Supervisory Board means the Supervisory Board of the Company. Synthetic Buyback means the conversion of Ordinary Shares held by the Stichting into Class M Shares, the cash distribution by the Company to holders of Ordinary Shares (other than the Class M Shares), the share consolidation of Ordinary Shares (other than the Class M Shares) and the conversion of all Class M Shares into Ordinary Shares, in each case in accordance with Resolutions 2(a) through (e), the Articles Amendment and Section 4.5(c). Tax (including Taxes ) means (i) all direct and indirect statutory, governmental, federal, state, local, municipal, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, VAT, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, unclaimed property, escheat, windfall profits, customs, duties or other taxes, contributions, rates, levies (including social security), fees, assessments or charges of any kind whatsoever, whether disputed or not, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, (ii) any liability of the Company and its Subsidiaries for payment of amounts described in clause (i) which is primarily the liability of a person other than the Company and its Subsidiaries, whether as a result of transferee liability, of being a member of an affiliated, consolidated, combined, unitary or similar group for any period, or otherwise through operation of Law and (iii) any liability of the Company and its Subsidiaries for the payment of amounts described in clauses (i) or (ii) as a result of any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to indemnify any other person. A-11

194 Tax Return means any written or electronic return, certificate, declaration, notice, report, statement, information statement and document filed or required to be filed with respect to Taxes, amendments thereof, and schedules and attachments thereto. Taxing Authority means any Governmental Entity having authority with respect to Taxes. Termination Date has the meaning set forth in Section 8.1(a). Termination Expense Payment means an amount equal to Five Million United States Dollars (US$5,000,000). Termination Fee means an amount equal to (i) until the Initial Closing, fifty million Euro ( 50,000,000) and (ii) after the Initial Closing, twenty-five million Euro ( 25,000,000). Transaction Documents means the Initial Transaction Documents and the Additional Transaction Documents. Transactions means the transactions contemplated by the Transaction Documents. US GAAP has the meaning set forth in Section 1.6(a) of Schedule I. VAT means (i) within the European Union, such Tax as may be levied in accordance with (but subject to derogations from) the Directive 2006/112/EC and (ii) outside the European Union, any Tax levied by reference to added value, sales and/or consumption. VWAP means the per share volume-weighted average price as displayed under the heading Bloomberg VWAP on Bloomberg page VAP, applying the condition code criteria on an unfiltered basis to ticker ASML NA Equity. For the avoidance of doubt, the condition codes selected when determining the VWAP solely include: Normal trade, AUCTION (AU), Intraday Auction (IA), Basket Cross Trade (XB), CROSSED TRADE (XT), Official Close (OC), Warrant Closing Valuation (WC) and Warrant Opening Valuation (WO). Works Council means the works council of the Company s Netherlands operating Subsidiary. A-12

195 Section 1.1 Organization and Qualification. SCHEDULE I REPRESENTATIONS AND WARRANTIES OF THE COMPANY (a) The Company is a corporation duly organized and validly existing under the Laws of the Netherlands as a limited liability company ( naamloze vennootschap ). The Company is duly qualified or licensed to do business and in good standing as a foreign corporation in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing, individually or in the aggregate, would not reasonably be expected to have a material adverse effect. Each of the Company s Subsidiaries is duly organized, validly existing and qualified or licensed to do business and in good standing in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except where the failure to be so organized, existing, qualified or licensed, individually or in the aggregate, would not reasonably be expected to have a material adverse effect. (b) Each of the Company and its Subsidiaries has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business in all material respects as now conducted and as presently proposed to be conducted as disclosed in the SEC Documents and as contemplated by the Transaction Documents. (c) The Company is in compliance with its Company Organizational Documents. Each of the Company s Subsidiaries is in compliance with its respective articles of association or equivalent organizational documents, except where the failure to comply, individually or in the aggregate, would not reasonably be expected to have a material adverse effect, and such articles of association or equivalent organizational documents are in full force and effect. Section 1.2 Capitalization; Shares. (a) The capitalization of the Company is in all material respects as set forth in the SEC Documents, and as of April 25, 2012 and as of June 30, 2012, the Company had 419,852,514 Issued Ordinary Shares. Since June 30, 2012 to the date of this Agreement, the number of outstanding Ordinary Shares has changed solely as a result of grants by the Company of options under the employee stock and option plans identified in the SEC Documents and as a result of the repurchase of Ordinary Shares by the Company pursuant to the Buyback Program. Except for options granted under existing Company Plans identified in the SEC Documents, the issuance of securities pursuant to this Agreement and agreements with Other Investors in compliance with Section 4.1, the Company has not issued, and, upon execution of this Agreement and consummation of the Transactions, the Company will not have issued or transferred outstanding securities convertible into or exchangeable for, or warrants, rights or options, restricted share units, stock appreciation rights, performance shares, contingent value rights, phantom stock or similar securities or rights that are derivative of or provide economic benefits based, directly or indirectly, on the value or price of any capital stock or other voting I-1

196 securities (including any bonds, debentures, notes or other indebtedness having voting rights at a meeting of the Company s shareholders or convertible into securities having such voting rights) or agreements to grant or subscribe for any of the foregoing, or any other obligations or commitments of the Company or any of its Subsidiaries to create, issue, transfer, sell or otherwise dispose of, or to effect the registration under the Securities Act or other securities Laws of, any securities of or ownership interests in the Company or any of its Subsidiaries. Other than in connection with the Buyback Program or in this Agreement, the other Transaction Documents and the Contracts between the Company and each of the Other Investors expressly contemplated by Section 4.1, or after the date of this Agreement as and to the extent permitted pursuant to Section 4.7, there are no outstanding contractual obligations of the Company or any Subsidiary to repurchase, redeem or otherwise acquire any Ordinary Shares of the Company or any capital stock of any Subsidiary or to pay any dividend or make any other distribution in respect thereof or to, or make any material investment (in the form of a loan, capital contribution or otherwise) in, any Person other than the Company or any of its Subsidiaries, except for purposes of funding by the Company to its suppliers in the ordinary course of the business of the Company consistent with past practice or pursuant to the Variable Interest Entity as described in the SEC Documents filed with or furnished to the SEC prior to the date of this Agreement. (b) The preemptive rights of holders of Ordinary Shares existing under the laws of The Netherlands with respect to the issue of (i) the Initial Shares have been validly excluded and (ii) the Additional Shares will in the event of adoption of the Resolutions be validly excluded by the Management Board with the approval of the Supervisory Board. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the Transactions. The consummation of the Transactions will not obligate the Company to issue or transfer Ordinary Shares or other securities to any Person (other than Investor) and, other than in connection with the Synthetic Buyback, will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities. (c) Except as set forth in the Articles of Association, as they are in force on the date of this Agreement and filed with the Trade Register of the Chamber of Commerce Brabant and as they will be amended pursuant to the Articles Amendment, and as set forth in the Shareholder Agreement, there are no restrictions generally applicable to the Ordinary Shares or other shares in the share capital of the Company with respect to voting or transfer pursuant to the Company Organizational Documents or pursuant to any Company Contract. (d) All of the outstanding share capital of the Company is, and all share capital to be issued or transferred upon exercise of outstanding options, upon issuance or transfer on the terms and conditions specified in the instruments pursuant to which they are issuable will be, duly authorized and validly issued, fully paid and non-assessable, and such shares, and all outstanding stock options and other securities of the Company have been issued or transferred by the Company in material compliance with applicable securities Laws. Section 1.3 Authority. (a) The Company has the requisite corporate power and authority to authorize, execute and deliver this Agreement and each other Transaction Document to which it I-2

197 is or, at the applicable Closing (subject to, in the case of the Additional Transactions, the adoption of the Resolutions for the Additional Closing), will become a party. The Company has the requisite corporate power and authority, (i) to perform its obligations under this Agreement and each other Transaction Document and (ii) to consummate the Transactions, subject to, in the case of the Additional Transactions, the adoption of the Resolutions and the execution of the Articles Amendment. The execution and delivery of this Agreement and each other Transaction Document to which the Company is or, at the applicable Closing, will become a party, and the consummation of the Transactions, have been duly and validly authorized by the unanimous approval of the Board of Management and the Supervisory Board, which will recommend the adoption of the Resolutions. (b) The Board of Management has validly unanimously resolved (i) to issue the Initial Shares and (ii) subject only to adoption of the Resolutions, to issue the Additional Shares. Other than the adoption of the Resolutions and execution of the Articles Amendment, no other corporate proceedings or actions on the part of the Company or its shareholders, the Board of Management or the Supervisory Board are necessary (i) to authorize, execute or deliver this Agreement or any other Transaction Document, (ii) to perform any of the obligations of the Company under this Agreement or any of the other Transaction Documents, (iii) to otherwise consummate the Transactions, or (iv) to authorize or issue the Shares. (c) This Agreement and each other Transaction Document to which the Company is or, at the applicable Closing, will become a party have been or, at the applicable Closing, will be, as the case may be, duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery of the other parties hereto and thereto, constitute or, with respect to any Transaction Document to be executed at the applicable Closing, will constitute, the valid, legal and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject to any applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws now or hereafter in effect relating to creditors rights generally or to general principles of equity. Section 1.4 No Conflict; Required Consents and Approvals. (a) The execution, delivery and performance by the Company of this Agreement and each of the Transaction Documents to which the Company is or will be a party, and the consummation of the Transactions, do not and will not: (i) conflict with or violate the Company Organizational Documents, (ii) conflict with or violate any Applicable Law, (iii) result in any breach of, or constitute a default (or an event that, with notice or lapse of time or both, would become a default or breach) under, require any consent of or notice to any Person (except for adoption of the Resolution for the issuance of the Additional Shares and as provided in clause (b) of this Section) pursuant to, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of an Encumbrance on any property or asset of the Company pursuant to, or otherwise adversely affect the rights of the Company under, or result in the loss of a benefit under, any Company Contract, (iv) result in the creation or imposition of any Encumbrance of any kind on any assets or securities of the Company (except for Encumbrances on the Shares as provided in the Shareholder Agreement or the Stichting Documentation) or any Subsidiary, or (v) violate any rule or regulation or listing requirement of Euronext Amsterdam, NASDAQ or any other stock exchange on which the Company has listed I-3

198 its securities for trading, except, with respect to clauses (iii) and (iv), for such conflicts, violations, breaches or defaults or other occurrences that, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Company or materially affect the Company s ability to consummate the Transactions. (b) The execution, delivery and performance by the Company of this Agreement and each of the Transaction Documents to which the Company is or will be a party, and the consummation of the Transactions by the Company do not, and the performance of this Agreement by the Company will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity of competent jurisdiction for such performance or in order to prevent the termination of any right, privilege, license or qualification of the Company, except for (i) the filing for approval of the prospectus and request for admission to trading as set forth in Section 4.3 and any filing contemplated by the Investor Rights Agreement and (ii) any notifications, filings or clearances required to be made or obtained under the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act ) or the Antitrust Laws of any other jurisdiction. Section 1.5 Valid Issuance of the Shares. (a) Upon execution of the Deeds of Issue and delivery of the Shares when paid for in accordance with this Agreement at the applicable Closing (or in the case of the Class M Shares, when Ordinary Shares are converted into Class M Shares), (i) the Shares, and any Class M Shares into which any Ordinary Shares are converted, will be duly and validly issued and fully paid and non-assessable from and after the applicable Closing, (ii) such Shares will form part of (and in the case of the Class M Shares, upon conversion will be) the same class of Ordinary Shares, and the Shares will have (or in the case of the Class M Shares, upon conversion will have) the same rights, preferences, privileges and restrictions as all other Ordinary Shares, except as provided in the following clause (iii), (iii) the issuance of such Shares and Class M Shares will not be subject to preemptive rights (which will have been validly excluded) and (iv) the Stichting will acquire full ownership of such Shares and Class M Shares, free and clear of any Encumbrance or other limitation (except as provided for in the Shareholder Agreement or by Stichting Documentation), and the Investor will receive Depositary Receipts issued by the Stichting corresponding with such Shares and Class M Shares, free and clear of any Encumbrance or other limitation (except as provided for in the Shareholder Agreement or the Stichting Documentation), other than Encumbrances created by or imposed by Investor. (b) No Dutch capital Tax, registration Tax, transfer Tax, stamp duty or any other similar Dutch Tax or duty will be due or payable by or on behalf of Investor in the Netherlands in respect of or in connection with the issuance, sale and purchase of the Shares. Section 1.6 Financial Statements. (a) The audited consolidated financial statements together with the related notes of the Company as of December 31, 2011 and 2010 and for the three years ended December 31, 2011, included in the Company s Annual Report on Form 20-F for the year ended December 31, 2011 (the Audited Financial Statements ) (i) together with the Company s Form 20-F in which such Audited Financial Statements were included, complied, as of the date of I-4

199 filing such Form 20-F with the SEC, in all material respects with applicable accounting requirements and the rules and regulations of the SEC and (ii) fairly present in all material respects the financial position, results of operations and cash flows of the Company and its Subsidiaries as the dates for the periods to which they relate. Such Audited Financial Statements and the unaudited consolidated financial statements, together with the related notes of the Company, for each quarterly period after December 31, 2011 that have been furnished to the SEC have been prepared in accordance with United States generally accepted accounting principles ( US GAAP ) or International Financial Reporting Standards as issued by the European Union ( IFRS ), as applicable, applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto). (b) Except as set forth in the SEC Documents filed with or furnished to the SEC prior to the date of this Agreement, since December 31, 2011, the Company has not made any material change in the accounting practices or policies applied in the preparation of its financial statements, except as required by US GAAP or SEC rule or Applicable Law. (c) The audited consolidated financial statements for the years ended December 31, 2011 and 2010, together with the related notes, included in the Company s statutory annual report published in accordance with Applicable Law of The Netherlands for the year ended December 31, 2011 (the Statutory Annual Report ), (i) complied as of the date of filing the Statutory Annual Report with the relevant Dutch trade register and/or with the AFM, in all material respects with applicable accounting requirements and the published rules and regulations of the AFM and other Applicable Law in The Netherlands with respect thereto and (ii) fairly present in all material respects the financial position, results of operations and cash flows of the Company and its Subsidiaries as of their respective dates for the periods to which they relate. Such financial statements, together with the related notes, included in the Statutory Annual Report and the Company s unaudited consolidated financial statements, together with the related notes, for any quarterly period included with any of the Company s filings with the AFM after December 31, 2011 have been prepared in accordance with IFRS applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto). (d) Except as disclosed in the SEC Documents filed with or furnished to the SEC by the Company prior to the date of this Agreement, neither the Company nor any of its Subsidiaries has any liabilities or obligations of any nature which were not incurred in the ordinary course of business and consistent in nature and amount with past practice (whether accrued, absolute, contingent, determined, determinable or otherwise) that (i) if any of them had been in existence at the date of the applicable consolidated balance sheet in any such SEC Document filed with or furnished to the SEC by the Company, would have been required to be included on a consolidated balance sheet (or the footnotes thereto) of the Company prepared in accordance with US GAAP or (ii) individually or in the aggregate have had or would reasonably be expected to have a material adverse effect. Section 1.7 Securities Laws and Listing. (a) The Ordinary Shares currently Issued are listed on Euronext Amsterdam, and the Company is in all material respects in compliance with all applicable rules of Euronext Amsterdam and any other applicable rules or regulations relating to such listing. Any Ordinary I-5

200 Shares subsequently issued to Investor or its Affiliates pursuant to this Agreement will be listed for trading, on Euronext Amsterdam upon completion of the actions contemplated in Section 4.3. The Company is, and has no reason to believe that it will not continue to be, in compliance in all material respects with applicable Euronext Amsterdam rules. (b) The Ordinary Shares are registered pursuant to Section 12(b) of the Exchange Act. The Company has taken no action that will or, to the Knowledge of the Company, is likely to have the effect of terminating the registration of the Ordinary Shares under the Exchange Act, and the Company has not received any notification that the SEC is contemplating terminating such registration. The Ordinary Shares currently outstanding are listed for trading, and subject to the filing of a notification of issuance on the form prescribed by NASDAQ, any Ordinary Shares subsequently issued to Investor or its Affiliates will be listed for trading, in each case in the form of New York Shares, on NASDAQ. The Company is, and has no reason to believe that it will not continue to be, in compliance in all material respects with applicable NASDAQ rules. (c) Since December 31, 2009, the Company has filed with or furnished to the AFM or publicly disclosed (as applicable) all AFM Documents required under Applicable Law on a timely basis. As of their respective filing (or website posting, as applicable) dates, to the Knowledge of the Company, the AFM Documents (i) did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, and (ii) satisfied at least in all material respects the applicable requirements of Applicable Law and the applicable rules and regulations of the AFM. (d) Since December 31, 2009, the Company has filed or furnished (as applicable) all SEC Documents with the SEC required under the Exchange Act or the Securities Act on a timely basis. As of the dates such SEC Documents were filed with or furnished to the SEC, to the Knowledge of the Company, such SEC Documents (i) did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, and (ii) conformed in all material respects to the applicable requirements of the Exchange Act or the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. (e) As of the date of this Agreement, there are no outstanding or unresolved comments in the comment letters received from the SEC or the AFM with respect to the SEC Documents or the AFM Documents. To the Knowledge of the Company, as of the date of this Agreement, none of the SEC Documents or the AFM Documents are subject to ongoing review or outstanding comment or investigation by the SEC or the AFM. (f) Only the Company is, and none of its Subsidiaries are or are required to be, a reporting company under Sections 13(a), 13(c) or 15 (d) of the Exchange Act. Shares. (g) The Company meets all of the requirements for filing with the SEC a registration statement on Form F-3 with respect to the I-6

201 (h) The Company is a Well-Known Seasoned Issuer as defined in Rule 405 under the Securities Act. (i) The Company has not, and to the Knowledge of the Company no one acting on its behalf has, taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Shares. Section 1.8 Intellectual Property. (a) Except as disclosed in the SEC Documents filed with or furnished to the SEC prior to the date of this Agreement, the Company and its Subsidiaries own, or possess the right to use, all Intellectual Property currently employed by them in connection with the business now operated by them or as currently contemplated to be operated, except where the failure to so own or possess, individually or in the aggregate, would not reasonably be expected to have a material adverse effect. (b) Except as disclosed in the SEC Documents filed with or furnished to the SEC prior to the date of this Agreement, to the Knowledge of the Company, the development, manufacture, sale, distribution or other exploitation of products, and the provision of any services, by or on behalf of the Company or any of its Subsidiaries, and all of the other activities or operations of the Company or any of its Subsidiaries, have not infringed upon, misappropriated, violated, or constituted the unauthorized use of, and do not infringe upon, misappropriate, violate, or constitute the unauthorized use of, any Intellectual Property of any third party. The Company takes commercially reasonable measures to identify whether any third parties are infringing or otherwise violating any of the Intellectual Property owned by any of the Company or its Subsidiaries and, to the extent any such third parties are identified, the Company takes commercially reasonable steps to address such infringement or other violation. Except as disclosed in the SEC Documents filed with or furnished to the SEC prior to the date of this Agreement, neither the Company nor any Subsidiary has received any written notice of infringement of or conflict with any Intellectual Property of any third party, and neither the Company nor any Subsidiary has received a written offer to license the Intellectual Property of any third party other than with respect to Intellectual Property under which the Company and its Subsidiaries is licensed pursuant to agreements with such third parties. (c) The Company and its Subsidiaries are in compliance with the terms of all agreements pursuant to which Intellectual Property rights are transferred or licensed to them and have performed all obligations required to be performed by them to date under such agreements, and none of them are (with or without the lapse of time or the giving of notice, or both) in breach or default under such agreements, except for such non-compliance, breach or default as would not, individually or in the aggregate, reasonably be expected to have a material adverse effect. (d) Except as disclosed in the SEC Documents filed with or furnished to the SEC prior to the date of this Agreement, neither the Company nor any of its Subsidiaries is a party to or bound by any decree, judgment, order, arbitral award or agreement that is reasonably expected to require the Company or its Subsidiaries, Affiliates, or shareholders to grant to any third party any license, covenant not to sue, immunity or other right with respect to any I-7

202 Intellectual Property or that affects the terms and conditions under which any such license, covenant, immunity or other right is, may be, or must be granted, except where such decrees, judgments, orders, arbitral awards or agreements would not, individually or in the aggregate, have or reasonably be expected to have a material adverse effect. (e) The Company maintains a policy governing the use of open source software in the software owned or developed by the Company or any of its Subsidiaries. To the Knowledge of the Company, during the four (4) years prior to the Closing Date, the Company and its Subsidiaries have only incorporated, integrated, or, linked to any open source software in software owned or developed by the Company or any of its Subsidiaries in accordance with such policy. (f) Neither the Company nor any of its Subsidiaries participates, or has participated in the past, in any standards-setting organization or multi-party special interest group where such participation requires the Company or any of its Subsidiaries, Affiliates or shareholders to grant third parties a license to Patents, except where such license grant would not, individually or in the aggregate, have or reasonably be expected to have a material adverse effect. To the Knowledge of the Company, it is in compliance with any intellectual property rights obligations of the standards-setting organizations and special interest groups in which the Company or any of its Subsidiaries are participants. Section 1.9 The Company and Its Subsidiaries. (a) Exhibit 8.1 to the Company s Annual Report on Form 20-F for the year ended December 31, 2011 sets forth a correct and complete list of each Subsidiary of the Company required to be disclosed in that exhibit as of the date such report was filed in accordance with the applicable requirements of the Exchange Act. The Company owns beneficially and of record all of the issued equity of (i) each of its Significant Subsidiaries and (ii) except any lack of ownership that, individually or in the aggregate, would not reasonably be expected to have a material adverse effect, all of the Company s other Subsidiaries. Each outstanding capital share of each Subsidiary of the Company is duly authorized, validly issued, fully paid and non-assessable and each capital share of each Subsidiary of the Company owned by the Company or another Subsidiary of the Company is free and clear of all material Encumbrances. (b) Each of the Company and its Subsidiaries (since the time of formation or acquisition thereof by the Company) has been operated at all times in compliance with all Applicable Laws, other than failures to comply with or violation of such Laws that, individually or in the aggregate, would not reasonably be expected to have a material adverse effect. The Company and its Subsidiaries have not received any notice, order, complaint or other communication that it has any liability under any Applicable Law or that it is not or has at any time not been in compliance with any Applicable Law, except as, individually or in the aggregate, would not reasonably be expected to have a material adverse effect, and to the Knowledge of the Company, there is no basis therefor. No investigation or review by any Governmental Entity with respect to the Company or any of its Subsidiaries has occurred since December 31, 2009, is pending or, to the Knowledge of the Company, is threatened, regarding a violation of any Applicable Law and, to the Knowledge of the Company, there is no basis I-8

203 therefor. Without limiting the foregoing, the Company and its Subsidiaries are and have operated in compliance with all applicable U.S. and Dutch securities Laws, all Dutch corporate Laws and corporate governance codes, all Environmental Laws and Health and Safety Laws, all Applicable Laws relating to exports where it conducts business, and all Applicable Laws relating to employment and employment practices, terms and conditions of employment, and wages and hours, except as, individually or in the aggregate, would not reasonably be expected to have a material adverse effect. (c) All certificates, permissions, authorizations, consents, licenses from Governmental Entities, permits and any similar authority for the owning, leasing and operating the properties or the carrying on the businesses of the Company and each of its Subsidiaries have been obtained and are in full force and effect except, individually and in the aggregate, as would not be reasonably expected to have a material adverse effect. There have occurred no defaults under, violations of, or events giving rise to a right of termination, amendment or cancellation of any such permits and neither the Company nor any of its Subsidiaries has received or reasonably expects to receive any notice of any Legal Proceedings relating to the suspension, revocation or modification of any such certificate, permission, authorization, consent, license, permit or other similar authority, which, individually or in the aggregate, would reasonably be expected to be material. (d) Except, as would, individually or in the aggregate, not reasonably be expected to have a material adverse effect: (i) the Company or its Subsidiary, as applicable, is not in default under any Company Contract, has not committed or failed to perform any act that, with or without notice, lapse of time, or both, would constitute a default under any such Company Contract, (ii) none of the Company Contracts have been canceled by the other party, and to the Knowledge of the Company, no other party is in material breach or material default under, any such Company Contract, and (iii) since December 31, 2009, to the Knowledge of the Company, neither the Company nor any of its Subsidiaries have received any written claim of default under any Company Contract that has not been cured. (e) No Company Contract (i) restricts or prohibits the Company or any of its Subsidiaries from engaging in any aspect of the Company s or such Subsidiary s business anywhere in the world with any Person or during any period of time, or (b) grants a right of first refusal, first offer or similar right with respect to any aspect of the Company s or such Subsidiary s business, except, in each case where such restriction, prohibition or right, individually or in the aggregate, would not reasonably be expected to have a material adverse effect. (f) Each of the Company and its Subsidiaries has good and marketable title to all real property, and good and marketable title to all personal property, in each case free and clear of all Encumbrances, other than such exceptions to good and marketable title or Encumbrances, individually or in the aggregate, as would not reasonably be expected to materially interfere with the use made and proposed to be made of such property by the Company and its Subsidiaries. I-9

204 (g) The Company and its Subsidiaries are and have operated in compliance with the Memorandum of Understanding and any related Contracts entered into by and between the Company and the Committee on Foreign Investment in the United States. (h) Since December 31, 2011, there has been no material adverse effect that has not been disclosed in a SEC Document filed with or furnished to the SEC prior to the date of this Agreement. (i) Except as disclosed in the SEC Documents filed with or furnished to the SEC prior to the date of this Agreement, since December 31, 2011, the Company has not (i) except after the date of this Agreement as permitted pursuant to Section 4.7 ( Changes; Encumbrances; Capital ), declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any agreements to purchase or redeem any share capital, other than pursuant to the Buyback Program or (ii) issued or transferred any equity securities to any member of the Supervisory Board or Board of Management or Affiliate, except pursuant to existing Company Plans. (j) Since December 31, 2011, (i) except as, individually or in the aggregate, would not be reasonably expected to have a material adverse effect, there has not been any adverse change in the business relationship of the Company or any of its Subsidiaries with any customer or supplier, (ii) neither the Company nor any of its Subsidiaries has received any written notice from any such customer or supplier to the effect that any such customer or supplier (A) has changed, modified, amended or reduced, or is reasonably likely to change, modify, amend or reduce, its business relationship with the Company or any Subsidiary of the Company or (B) will fail to perform, or to the Knowledge of the Company is reasonably likely to fail to perform, its obligations under any of its Contracts with the Company or any Subsidiary of the Company, in each case, which individually or in the aggregate, would have a material adverse effect, and (iii) to the Knowledge of the Company, no such customer or supplier intends to take any of the actions contemplated by clause (ii)(a) or (B) of this Section 1.9(j). (k) Since December 31, 2011, except as, individually or in the aggregate, would not be reasonably expected to have a material adverse effect, neither Company nor any Subsidiary has entered into any Company Contract or commitment or incurred any liability (including a contingent liability) which is outside the ordinary course of business and inconsistent in nature and amount with past practice. Since December 31, 2011, the Company and its Subsidiaries have conducted their respective businesses in the ordinary course consistent with past practice in all material respects, except for (i) the negotiation of the Transaction Documents and the signing of this Agreement and (ii) discussions with Persons, the identity of which have been disclosed to Investor in writing regarding the participation of such Persons in the transactions contemplated by Section 4.1. Section 1.10 Insurance. Each of the Company and its Subsidiaries is and has been insured by insurers of recognized financial responsibility against such losses and risks, and in such amounts, as the Company believes to be prudent and as are customary in the businesses and locations in which each is engaged. Except as, individually or in the aggregate, would not be reasonably expected to have a material adverse effect: (i) neither the Company nor any Subsidiary is in breach or default or has received any notice of cancellation of any such I-10

205 insurance, or, to Knowledge of the Company, will be unable to renew its existing insurance coverage as and when such coverage expires, or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost and (ii) there is no pending claim by the Company or any of its Subsidiaries under any insurance policy. Section 1.11 Employee Matters. (a) There is no legal or contractual obligation to inform, consult or obtain advice of, whether in advance or otherwise, any works council, labor union, labor organization, employee representatives or other representative body in order to consummate the Transactions, other than the Company informing the Works Council of the Transactions and requesting advice with respect to intended decisions by the Company that may follow from the Transactions. (b) Except as disclosed in the SEC Documents filed with or furnished to the SEC prior to the date of this Agreement or as, individually or in the aggregate, would not be reasonably expected to have a material adverse effect, neither the Company nor any of its Subsidiaries has a pension scheme or any obligation to contribute towards the pension arrangements of its Supervisory Board members or employees or former Supervisory Board members or employees. (c) Except as disclosed in the SEC Documents filed with or furnished to the SEC prior to the date of this Agreement and except as would not be reasonably expected to result in a material liability to the Company, all individuals who are or were performing consulting or other services for the Company and its Subsidiaries have been correctly classified under Applicable Law. (d) Except as, individually or in the aggregate, would not be reasonably expected to have a material adverse effect, (i) as of the date hereof, there are no claims, disputes, grievances, or controversies pending or, to the Knowledge of the Company, threatened between the Company or any of its Subsidiaries and any of their respective present or former employees, (ii) there is no strike, slowdown, work stoppage or lockout, or other labor dispute or similar activity continuing as of the date hereof or, to the Knowledge of the Company, threatened or pending as of the date hereof, and (iii) to the Knowledge of the Company, there is no pending or threatened dispute or controversy with the Works Council. Section 1.12 Legal Proceedings. Except as disclosed in the SEC Documents filed with or furnished to the SEC prior to the date of this Agreement and as, individually or in the aggregate, would not be reasonably expected to have a material adverse effect (a) neither the Company nor any Subsidiary nor, to the Knowledge of the Company, any of their respective officers or Supervisory Board members or directors (in their capacity as such) is, or has since December 31, 2009 been, engaged in any Legal Proceedings and (b) to the Knowledge of the Company, no Legal Proceedings have been threatened by or against the Company or any Subsidiary or any of their respective officers or Supervisory Board members or directors (in their capacity as such). To the Knowledge of the Company, no inquiry, audit or investigation by any Governmental Entity is pending, other than routine Tax, Health and Safety Laws or Environmental Laws or a substantively similar inquiry or audit conducted by applicable Governmental Entities which are in the Company s ordinary course of business consistent with I-11

206 past practice in manner and amount, none of which, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect. Section 1.13 Tax Matters. (a) Except as disclosed in the Audited Financial Statements or to the extent a breach of the following would not, individually or in the aggregate, be material: (a) the liability of the Company and its Subsidiaries for Taxes (including contingent liabilities for Taxes) that have accrued or arisen as of December 31, 2011 does not exceed the amounts of Taxes payable (excluding any deferred Taxes) included in the provision for Taxes reflected on the face of the balance sheet (as opposed to the footnotes thereto) included in the Audited Financial Statements as of December 31, 2011, (b) since December 31, 2011, all Taxes of the Company and its Subsidiaries that have accrued were incurred in the ordinary course of business, adjusted solely for ordinary course changes in the operations of the Company and its Subsidiaries, (c) all Tax Returns of the Company and its Subsidiaries have been accurately and properly prepared and timely filed or submitted (as applicable) in accordance with all Applicable Law, and (d) each of the Company and its Subsidiaries has within all applicable time periods required by Law withheld (if applicable), paid and accounted for all Tax liabilities required to be withheld (if applicable), paid or accounted for. (b) The provision for Taxes reflected on the face of the balance sheet (as opposed to the footnotes thereto) included in the Audited Financial Statements as of December 31, 2011 reflects all potential liability of the Company and its Subsidiaries for Taxes that may arise as a result of any claim, assessment or dispute, audit or administrative or judicial proceeding involving the Company or any Subsidiary with respect to Taxes which, individually or in the aggregate, could reasonably be considered material. (c) Other than such items disclosed in the Audited Financial Statements or as agreed with the Dutch Tax Authorities within the framework of the horizontal supervision ( horizontaal toezicht ) as applicable to the Company, neither the Company nor any of its Subsidiaries (i) is a party to or bound by any material closing agreement, offer in compromise, gain recognition agreement or any other agreement with any Taxing Authority or any Tax indemnity or Tax sharing agreement with any person, or (ii) has entered into any waivers or extensions of the statute of limitations with respect to material Taxes. The Company and its Subsidiaries are in compliance in all material respects with any Tax holiday, Tax rate reduction or other agreement with a Taxing Authority with respect to Taxes. Section 1.14 Environmental Matters. Except as disclosed in the SEC documents filed with or furnished to the SEC prior to the date of this Agreement and except as, individually or in the aggregate, has not had or would not reasonably be expected to have a material adverse effect, to the Knowledge of the Company, no property currently or formerly owned or operated by the Company or any Subsidiary has been contaminated with any Hazardous Material, and neither the Company nor any Subsidiary is subject to any liability for Hazardous Material disposal or contamination on any third-party property. Except as, individually or in the aggregate, has not had or could not reasonably be expected to have a material adverse effect, the Company has not received any notice, claim, demand or other communication alleging any actual or potential breach of Environmental Laws or Health and Safety Laws and to the Knowledge of the I-12

207 Company there are no circumstances that might reasonably be expected to give rise to the service of any such notice, claim, demand or communication. Section 1.15 Certain Business Practices. To the Knowledge of the Company, neither the Company nor any Subsidiary nor any Representative or other Person acting on any of their behalf has: (a) directly or indirectly used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to domestic or foreign political activity, (b) directly or indirectly, used or contemplated the use of funds, given, offered, promised, or authorized to unlawfully give, any money or thing of value (except for payments permitted by Applicable Law) to any government official or to any political party or campaign for the purpose of influencing an act or decision of the government official, or inducing the government official to use his or her influence or position to affect any government act or decision to obtain or retain business of the Company or any of its Subsidiaries, (c) failed to disclose in accordance with Applicable Law any contribution made by the Company or any Subsidiary (or by any Person acting on such Company s or Subsidiary s behalf of whom the Company is aware) that is in violation of Law, or (d) violated any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or any comparable Applicable Law of any jurisdiction or (e) directly or indirectly, made any other unlawful payment. The Company and its Subsidiaries have implemented procedures reasonably designed to detect and ensure against the matters identified in clauses (a) through (e) of this Section 1.15, and, to the Knowledge of the Company, there are no circumstances in existence that would reasonably be expected to result in such procedures not being effective. The Company has not entered into any transaction with any of its Affiliates that has provided to the Company revenues, earnings or assets that would not have been available to it in an arm s-length transaction with an unaffiliated Person. Section 1.16 Books and Records. The statutory books, books of account and other records of the Company and its Subsidiaries are up-todate and contain materially complete and accurate records as required by Law fairly reflecting all transactions and dispositions of fund or assets. No Governmental Entity of competent jurisdiction has given any notice, or made any allegation, that any such records are incorrect or contain any error that should be rectified. All accounts, documents and returns that are required by Law to be delivered or made to the Dutch Tax authority ( Belastingdienst ) or any other Governmental Entity in any relevant jurisdiction have been duly and correctly delivered or made. There have never been any intentionally false or fictitious entries made in the books, records or accounts of the Company or any of its Subsidiaries relating to any illegal payment or secret or unrecorded fund, and neither the Company nor any of its Subsidiaries has established or maintained a secret or unrecorded fund. Section 1.17 Accounting and Disclosure Controls. (a) The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with US GAAP or IFRS, as applicable, and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and I-13

208 appropriate action is taken with respect to any differences. The Company and its Subsidiaries internal control over financial reporting is effective, and to the Knowledge of the Company, there are no material weaknesses or significant deficiencies in its internal control over financial reporting as used in and based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. (b) (i) The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) of the Exchange Act) that comply with the requirements of the Exchange Act, (ii) such disclosure controls and procedures have been designed to ensure that material information relating to the Company and its consolidated Subsidiaries is made known to the Company s principal executive officer and principal financial officer by others within those entities and (iii) such disclosure controls and procedures are effective in all material respects. (c) Since December 31, 2011, (i) except as, individually or in the aggregate, would not reasonably be expected to have a material adverse effect, neither the Company nor any of its Subsidiaries nor, to the Knowledge of the Company, any Representative of the Company or any of its Subsidiaries has received or otherwise had or became aware of any complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or any of its Subsidiaries or their respective internal accounting controls, which asserts that the Company or any of its Subsidiaries has engaged in improper accounting or auditing practices and (ii) no attorney representing the Company or any of its Subsidiaries, whether or not employed by the Company or any of its Subsidiaries, has reported evidence of a violation of securities Laws, breach of fiduciary duty or similar violation by the Company or its Subsidiaries, or any of its officers, Supervisory Board members, directors, employees or agents to the Board of Management or the Supervisory Board or any committee or member thereof. Section 1.18 Interested Party Transactions. (a) Except as disclosed in any SEC Document filed with or furnished to the SEC prior to the date of this Agreement: There are no existing contracts, transactions, indebtedness or other arrangements, between the Company or any Company Subsidiary and any of the members of the Supervisory Board, Board of Management, officers, or to the Knowledge of the Company other Affiliates, of the Company or the Company Subsidiaries. (b) Except as disclosed in the SEC Documents filed with or furnished to the SEC prior to the date of this Agreement, to the Knowledge of the Company, none of the Company s or any of its Significant Subsidiaries directors or Supervisory Board members, Board of Management, officers, or any members of their immediate families, or any Affiliate of any such Person has or has had, either directly or indirectly, an interest required to be disclosed in an SEC Document in: (i) any Company Contract, (ii) any Person that purchases from or sells, licenses or furnishes to the Company any goods, property, technology, intellectual or other property rights or services, (iii) any legal Person with which the Company is affiliated or with which the Company has a business relationship, or (iv) any legal Person which competes with the Company. I-14

209 Section 1.19 Brokers. No fees and expenses of any broker, investment banker or financial advisor engaged by the Company or any of its Affiliates (which for the avoidance of doubt, excludes Investor after the date hereof) in connection with the Transaction Documents or the Transactions or the transactions contemplated by the Other Investor Offer as provided in Section 4.1, if any, will be payable by Investor or any of its Affiliates. Section 1.20 Information. To the Knowledge of the Company, other than as set forth in the Company s SEC Documents filed with or furnished to the SEC prior to the date hereof or AFM Documents filed with the AFM prior to the date of this Agreement, there is no information regarding the Company which would be required to be disclosed in an SEC Document or AFM Document as of the date of this Agreement for which the Company has failed to make disclosure pursuant to the Exchange Act or the Dutch Act on the Financial Supervision ( Wet op het Financieel Toezicht ), and other than the existence of the discussions with Investor in respect of the Transactions, as of the date of this Agreement, there is no information as referred to in Section 5:53 sub 1 of the Dutch Act on the Financial Supervision for which the Company had made or continues to make use of the safe harbour provided by Section 5:25i sub 3 of the Dutch Act on the Financial Supervision in delaying the making of inside information generally available instantly, except in respect of the Company s financial results for the second quarter of To the Knowledge of the Company, other than as set forth in the Company s SEC Documents filed with or furnished to the SEC or AFM Documents filed with the AFM prior to the applicable Closing Date, there will be no information regarding the Company which would be required to be disclosed in an SEC Document or AFM Document prior to the applicable Closing Date for which the Company has failed to make disclosure pursuant to the Exchange Act or the Dutch Act on the Financial Supervision ( Wet op het Financieel Toezicht ), and, except as disclosed by the Company to Investor prior to the applicable Closing Date, there will be no information as referred to in Section 5:53 sub 1 of the Dutch Act on the Financial Supervision for which the Company had made or continues to make use of the safe harbour provided by Section 5:25i sub 3 of the Dutch Act on the Financial Supervision in delaying the making of inside information generally available instantly. I-15

210 SCHEDULE II REPRESENTATIONS AND WARRANTIES OF INVESTOR Section 2.1 Authority. (a) Investor is a company duly incorporated and validly existing under the Laws of Delaware. (b) Investor has the requisite corporate power and authority to (i) authorize, execute and deliver this Agreement and each other Transaction Document to which it is or, at the applicable Closing, will become a party, (ii) perform its obligations under this Agreement and each other Transaction Document and (iii) consummate the Transactions. (c) The execution and delivery of this Agreement and each other Transaction Document to which Investor is or, at the applicable Closing, will become a party, and the consummation of the Transactions, have been duly and validly authorized by all necessary corporate action of Investor. No other corporate proceedings or actions on the part of Investor, its board of directors or shareholders are necessary (i) to authorize, execute or deliver this Agreement and each other Transaction Document, (ii) to perform all obligations of Investor under this Agreement and the other Transaction Documents or (iii) to otherwise consummate the Transactions. This Agreement and each other Transaction Document to which Investor is or, at the applicable Closing, will become a party have been or, at the applicable Closing, will be, as the case may be, duly and validly executed and delivered by Investor and, assuming the due authorization, execution and delivery of the other parties hereto and thereto, constitute or, with respect to any Transaction Document to be executed at the applicable Closing, will constitute, the valid, legal and binding obligations of Investor, enforceable against Investor in accordance with their respective terms, subject to any applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws now or hereafter in effect relating to creditors rights generally or to general principles of equity. Section 2.2 No Conflict; Required Consents and Approvals. The execution, delivery and performance by Investor of this Agreement and each of the Transaction Documents to which Investor is or will be a party, and the consummation of the Transactions by Investor, do not and will not (i) conflict with or violate Investor s certificate of incorporation or bylaws as currently in effect, (ii) conflict with or violate any Applicable Law except as would not reasonably be expected to be materially adverse to the Company, (iii) require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity, except for the notifications and filings to be made under Antitrust Laws and filings pursuant to the Exchange Act in respect of Investor s ownership of the Shares. Section 2.3 Securities Laws. (a) Investor is an accredited investor within the meaning of Rule 501(a) of Regulation D under the Securities Act and is knowledgeable, sophisticated, and experienced in making, and is qualified to make decisions with respect to, investments in shares presenting an investment decision like that involved in the purchase of the Shares. II-1

211 (b) Investor is acquiring the Shares for its own account for investment purposes only, and not with a view to the distribution of any part thereof in violation of the Securities Act or any applicable securities Laws. (c) Investor understands that (i) the Shares have not been registered under the Securities Act or registered or qualified under any state securities Law in reliance on specific exemptions therefrom, (ii) that the Shares may be resold only if registered pursuant to the provisions of the Securities Act pursuant to an exemption from registration under the Securities Act or in an offshore transaction in accordance with Rule 904 of Regulation S under the Securities Act, and (iii) no public offering ( openbare aanbieding ) has been conducted in the Netherlands or any other jurisdiction with respect to the Shares. Section 2.4 Brokers. No fees and expenses of any broker, investment banker or financial advisor engaged by Investor or any of its Affiliates (which for the avoidance of doubt, excludes the Company after the date hereof) in connection with the Transaction Documents or the Transactions, if any, will be payable by the Company or any of its Affiliates. II-2

212 Exhibit 4.32 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. 450mm NRE FUNDING AGREEMENT This 450mm NRE Funding Agreement (the Agreement ) is (i) made on July 9, 2012 by and between ASML Holding N.V. ( ASML ), a Dutch corporation, and Intel Corporation ( Funding Partner ), a Delaware corporation (each, a Party, and collectively, the Parties ) and (ii) effective upon the Initial Closing (as defined in that certain Investment Agreement between Intel Corporation and ASML Holding N.V. dated as of the date hereof) or such earlier date as the Parties may agree or be advised by counsel that such effectiveness is not subject to any approval, consent, clearance or waiver under applicable law that has not been obtained ( Effective Date ). WHEREAS ASML is engaged in research and development activities to develop and advance the technologies described in the road map attached hereto as Appendix 1 (such Appendix, the Roadmap and such research and development activities, the Project ); ASML is selling and issuing to Funding Partner, and Funding Partner is purchasing from ASML, an interest in ordinary shares of ASML, pursuant to that certain Investment Agreement, by and between ASML Holding N.V. and Funding Partner (the Investment Agreement ); Subject to the Initial Closing of the Investment Agreement (as defined therein) Funding Partner desires that ASML invests sufficiently in the Project, and desires to assist ASML with the Project by funding certain of ASML s expenses with respect to the Project. For avoidance of doubt, Funding Partner s intent in entering this Agreement is to reduce the risk of execution of and to enable the Project and ensure that the Project related lithography systems are available to Funding Partner and the whole industry, without limitation or encumbrances. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, it is therefore agreed as follows: 1 Project Assignment. 1.1 Funding Partner agrees to fund a portion of ASML s research and development expenses, dedicated capital expenditures, nonrecurring engineering costs, and third party costs (collectively, Project Expenditures ) targeted at developing the Project described in the Roadmap. ASML s good faith estimate, as of the Effective Date, of the total Project Expenditures during the period starting on January 1, 2013 and ending on December 31, 2017 (the Funding Period ) is attached hereto as Appendix 2 (such Appendix, the Project Expenditure Estimate ). 1.2 During the Funding Period, ASML will in good faith use its commercially reasonable efforts to execute the Project in a manner that will lead to the 1

213 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. achievement of the Roadmap under the most recent Project Expenditure Estimate. Funding Partner acknowledges and agrees that (a) ASML shall have sole control of the Project, (b) ASML is not committing to or guaranteeing the results of the Project or the suitability of the technologies described in the Roadmap for Funding Partner s purposes. 1.3 ASML may change the Project Expenditure Estimate at any time, in its sole discretion. ASML will provide Funding Partner with an updated Project Expenditure Estimate, based on ASML s then-current good faith evaluation of the state of the Project (a) within thirty (30) days prior to the start of each calendar year during the Funding Period and (b) promptly after ASML makes a significant change to the then-current Project Expenditure Estimate. 2 Project Funding. 2.1 During the Funding Period, Funding Partner will pay to ASML a total of 553,000,000 (the Partner Funding ). Unless otherwise agreed in writing by the Parties, ASML shall apply the Partner Funding to the Project. 2.2 Within thirty (30) days prior to the start of each calendar year during the Funding Period, ASML will provide Funding Partner with (a) a statement of the portion of the Partner Funding that Funding Partner will pay to ASML at the start of each calendar quarter of the next calendar year (each, a Quarterly Payment ) and (b) a high-level report specifying in reasonable detail the actual Project Expenditures during the current calendar year; provided, that ASML shall not be required to provide such a report for calendar year Subject to Section 2.4, the amount of each Quarterly Payment will be calculated by (a) dividing the then-remaining Partner Funding ( i.e., the initial Partner Funding minus all prior Quarterly Payments actually made by Funding Partner) by ASML s most recent Project Expenditure Estimate for the remainder of the Funding Period and (b) multiplying the result by the amount set forth in the most recent Project Expenditure Estimate with respect to each calendar quarter during the remainder of the Funding Period. 2.4 Funding Partner acknowledges and agrees that ASML s actual Project Expenditures for a given calendar year may be less than the last Project Expenditure Estimate issued prior to such calendar year, and that such situation shall not have any consequences, as the total Funding for the Funding Period will remain unchanged. Notwithstanding the foregoing, if ASML s actual Project Expenditures for any calendar year (other than the last calendar year of the Funding Period) are *** percent (***%) or more lower than the last Project Expenditure Estimate issued prior to such calendar year, then Funding Partner may request a reimbursement of the extra funding paid by Funding partner above what should have been paid on actual costs; the total overall committed funding should however still be paid during the funding period. 2

214 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. 3 Term and Termination. If (a) ASML, in its reasonable discretion, decides to abandon the Project as a result of technical infeasibility or lack of sufficient industry demand required to sustain ASML s production capacity and supply chain readiness at *** (***) tools per month and cease research and development activities with respect to the technologies described in the Roadmap or (b) if the then-remaining Partner Funding ( i.e., the initial Partner Funding minus all prior Quarterly Payments actually made by Funding Partner) is more than *** percent (***%) of such updated Project Expenditure Estimate for the remainder of the Funding Period, then ASML and Funding Partner will in good faith seek to agree to apply the remaining Partner Funding to a different, mutually agreed ASML development project. If the Parties so agree on a replacement project, such replacement project shall be considered the Project for all purposes under this Agreement. If the Parties cannot agree on a replacement project, then ASML may invoice Funding Partner per latest funding forecast at the end of each calendar year the remaining due portion during each year of the remaining Funding Period in which ASML s actual gross research and development expenditures exceed *** before funding; ASML will further invoice Funding Partner for the balance due on the originally committed funding, if any, in the year following the end of the funding period. 3.1 The term of this Agreement (the Term ) shall commence on the Effective Date and continue in full force and effect until December 31, 2017, unless earlier terminated in accordance with the terms of this Agreement. 3.2 Funding Partner may terminate this Agreement upon thirty (30) days written notice to ASML and by paying to ASML a lump sum amount equal to the remaining Partner Funding ( i.e., the initial Partner Funding minus all prior Quarterly Payments actually made by Funding Partner) as of the date of such termination. The Parties acknowledge and agree that this Section 8.2 sets forth the sole and exclusive right to terminate this Agreement, and that there are no other termination rights, express or implied, under this Agreement. 3.3 In the event of any expiration or termination of this Agreement, each Party shall promptly return to the other Party all Confidential Information and copies thereof belonging to the other Party which are related to the Agreement and are then in the possession, power, or control of such Party or any of its personnel; provided, that such Party shall nevertheless be entitled to retain copies of any of the foregoing (and related documentation) in accordance with its general records retention policy and to satisfy its obligations under applicable law or regulation. 3.4 Expiration or termination of this Agreement for any reason shall not affect any liabilities or obligations of either Party arising before such expiration or termination or out of the events causing such termination, or any damages or other remedies to which a Party may be entitled under this Agreement, at law or in equity, arising from any breaches of such liabilities or obligations. 3

215 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. 3.5 Sections 6,7,8,9, and 10 and any other rights or obligations which by their nature and content are expressly or impliedly intended to survive, shall survive and continue following expiration or termination of this Agreement. 4 Payment Terms. 5 Audit. 4.1 Funding Partner shall pay each Quarterly Payment to ASML on the first day of the applicable calendar quarter. 5.1 ASML shall maintain records in sufficient detail to permit Funding Partner to confirm the actual Project Expenditures for each calendar quarter during the Funding Period. Upon written notice to ASML, Funding Partner shall have the right, no more than one (1) time per calendar year and at its own expense, using an independent auditor selected by Funding Partner and reasonably acceptable to ASML, to review such records (to the extent generated since the last audit conducted by Funding Partner pursuant to this Section 5.1) during normal business hours, solely to verify the applicable actual Project Expenditures. ASML shall reasonably cooperate with such audit, and Funding Partner shall provide ASML with a copy of all reports and other findings prepared in connection with such audit. 5.2 If Funding Partner s exercise of its rights under Section 5.1 results in audit findings that the actual Project Expenditures reported by ASML for a given calendar year are less than *** percent (***%) of the last Project Expenditure Estimate prior to the start of such calendar year, then the Parties will meet to discuss such findings and, if the findings are confirmed by ASML, ASML will reimburse the extra funding paid by Funding partner above what should have been paid on actual costs and will restate accordingly the Funding due for the remainder of the Funding Period, which will in any event ensure that the total funding committed will be paid. 6 Confidentiality. 6.1 During the Term of the Agreement, either Party may have or may be provided access to the other Party s confidential information and material. For purposes of this Agreement, Confidential Information means all non-public and/or proprietary information of one of the Parties (the Disclosing Party that is disclosed to the other Party (the Receiving Party ) in the course of the activity pursuant to this Agreement, whether disclosed in oral, written, graphic, machine recognizable (including computer programs or data bases), model or sample form, or any derivation thereof, and includes product specifications, designs, production plans, bills of materials, development schedules, processes, method. Such information shall be Confidential Information if it would ordinarily be treated as confidential by the Disclosing Party or would ordinarily be considered information of a confidential nature in the industry, whether or not specifically 4

216 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. marked as such. The Receiving Party shall hold the Disclosing Party s Confidential Information in strictest confidence, using such measures as the Receiving Party uses to protect the confidentiality of its own Confidential Information of like importance, but in no event using less than reasonable care. 6.2 The Receiving Party shall not make any disclosure of such Confidential Information other than to its employees or agents on a need to know basis. The Receiving Party shall inform each such employee or agent of the Receiving Party s confidentiality obligations under this Agreement, and shall be jointly and severally liable for any breach of this Agreement by any such employee. 6.3 The provisions of this Article 6 shall not apply to any information that is: (a) in or subsequently enters the public domain, other than by fault, act or omission of the Receiving Party, (b) obtained lawfully from a third person who was under no obligation of confidentiality, (c) independently developed by the Receiving Party without reference to any Confidential Material, or (d) required to be disclosed by law or regulation or in response to a valid court order; provided, however, that the Receiving Party shall, if legally permitted, give the Disclosing Party prior notice as soon as possible of such required disclosure so as to enable the Disclosing Party to seek relief from such disclosure requirement or undertake measures to protect the confidentiality of the disclosure. 6.4 Any and all written reports prepared by and any information provided by ASML in connection herewith shall be maintained in strict confidence and may not be disclosed, in whole or in part, by Funding Partner to any third party without the prior written consent of ASML. 6.5 The Receiving Party shall immediately inform the Disclosing Party if it becomes aware of the possession, use, or knowledge of any of the Confidential Information by any person not authorized to possess, use, or have knowledge of the Confidential Information and shall, at the request of the Disclosing Party, provide such reasonable assistance as is required by the Disclosing Party to mitigate any damage caused thereby. 7 Intellectual Property. 7.1 ASML will own any and all Intellectual Property (whether arising under the laws of the United States or any other state, country or jurisdiction, now or hereinafter existing) created by ASML, and any and all work product developed or created by or on behalf of ASML in connection with this Agreement or the Project. For purposes of this Agreement, Intellectual Property means, in any jurisdiction throughout the world: (a) inventions (whether patentable or unpatentable, and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all provisionals, reissuances, continuations, continuations-in-part divisions, revisions, extensions, and reexaminations thereof; (b) marks; (c) copyrightable works, all copyrights, and all website content, and all applications, registrations, and renewals in 5

217 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. connection therewith; (d) mask works and protectable designs, and all applications, registrations, and renewals in connection therewith; (e) trade secrets and confidential business information (including processes, procedures, research and development, know-how, formulas, algorithms, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, research records, records of inventions, test information, customer and supplier lists, customer data, pricing and cost information, and business and marketing plans and proposals); (f) software, and all electronic data, databases, and data collections; (g) business processes; (h) all other proprietary and intellectual property rights; and (i) copies and tangible embodiments of any of the foregoing (in whatever form or medium). 7.2 Each Party will solely and exclusively own all right, title and interest in and to all Intellectual Property that was owned by or licensed to such Party prior to the Effective Date, or independently of this Agreement. 8 No Representations and Warranties. 8.1 EACH PARTY HEREBY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THIS AGREEMENT AND THE PROJECT, WHETHER EXPRESS OR IMPLIED (INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE AND/OR NON- INFRINGEMENT). EACH PARTY ACKNOWLEDGES THAT IT HAS NOT RELIED ON ANY STATEMENTS, REPRESENTATIONS OR WARRANTIES OF THE OTHER PARTY. 9 Limitations of Liability. 9.1 NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY OR TO ANY PERSON CLAIMING THROUGH THE OTHER PARTY FOR ANY SPECIAL, PUNITIVE, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY OR OTHER INDIRECT DAMAGES, ARISING OUT OF OR IN ANY MANNER CONNECTED WITH THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, REGARDLESS OF THE FORM OF ACTION AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF OR OTHERWISE MIGHT HAVE ANTICIPATED THE POSSIBILITY OF SUCH DAMAGES. 9.2 THE LIMITATIONS OF LIABILITY IN THIS SECTION 9 SHALL NOT APPLY TO DAMAGES ARISING FROM, RELATING TO, OR BASED ON (i) THE GROSS NEGLIGENCE, WILLFUL OR INTENTIONAL MISCONDUCT OF A PARTY OR ITS PERSONNEL, (ii) PERSONAL INJURY, DEATH OR DAMAGE TO TANGIBLE PROPERTY CAUSED BY A PARTY OR ITS PERSONNEL, (iii) FRAUDULENT OR CRIMINAL ACTS BY A PARTY OR ITS PERSONNEL OR (iv) EITHER PARTY S BREACH OF ARTICLE 6 HEREUNDER. 6

218 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. 10 General Provisions Construction; Absence of Presumption For the purposes of this Agreement, (a) words (including capitalized terms defined herein) in the singular shall be held to include the plural and vice versa and words (including capitalized terms defined herein) of one gender shall be held to include the other gender as the context requires, (b) the terms hereof, herein and herewith and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all Appendices) and not to any particular provision of this Agreement, and Article, Section, paragraph, and Appendix references are to the Articles, Sections, paragraphs, and Appendices to this Agreement, unless otherwise provided, (c) the words including and such as and words of similar import when used in this Agreement shall mean including, without limitation, and (d) all references to any period of days shall be deemed to be to the relevant number of calendar days unless otherwise provided The Parties hereby acknowledge that each Party and its counsel have reviewed and revised this Agreement in good faith and that no rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall be employed in the interpretation of this Agreement (including all Appendices) or any amendments hereto or thereto Entire Agreement. This Agreement constitutes the entire agreement between the Parties regarding the subject matter hereof, and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, between the Parties regarding such subject matter Amendments and Waivers. No amendment to or modification of this Agreement will be binding unless in writing and signed by a duly authorized representative of each Party. No waiver of any obligation or condition under this Agreement will be effective unless contained in a written document duly executed by the Party granting such waiver. Any such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure of compliance Severability. If any provision of this Agreement or the application thereof to any person or circumstance is determined by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions hereof or the application of such provision to persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired, or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any Party. Upon such determination, the 7

219 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties Relationship of the Parties. Nothing contained in this Agreement shall be deemed to constitute a partnership, joint venture, or legal entity of any type between Funding Partner and ASML, or to constitute one Party as the agent of the other. Moreover, each Party agrees not to construe this Agreement, or any of the transactions contemplated hereby, as a partnership for any tax purposes. Each Party shall act solely as an independent contractor, and nothing in this Agreement shall be construed to give any Party the power or authority to act for, bind, or commit the other Party Cumulative Remedies. No remedy referred to in this Agreement is intended to be exclusive, but each shall be cumulative and without prejudice to any other remedy referred to in this Agreement or otherwise available under law, equity or otherwise Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns Assignment. This Agreement may not be assigned, in whole or in part, by either Party without the other Party s prior written consent; provided, that either Party may assign the Agreement without such consent to an affiliate or a successor to all or substantially all of the assets of the business, whether by sale, merger, operation of law or otherwise. A Party who assigns this Agreement to an Affiliate will remain responsible for and ensure the performance of any and all obligations of the Affiliate under this Agreement Notices. All notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person or (b) deposited in the registered mail or private express mail, postage prepaid, addressed as follows: If to Funding Partner, to: Unless otherwise agreed in writing by the Parties, all notices to Funding Partner regarding this Agreement will include a copy to the attention of Funding Partner s *** and to the Funding Partner *** as follows: Intel Corporation 2200 Mission College Blvd. Santa Clara, CA with a copy to: *** and *** 8

220 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. If to ASML to: *** *** *** ASML Netherlands B.V. De Run 6501, 5504 DR Vehdhoven PO Box 324, 5500 AH Veldhoven The Netherlands Any Party may, by notice to the other Party, change the address to which such notices are to be given Export Control. Neither Party shall export or re-export, directly or indirectly, any technical information disclosed hereunder or direct product thereof to any destination prohibited or restricted by the export control regulations of the Netherlands and the United States, including the U.S. Export Administration Regulations, without prior authorization from the appropriate governmental authorities Dispute Resolution. In the event of any dispute under this Agreement, the senior management of each Party will meet to resolve the dispute. If the dispute is not resolved by senior management within thirty (30) days after escalation, either Party may make a written request for formal dispute resolution and specify therein the scope of the dispute. Within thirty (30) days after such written notification, the Parties will meet for one day with an impartial mediator and consider dispute resolution alternatives other than litigation. If an alternative method of dispute resolution is not agreed upon within thirty (30) days after the one day mediation, either Party may pursue any right or remedies available under law, in equity or under this Agreement. Notwithstanding the foregoing, neither Party shall be precluded at any time from seeking injunction relief against the other Party Force Majeure. No Party shall be deemed in default of this Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement results from any cause beyond its reasonable control and without its fault or negligence, such as acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, any failure in electrical or air conditioning equipment. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay. 9

221 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute a single instrument Headings. Any section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement Applicable Law and Forum. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, excluding Delaware s conflicts of law provisions. The provisions of the United Nations Convention on Contracts for the International Sale of Goods shall not apply to this Agreement. All disputes and litigation arising out of or relating to this Agreement, including without limitation matters connected with its performance, shall be subject to the exclusive jurisdiction of the courts of the State of Delaware or of the Federal Courts sitting therein. The parties hereby irrevocably submit to the personal jurisdiction of such courts and irrevocably waive all objections to such venue. [ Signature page follows ] 10

222 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. IN WITNESS WHEREOF, this Agreement has been signed on behalf of the Parties hereto by persons duly authorized in that behalf: ASML Holding N.V. Intel Corporation SIGNATURE: /s/ Eric Meurice SIGNATURE PAGE TO 450mm NRE FUNDING AGREEMENT 11 SIGNATURE: /s/ Brian M. Krzanich NAME: Eric Meurice NAME: Brian M. Krzanich TITLE: Chief Executive Officer, Chairman of Management Board TITLE: DATE: July 9, 2012 DATE: July 9, 2012 ASML Holding N.V. SIGNATURE: /s/ Peter Wennink NAME: TITLE: Peter Wennink DATE: July 9, 2012 Chief Financial Officer, Member of the Management Board Senior Vice President, Chief Operating Officer

223 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. APPENDIX 1 ROADMAP Below roadmap is indicative and can be changed in ASML s discretion, respecting the agreed upon Milestones. 12

224 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. APPENDIX 2 PROJECT EXPENDITURE ESTIMATE This Appendix 2 stipulates the process related to the estimation of the Project Expenditures and the limited *** for temporary *** and it supersedes and has precedent over the terms set out in the 450mm NRE Funding Agreement ( Agreement ). Project Expenditures due from Funding Partner are to be used only to fund the projects outlined below for 450mm, with use of Funding Partner funds identified in the Schedule 1 below for use only for 450mm development,. Availability of any funding from Funding Partner for 450mm development is contingent upon the Initial Closing. In the event that the Investment Agreement has not closed by 31 December 2012, the Parties will meet to discuss arrangements to continue the activities under the existing 450 mm Funding Agreement signed by the Parties on January 2, 2012, or other arrangements as the parties mutually agree. 1. Estimation: ASML will update every year of the funding period and communicate before the end of each year, the updated estimate covering until the end of the funding period and an explanation of the changes. ASML s preliminary estimate is as follows in Schedule 1 below. ASML agrees to fund the 450mm portion of the Project Expenditures in accordance with the annual amounts set out below in Schedule 1. SCHEDULE 1 Project 450 MM Totals Immersion *** *** *** *** *** *** 450 Dry *** *** *** *** *** *** Total 450mm (non-euv) *** *** *** *** *** *** Agreed Funding *** *** *** *** *** *** Resulting % yearly spread *** *** *** *** *** *** Resulting estimated Yearly Funding *** *** *** *** *** *** The Parties acknowledge that the numbers in the table in Schedule 1 are illustrative and that Funding Partner agreed to a total of 553,000,000 as set out in article 2.1 of this Agreement. Within 3 months of signature of the Agreement, ASML and the Funding Partner will agree on a final update of this estimate, which will serve as the Original Estimate. ASML will fund at least *** split as follows *** for 450 mm Immersion and *** for 450mm Dry and such amounts are not *** or *** in any way, including upon the terms of any other agreement entered 13

225 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. into by the Parties, including any agreements entered into contemporaneously with this Agreement. Concurrently with the confirmation of the Original Estimate, and within 3 months of signature of the Agreement, ASML and the Funding Partner will agree on a set of action milestones, leading to a set of delivery milestones, enabled by the funding estimate. These milestones will constitute the Original Milestone Plan. The Original Milestone Plan will be limited to the 450 mm project. The Project Expenditure estimate and the Milestone Plan will be updated yearly in good faith through mutual discussions with Funding Partner. Annual estimates for ASML s Project Expenditures in each calendar year for 450mm Immersion, 450mm Dry, and EUV 450mm in the Original Estimate may be adjusted +/-***% from the Original Estimate, and beyond ***% will require mutual agreement between ASML and Funding Partner. 2. Rights of ***: ASML and Funding Partner will create a Technical Review Board (TRB) including only technical personnel designated by each Party and responsible for creating and monitoring the Milestone Plan. Unless otherwise agreed in writing between the Parties, ASML agrees to invest in a given year up to a minimum of ***% of the Project Expenditures stipulated in *** for the 450mm Program. Notwithstanding Section *** in the Agreement, Funding Partner *** are subject to the following additional ***:, if (i) ASML *** to *** the ***% threshold of the *** for 450mm on a given year, and (ii) *** to *** a milestone under the Milestone Plan then Funding Partner may *** its *** until *** by ASML. Prior to *** any *** to ASML, Funding Partner will give ASML a minimum of *** (***) *** prior notice of its *** to ***, during which time ASML will provide Funding Partner with a *** of its *** to *** the requirements under the Milestone Plan. The TRB will review the *** of the *** milestone. If the TRB determines that ASML has made a *** to *** on the Milestone, and the *** is not based on lack of ***, and if the TRB determines the *** were ***, Funding Partner will *** any *** to ASML. Notwithstanding any delays by ASML, Funding Partner will abide by its commitment as stipulated in the Milestone Plan as determined by the TRB, including but not limited to the stipulated technical support, specification agreement, purchase order issue, etc,. 3. Notwithstanding Sections 6, Confidentiality, and ***, ***, ASML and Funding Partner will *** a *** setting out the *** related to the ***, ***, ***, and *** for *** provided by and *** funded by Funding Partner under this Agreement. 14

226 Exhibit 4.33 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. EUV NRE FUNDING AGREEMENT This EUV NRE Funding Agreement (the Agreement ) is (i) made on July 9, 2012 by and between ASML Holding N.V. ( ASML ), a Dutch corporation, and Intel Corporation ( Funding Partner ), a Delaware corporation (each, a Party, and collectively, the Parties ) and (ii) effective upon the Additional Closing (as defined in that certain Investment Agreement between Intel Corporation and ASML Holding N.V. dated as of the date hereof) or such earlier date as the Parties may agree or be advised by counsel that such effectiveness is not subject to any approval, consent, clearance or waiver under applicable law that has not been obtained ( Effective Date ). WHEREAS ASML is engaged in research and development activities to develop and advance the technologies described in the road map attached hereto as Appendix 1 (such Appendix, the Roadmap and such research and development activities, the Project ); ASML is selling and issuing to Funding Partner, and Funding Partner is purchasing from ASML, an interest in ordinary shares of ASML, pursuant to that certain Investment Agreement, by and between ASML Holding N.V. and Funding Partner (the Investment Agreement ); Subject to the Additional Closing of the Investment Agreement (as defined therein) Funding Partner desires that ASML invests sufficiently in the Project, and desires to assist ASML with the Project by funding certain of ASML s expenses with respect to the Project. For avoidance of doubt, Funding Partner s intent in entering this Agreement is to reduce the risk of execution of and to enable the Project and ensure that the Project related lithography systems are available to Funding Partner and the whole industry, without limitation or encumbrances. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, it is therefore agreed as follows: 1 Project Assignment. 1.1 Funding Partner agrees to fund a portion of ASML s research and development expenses, dedicated capital expenditures, nonrecurring engineering costs, and third party costs (collectively, Project Expenditures ) targeted at developing the Project described in the Roadmap. ASML s good faith estimate, as of the Effective Date, of the total Project Expenditures during the period starting on January 1, 2013 and ending on December 31, 2017 (the Funding Period ) is attached hereto as Appendix 2 (such Appendix, the Project Expenditure Estimate ). 1

227 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. 1.2 During the Funding Period, ASML will in good faith use its commercially reasonable efforts to execute the Project in a manner that will lead to the achievement of the Roadmap under the most recent Project Expenditure Estimate. Funding Partner acknowledges and agrees that (a) ASML shall have sole control of the Project, (b) ASML is not committing to or guaranteeing the results of the Project or the suitability of the technologies described in the Roadmap for Funding Partner s purposes. 1.3 ASML may change the Project Expenditure Estimate at any time, in its sole discretion. ASML will provide Funding Partner with an updated Project Expenditure Estimate, based on ASML s then-current good faith evaluation of the state of the Project (a) within thirty (30) days prior to the start of each calendar year during the Funding Period and (b) promptly after ASML makes a significant change to the then-current Project Expenditure Estimate. 2 Project Funding. 2.1 During the Funding Period, Funding Partner will pay to ASML a total of 276,000,000 (the Partner Funding ). Unless otherwise agreed in writing by the Parties, ASML shall apply the Partner Funding to the Project. 2.2 Within thirty (30) days prior to the start of each calendar year during the Funding Period, ASML will provide Funding Partner with (a) a statement of the portion of the Partner Funding that Funding Partner will pay to ASML at the start of each calendar quarter of the next calendar year (each, a Quarterly Payment ) and (b) a high-level report specifying in reasonable detail the actual Project Expenditures during the current calendar year; provided, that ASML shall not be required to provide such a report for calendar year Subject to Section 2.4, the amount of each Quarterly Payment will be calculated by (a) dividing the then-remaining Partner Funding ( i.e., the initial Partner Funding minus all prior Quarterly Payments actually made by Funding Partner) by ASML s most recent Project Expenditure Estimate for the remainder of the Funding Period and (b) multiplying the result by the amount set forth in the most recent Project Expenditure Estimate with respect to each calendar quarter during the remainder of the Funding Period. 2.4 Funding Partner acknowledges and agrees that ASML s actual Project Expenditures for a given calendar year may be less than the last Project Expenditure Estimate issued prior to such calendar year, and that such situation shall not have any consequences, as the total Funding for the Funding Period will remain unchanged. Notwithstanding the foregoing, if ASML s actual Project Expenditures for any calendar year (other than the last calendar year of the Funding Period) are *** percent (***%) or more lower than the last Project Expenditure Estimate issued prior to such calendar year, then Funding Partner may request a reimbursement of the extra funding paid by Funding partner above 2

228 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. what should have been paid on actual costs; the total overall committed funding should however still be paid during the funding period. If (a) ASML, in its reasonable discretion, decides to abandon the Project as a result of technical infeasibility or lack of sufficient industry demand required to sustain ASML s production capacity and supply chain readiness at *** (***) tools per month and cease research and development activities with respect to the technologies described in the Roadmap or (b) if the then-remaining Partner Funding ( i.e., the initial Partner Funding minus all prior Quarterly Payments actually made by Funding Partner) is more than *** percent (***%) of such updated Project Expenditure Estimate for the remainder of the Funding Period, then ASML and Funding Partner will in good faith seek to agree to apply the remaining Partner Funding to a different, mutually agreed ASML development project. If the Parties so agree on a replacement project, such replacement project shall be considered the Project for all purposes under this Agreement. If the Parties cannot agree on a replacement project, then ASML may invoice Funding Partner per latest funding forecast at the end of each calendar year the remaining due portion during each year of the remaining Funding Period in which ASML s actual gross research and development expenditures exceed *** before funding; ASML will further invoice Funding Partner for the balance due on the originally committed funding, if any, in the year following the end of the funding period. 3 Term and Termination. 3.1 The term of this Agreement (the Term ) shall commence on the Effective Date and continue in full force and effect until December 31, 2017, unless earlier terminated in accordance with the terms of this Agreement. 3.2 Funding Partner may terminate this Agreement upon thirty (30) days written notice to ASML and by paying to ASML a lump sum amount equal to the remaining Partner Funding ( i.e., the initial Partner Funding minus all prior Quarterly Payments actually made by Funding Partner) as of the date of such termination. The Parties acknowledge and agree that this Section 8.2 sets forth the sole and exclusive right to terminate this Agreement, and that there are no other termination rights, express or implied, under this Agreement. 3.3 In the event of any expiration or termination of this Agreement, each Party shall promptly return to the other Party all Confidential Information and copies thereof belonging to the other Party which are related to the Agreement and are then in the possession, power, or control of such Party or any of its personnel; provided, that such Party shall nevertheless be entitled to retain copies of any of the foregoing (and related documentation) in accordance with its general records retention policy and to satisfy its obligations under applicable law or regulation. 3.4 Expiration or termination of this Agreement for any reason shall not affect any liabilities or obligations of either Party arising before such expiration or termination or out of the events causing such termination, or any damages or other 3

229 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. remedies to which a Party may be entitled under this Agreement, at law or in equity, arising from any breaches of such liabilities or obligations. 3.5 Sections 6,7,8,9, and 10 and any other rights or obligations which by their nature and content are expressly or impliedly intended to survive, shall survive and continue following expiration or termination of this Agreement. 4 Payment Terms. 4.1 Funding Partner shall pay each Quarterly Payment to ASML on the first day of the applicable calendar quarter. 5 Audit. 5.1 ASML shall maintain records in sufficient detail to permit Funding Partner to confirm the actual Project Expenditures for each calendar quarter during the Funding Period. Upon written notice to ASML, Funding Partner shall have the right, no more than one (1) time per calendar year and at its own expense, using an independent auditor selected by Funding Partner and reasonably acceptable to ASML, to review such records (to the extent generated since the last audit conducted by Funding Partner pursuant to this Section 5.1) during normal business hours, solely to verify the applicable actual Project Expenditures. ASML shall reasonably cooperate with such audit, and Funding Partner shall provide ASML with a copy of all reports and other findings prepared in connection with such audit. 5.2 If Funding Partner s exercise of its rights under Section 5.1 results in audit findings that the actual Project Expenditures reported by ASML for a given calendar year are less than *** percent (***%) of the last Project Expenditure Estimate prior to the start of such calendar year, then the Parties will meet to discuss such findings and, if the findings are confirmed by ASML, ASML will reimburse the extra funding paid by Funding partner above what should have been paid on actual costs and will restate accordingly the Funding due for the remainder of the Funding Period, which will in any event ensure that the total funding committed will be paid. 6 Confidentiality. 6.1 During the Term of the Agreement, either Party may have or may be provided access to the other Party s confidential information and material. For purposes of this Agreement, Confidential Information means all non-public and/or proprietary information of one of the Parties (the Disclosing Party that is disclosed to the other Party (the Receiving Party ) in the course of the activity pursuant to this Agreement, whether disclosed in oral, written, graphic, machine recognizable (including computer programs or data bases), model or sample form, or any derivation thereof, and includes product specifications, designs, production plans, bills of materials, development schedules, processes, method. Such information shall be Confidential Information if it would ordinarily be treated as 4

230 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. confidential by the Disclosing Party or would ordinarily be considered information of a confidential nature in the industry, whether or not specifically marked as such. The Receiving Party shall hold the Disclosing Party s Confidential Information in strictest confidence, using such measures as the Receiving Party uses to protect the confidentiality of its own Confidential Information of like importance, but in no event using less than reasonable care. 6.2 The Receiving Party shall not make any disclosure of such Confidential Information other than to its employees or agents on a need to know basis. The Receiving Party shall inform each such employee or agent of the Receiving Party s confidentiality obligations under this Agreement, and shall be jointly and severally liable for any breach of this Agreement by any such employee. 6.3 The provisions of this Article 6 shall not apply to any information that is: (a) in or subsequently enters the public domain, other than by fault, act or omission of the Receiving Party, (b) obtained lawfully from a third person who was under no obligation of confidentiality, (c) independently developed by the Receiving Party without reference to any Confidential Material, or (d) required to be disclosed by law or regulation or in response to a valid court order; provided, however, that the Receiving Party shall, if legally permitted, give the Disclosing Party prior notice as soon as possible of such required disclosure so as to enable the Disclosing Party to seek relief from such disclosure requirement or undertake measures to protect the confidentiality of the disclosure. 6.4 Any and all written reports prepared by and any information provided by ASML in connection herewith shall be maintained in strict confidence and may not be disclosed, in whole or in part, by Funding Partner to any third party without the prior written consent of ASML. 6.5 The Receiving Party shall immediately inform the Disclosing Party if it becomes aware of the possession, use, or knowledge of any of the Confidential Information by any person not authorized to possess, use, or have knowledge of the Confidential Information and shall, at the request of the Disclosing Party, provide such reasonable assistance as is required by the Disclosing Party to mitigate any damage caused thereby. 7 Intellectual Property. 7.1 ASML will own any and all Intellectual Property (whether arising under the laws of the United States or any other state, country or jurisdiction, now or hereinafter existing) created by ASML, and any and all work product developed or created by or on behalf of ASML in connection with this Agreement or the Project. For purposes of this Agreement, Intellectual Property means, in any jurisdiction throughout the world: (a) inventions (whether patentable or unpatentable, and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all provisionals, reissuances, continuations, continuations-in-part divisions, revisions, extensions, 5

231 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. and reexaminations thereof; (b) marks; (c) copyrightable works, all copyrights, and all website content, and all applications, registrations, and renewals in connection therewith; (d) mask works and protectable designs, and all applications, registrations, and renewals in connection therewith; (e) trade secrets and confidential business information (including processes, procedures, research and development, know-how, formulas, algorithms, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, research records, records of inventions, test information, customer and supplier lists, customer data, pricing and cost information, and business and marketing plans and proposals); (f) software, and all electronic data, databases, and data collections; (g) business processes; (h) all other proprietary and intellectual property rights; and (i) copies and tangible embodiments of any of the foregoing (in whatever form or medium). 7.2 Each Party will solely and exclusively own all right, title and interest in and to all Intellectual Property that was owned by or licensed to such Party prior to the Effective Date, or independently of this Agreement. 8 No Representations and Warranties. 8.1 EACH PARTY HEREBY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THIS AGREEMENT AND THE PROJECT, WHETHER EXPRESS OR IMPLIED (INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE AND/OR NON- INFRINGEMENT). EACH PARTY ACKNOWLEDGES THAT IT HAS NOT RELIED ON ANY STATEMENTS, REPRESENTATIONS OR WARRANTIES OF THE OTHER PARTY. 9 Limitations of Liability. 9.1 NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY OR TO ANY PERSON CLAIMING THROUGH THE OTHER PARTY FOR ANY SPECIAL, PUNITIVE, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY OR OTHER INDIRECT DAMAGES, ARISING OUT OF OR IN ANY MANNER CONNECTED WITH THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, REGARDLESS OF THE FORM OF ACTION AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF OR OTHERWISE MIGHT HAVE ANTICIPATED THE POSSIBILITY OF SUCH DAMAGES. 9.2 THE LIMITATIONS OF LIABILITY IN THIS SECTION 9 SHALL NOT APPLY TO DAMAGES ARISING FROM, RELATING TO, OR BASED ON (i) THE GROSS NEGLIGENCE, WILLFUL OR INTENTIONAL MISCONDUCT OF A PARTY OR ITS PERSONNEL, (ii) PERSONAL INJURY, DEATH OR DAMAGE TO TANGIBLE PROPERTY CAUSED BY A PARTY OR ITS PERSONNEL, (iii) FRAUDULENT OR CRIMINAL ACTS BY A PARTY OR 6

232 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. ITS PERSONNEL OR (iv) EITHER PARTY S BREACH OF ARTICLE 6 HEREUNDER. 10 General Provisions Construction; Absence of Presumption For the purposes of this Agreement, (a) words (including capitalized terms defined herein) in the singular shall be held to include the plural and vice versa and words (including capitalized terms defined herein) of one gender shall be held to include the other gender as the context requires, (b) the terms hereof, herein and herewith and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all Appendices) and not to any particular provision of this Agreement, and Article, Section, paragraph, and Appendix references are to the Articles, Sections, paragraphs, and Appendices to this Agreement, unless otherwise provided, (c) the words including and such as and words of similar import when used in this Agreement shall mean including, without limitation, and (d) all references to any period of days shall be deemed to be to the relevant number of calendar days unless otherwise provided The Parties hereby acknowledge that each Party and its counsel have reviewed and revised this Agreement in good faith and that no rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall be employed in the interpretation of this Agreement (including all Appendices) or any amendments hereto or thereto Entire Agreement. This Agreement constitutes the entire agreement between the Parties regarding the subject matter hereof, and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, between the Parties regarding such subject matter Amendments and Waivers. No amendment to or modification of this Agreement will be binding unless in writing and signed by a duly authorized representative of each Party. No waiver of any obligation or condition under this Agreement will be effective unless contained in a written document duly executed by the Party granting such waiver. Any such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure of compliance Severability. If any provision of this Agreement or the application thereof to any person or circumstance is determined by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions hereof or the application of such provision to persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired, or invalidated thereby, so 7

233 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any Party. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties Relationship of the Parties. Nothing contained in this Agreement shall be deemed to constitute a partnership, joint venture, or legal entity of any type between Funding Partner and ASML, or to constitute one Party as the agent of the other. Moreover, each Party agrees not to construe this Agreement, or any of the transactions contemplated hereby, as a partnership for any tax purposes. Each Party shall act solely as an independent contractor, and nothing in this Agreement shall be construed to give any Party the power or authority to act for, bind, or commit the other Party Cumulative Remedies. No remedy referred to in this Agreement is intended to be exclusive, but each shall be cumulative and without prejudice to any other remedy referred to in this Agreement or otherwise available under law, equity or otherwise Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns Assignment. This Agreement may not be assigned, in whole or in part, by either Party without the other Party s prior written consent; provided, that either Party may assign the Agreement without such consent to an affiliate or a successor to all or substantially all of the assets of the business, whether by sale, merger, operation of law or otherwise. A Party who assigns this Agreement to an Affiliate will remain responsible for and ensure the performance of any and all obligations of the Affiliate under this Agreement Notices. All notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person or (b) deposited in the registered mail or private express mail, postage prepaid, addressed as follows: If to Funding Partner, to: Unless otherwise agreed in writing by the Parties, all notices to Funding Partner regarding this Agreement will include a copy to the attention of Funding Partner s *** and to the Funding Partner *** as follows: Intel Corporation 2200 Mission College Blvd. Santa Clara, CA with a copy to: *** and *** 8

234 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. If to ASML to: *** *** *** ASML Netherlands B.V. De Run 6501, 5504 DR Vehdhoven PO Box 324, 5500 AH Veldhoven The Netherlands Any Party may, by notice to the other Party, change the address to which such notices are to be given Export Control. Neither Party shall export or re-export, directly or indirectly, any technical information disclosed hereunder or direct product thereof to any destination prohibited or restricted by the export control regulations of the Netherlands and the United States, including the U.S. Export Administration Regulations, without prior authorization from the appropriate governmental authorities Dispute Resolution. In the event of any dispute under this Agreement, the senior management of each Party will meet to resolve the dispute. If the dispute is not resolved by senior management within thirty (30) days after escalation, either Party may make a written request for formal dispute resolution and specify therein the scope of the dispute. Within thirty (30) days after such written notification, the Parties will meet for one day with an impartial mediator and consider dispute resolution alternatives other than litigation. If an alternative method of dispute resolution is not agreed upon within thirty (30) days after the one day mediation, either Party may pursue any right or remedies available under law, in equity or under this Agreement. Notwithstanding the foregoing, neither Party shall be precluded at any time from seeking injunction relief against the other Party Force Majeure. No Party shall be deemed in default of this Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement results from any cause beyond its reasonable control and without its fault or negligence, such as acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, any failure in electrical or air conditioning equipment. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay. 9

235 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute a single instrument Headings. Any section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement Applicable Law and Forum. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, excluding Delaware s conflicts of law provisions. The provisions of the United Nations Convention on Contracts for the International Sale of Goods shall not apply to this Agreement. All disputes and litigation arising out of or relating to this Agreement, including without limitation matters connected with its performance, shall be subject to the exclusive jurisdiction of the courts of the State of Delaware or of the Federal Courts sitting therein. The parties hereby irrevocably submit to the personal jurisdiction of such courts and irrevocably waive all objections to such venue. [ Signature page follows ] 10

236 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. IN WITNESS WHEREOF, this Agreement has been signed on behalf of the Parties hereto by persons duly authorized in that behalf: ASML Holding N.V. Intel Corporation SIGNATURE: /s/ Eric Meurice SIGNATURE PAGE TO EUV NRE FUNDING AGREEMENT 11 SIGNATURE: /s/ Brian M. Krzanich NAME: Eric Meurice NAME: Brian M. Krzanich TITLE: Chief Executive Officer, Chairman of Management Board TITLE: DATE: July 9, 2012 DATE: July 9, 2012 ASML Holding N.V. SIGNATURE: /s/ Peter Wennink NAME: TITLE: Peter Wennink DATE: July 9, 2012 Chief Financial Officer, Member of the Management Board Senior Vice President, Chief Operating Officer

237 *** - indicates material omitted pursuant to a confidential treatment request and filed separately with the Securities and Exchange Commission. APPENDIX 1 ROADMAP Below roadmaps are indicative and can be changed in ASML s discretion, respecting the agreed upon Milestones. 12