ASML HOLDING NV (Form: 20-F, Received: 02/08/2017 06:27:59)

United States

Securities and Exchange Commission

Washington, D.C. 20549

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, 2016

Commission file number 001-33463

ASML HOLDING N.V.

(Exact Name of Registrant as Specified in Its Charter)

THE NETHERLANDS

(Jurisdiction of Incorporation or Organization)

DE RUN 6501

5504 DR VELDHOVEN

THE NETHERLANDS

(Address of Principal Executive Offices)

Craig DeYoung

Telephone: +1 480 696 2762

E-mail: craig.deyoung@asml.com

2650 W Geronimo Place

Chandler, AZ 85224, USA

(Name, Telephone, E-mail, 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 EUR 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.

429,941,232 Ordinary Shares

(nominal value EUR 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 1934.

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 (§232.405 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:

James A. McDonald

Skadden, Arps, Slate, Meagher & Flom (UK) LLP

40 Bank Street, Canary Wharf London E14 5DS England

ASML ANNUAL REPORT 2016

Form 20-F

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

16		Item 4 Information on the Company
		A. History and Development of the Company
		B. Business Overview
		C. Organizational Structure
		D. Property, Plant and Equipment

24		Item 4A Unresolved Staff Comments

24		Item 5 Operating and Financial Review and Prospects
		Executive Summary
		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

34		Item 6 Directors, Senior Management and Employees
		A. Directors and Senior Management
		B. Compensation
		C. Board Practices
		D. Employees
		E. Share Ownership

40		Item 7 Major Shareholders and Related Party Transactions
		A. Major Shareholders
		B. Related Party Transactions
		C. Interests of Experts & Counsel

41		Item 8 Financial Information
		A. Consolidated Statements and Other Financial Information
		B. Significant Changes

42		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

43		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 2016




49		Item 11 Quantitative and Qualitative Disclosures About Market Risk

50		Item 12 Description of Securities Other Than Equity Securities

Part II

51		Item 13 Defaults, Dividend Arrearages and Delinquencies

51		Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds

51		Item 15 Controls and Procedures

51		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

56		Item 17 Financial Statements

56		Item 18 Financial Statements

56		Item 19 Exhibits

D-1		Definitions

ASML ANNUAL REPORT 2016

Part I

Special Note Regarding Forward-Looking Statements

In addition to historical information, this 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 1995. 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 Annual Report and include statements with respect to our outlook, including expected customer demand in specified market segments including memory, logic and foundry, expected trends, systems backlog and bookings, IC unit demand, expected financial results, including expected sales levels, including expected service and field options sales, gross margin, SG&A and R&D expenses, other income, expected tax rate, expected capital expenditures and repayment obligations, annual revenue and EPS opportunity and potential, customer, partner and industry roadmaps, including shrink roadmaps, the planned acquisition of a minority stake in Zeiss and its expected benefits, including the funding of the transaction and future funding of Zeiss by ASML, the development of High-NA and the expected production of higher performance microchips at lower costs, the acquisition of HMI and its expected benefits, including expected contribution to ASML's results, the provision of e-beam metrology capability and its effect on holistic lithography solutions, including the introduction of a new class of pattern fidelity control and the improvement of customers’ control strategy, expected growth of our service business, expected shipments of systems, productivity of our tools and systems, including EUV productivity targets and goals, and system performance, including EUV system performance (such as endurance and availability of EUV systems), the development of EUV technology and EUV industrialization, the number of EUV systems expected to be shipped and recognized in revenue and timing of shipment, expected use of EUV systems in high volume manufacturing and revenue recognition, expected industry trends and expected trends in the business environment, including the expected continuation of Moore's law, dividend policy, our proposed dividend and plans to repurchase shares and the current share repurchase plan.

These forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the business and our future financial results and readers should not place undue reliance on them. Forward-looking statements do not guarantee future performance, and 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". These forward-looking statements are made only as of the date of this Annual Report. 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".

On May 30, 2013, we acquired 100 percent of the issued share capital of Cymer. Financial information presented in our Annual Report includes Cymer from May 30, 2013 onwards.

On November 22, 2016 , we acquired 100 percent of the issued share capital of HMI. Financial information presented in our Annual Report includes HMI from November 22, 2016 onwards.

A summary of all abbreviations, technical terms and definitions (of capitalized terms) used in this Annual Report is set forth on pages D-1 through D-5.

ASML ANNUAL REPORT 2016 1

Five-Year Financial Summary



Year ended December 31	2012		2013		2014		2015		2016
(in thousands, except per share data)	EUR		EUR		EUR		EUR		EUR

Consolidated Statements of Operations data
Net sales	4,731,555		5,245,326		5,856,277		6,287,375		6,794,752
Cost of sales	(2,726,298	)	(3,068,064	)	(3,259,903	)	(3,391,631	)	(3,750,272	)

Gross profit	2,005,257		2,177,262		2,596,374		2,895,744		3,044,480
Other income	—		64,456		81,006		83,200		93,777
Research and development costs	(589,182	)	(882,029	)	(1,074,035	)	(1,068,077	)	(1,105,763	)
Selling, general and administrative costs	(259,301	)	(311,741	)	(321,110	)	(345,732	)	(374,760	)

Income from operations	1,156,774		1,047,948		1,282,235		1,565,135		1,657,734
Interest and other, net	(6,196	)	(24,471	)	(8,600	)	(16,515	)	33,644

Income before income taxes	1,150,578		1,023,477		1,273,635		1,548,620		1,691,378
Provision for income taxes	(4,262	)	(7,987	)	(76,995	)	(161,446	)	(219,484	)

Net income	1,146,316		1,015,490		1,196,640		1,387,174		1,471,894

Earnings per share data
Basic net income per ordinary share	2.70		2.36		2.74		3.22		3.46
Diluted net income per ordinary share ¹	2.68		2.34		2.72		3.21		3.44

Number of ordinary shares used in computing per share amounts (in thousands)
Basic	424,096		429,770		437,142		430,639		425,598
Diluted ¹	426,986		433,446		439,693		432,644		427,684

The calculation of diluted net income per ordinary share assumes the exercise of options issued under our stock option plans and the issuance of shares under our 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.

ASML ANNUAL REPORT 2016 2

Five-Year Financial Summary



As of and for the year ended December 31	2012			2013			2014		2015		2016
(in thousands)	EUR			EUR			EUR		EUR		EUR

Consolidated Balance Sheets data
Cash and cash equivalents	1,767,596			2,330,694			2,419,487		2,458,717		2,906,868
Short-term investments	930,005			679,884			334,864		950,000		1,150,000
Working capital ¹	3,745,559			4,156,917			4,257,335		4,600,529		5,276,833
Total assets	7,410,478			11,513,730			12,203,945		13,295,031		17,205,961
Long-term debt ²	759,490			1,074,570			1,154,137		1,129,685		3,319,465
Shareholders’ equity	4,066,893			6,922,427			7,512,590		8,388,831		9,820,481
Share capital	37,470			40,092			39,426		38,786		39,391
Consolidated Statements of Cash Flows data
Depreciation and amortization ³	186,620			228,775			254,644		296,884		356,928
Impairment	3,234			13,057			10,528		2,287		3,466
Net cash provided by operating activities	703,478			1,054,173			1,025,206		2,025,580		1,665,906
Purchase of property, plant and equipment ⁴	(171,878	)		(210,804	)		(358,280	)	(371,770	)	(316,338	)
Purchase of short-term investments	(1,379,997	)		(904,856	)		(504,756	)	(950,000	)	(2,520,000	)
Maturity of short-term investments	449,992			1,195,031			849,776		334,864		2,320,000
Cash used for derivative financial instruments	—			—			—		(171,899	)	(15,034	)
Loans issued and other investments	—			—			—		—		(7,427	)
Acquisition of subsidiary (net of cash acquired)	(10,292	)		(443,712	)	⁵	—		—		(2,641,295	)
Net cash used in investing activities	(1,119,833	)		(368,341	)		(16,212	)	(1,159,913	)	(3,188,478	)
Dividend paid	(188,892	)		(216,085	)		(267,962	)	(302,310	)	(445,865	)
Purchase of treasury shares	(535,373	)		(300,000	)		(700,000	)	(564,887	)	(400,000	)
Net proceeds from issuance of shares	3,907,666		⁶	31,822			39,679		33,230		582,742		⁷
Net proceeds from issuance of notes	—			740,445		⁸	—		—		2,230,619		⁹
Repurchase of notes	—			(368,303	)	¹⁰	—		—		—
Capital repayment	(3,728,324	)	¹¹	—			—		—		—
Net cash from (used in) financing activities	(545,583	)		(113,111	)		(928,439	)	(833,946	)	1,963,639
Net increase (decrease) in cash and cash equivalents	(964,186	)		563,098			88,793		39,230		448,151


1.	Working capital is calculated as the difference between total current assets and total current liabilities.


2.	Long-term debt includes the current portion of long-term debt.

In 2016 , depreciation and amortization includes EUR 290.8 million of depreciation of property, plant and equipment ( 2015 : EUR 243.0 million , 2014 : EUR 209.5 million , 2013 : EUR 197.1 million and 2012 : EUR 179.3 million ), EUR 63.5 million of amortization of intangible assets ( 2015 : EUR 51.2 million , 2014 : EUR 43.9 million , 2013 : EUR 27.6 million and 2012 : EUR 6.1 million ) and EUR 2.6 million of amortization of underwriting commissions and discount related to the bonds and credit facility ( 2015 : EUR 2.7 million , 2014 : EUR 1.2 million , 2013 : EUR 4.1 million and 2012 : EUR 1.2 million ).

In 2016 , an amount of EUR 21.6 million ( 2015 : EUR 91.0 million , 2014 : EUR 95.5 million , 2013 : EUR 115.9 million , 2012 : EUR 204.8 million ) of the additions in property, plant and equipment relates to non-cash transfers from inventory. 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 data. For further details see Note 12 to the Financial Statements.


5.	In addition to the cash paid in relation to the acquisition of Cymer, we issued 36,464,576 shares for an amount of EUR 2,346.7 million (non-cash event) as part of the consideration paid.


6.	Net proceeds from issuance of shares include an amount of EUR 3,853.9 million related to the share issuances in connection to the CCIP. See Note 27 to the Financial Statements.


7.	Net proceeds from issuance of shares includes an amount of EUR 536.6 million which is included in the consideration transfered for the acquisition of HMI. For further details see Note 2 .


8.	Net proceeds from issuance of notes relate to the total cash proceeds of EUR 740.4 million (net of incurred transaction costs) from the issuance of our EUR 750 million 3.375 percent senior notes due 2023.


9.	Net proceeds from issuance of notes relate to the total cash proceeds of EUR 2,230.6 million (net of incurred transaction costs) from the issuance of our EUR 500 million 0.625 percent senior notes due 2022 , our EUR 1,000 million 1.375 percent senior notes due 2026 and our EUR 750 million 1.625 percent senior notes due 2027.


10.	Repurchase of notes relates to the net cash outflows of EUR 368.3 million for the partial repurchase of our EUR 600 million 5.75 percent senior notes due 2017 including the partial unwinding of the related interest rate swaps.


11.	The capital repayment was made in connection with the synthetic buyback relating to the CCIP. The difference of EUR 125.6 million between the capital repayment of EUR 3,728.3 million and the net proceeds from issuance of shares of EUR 3,853.9 million in the CCIP relates to the capital repayment on ASML’s treasury shares which was part of the synthetic share buyback in November 2012.

ASML ANNUAL REPORT 2016 3

Five-Year Financial Summary



As of and for the year ended December 31	2012			2013		2014		2015		2016

Ratios and other data
Gross profit as a percentage of net sales	42.4			41.5		44.3		46.1		44.8
Income from operations as a percentage of net sales	24.4			20.0		21.9		24.9		24.4
Net income as a percentage of net sales	24.2			19.4		20.4		22.1		21.7
Shareholders’ equity as a percentage of total assets	54.9			60.1		61.6		63.1		57.1
Income taxes as a percentage of income before income taxes	0.4			0.8		6.0		10.4		13.0
Sales of systems (in units)	170			157		136		169		157
ASP of system sales (in millions EUR)	22.4			25.4		31.2		25.1		29.1
Value of systems backlog (in millions EUR) ¹	1,214.1			1,953.3		2,772.4		3,184.3		3,961.3
Systems backlog (in units) ¹	46			56		82		79		83
ASP of systems backlog (in millions EUR) ¹	26.4			34.9		33.8		40.3		47.7
Value of booked systems (in millions EUR) ¹	3,312.3			4,644.0		4,902.2		4,639.0		5,396.3
Net bookings (in units) ¹	144			166		157		165		160
ASP of booked systems (in millions EUR) ¹	23.0			28.0		31.2		28.1		33.7
Number of payroll employees (in FTEs)	8,497			10,360		11,318		12,168		13,991
Number of temporary employees (in FTEs)	2,139			2,865		2,754		2,513		2,656
Increase (decrease) net sales in percentage	(16.3	)		10.9		11.6		7.4		8.1
Number of ordinary shares issued and outstanding (in thousands)	407,165			440,852		432,935		427,987		429,941
Closing ASML share price on Euronext Amsterdam (in EUR)	48.00			68.04		89.50		82.55		106.65
Volatility 260 days as percentage of our shares listed on Euronext Amsterdam (in EUR) ²	28.64			23.98		27.49		33.62		25.47
Closing ASML share price on NASDAQ (in USD)	64.39			93.70		107.83		88.77		112.20
Volatility 260 days as percentage of our shares listed on NASDAQ (in USD) ³	30.05			24.01		26.01		28.94		26.85
Dividend per ordinary share (in EUR)	0.53			0.61		0.70		1.05		1.20	⁴
Dividend per ordinary share (in USD)	0.69		⁵	0.84	⁵	0.76	⁵	1.21	⁵	1.28	^4,6


1.	Our systems backlog and net bookings include all system sales orders for which written authorizations have been accepted (for EUV starting with the NXE:3350B).


2.	Volatility represents the variability in our share price on Euronext Amsterdam as measured over the 260 business days of each year presented (source: Bloomberg Finance LP).


3.	Volatility represents the variability in our share price on NASDAQ as measured over the 260 business days of each year presented (source: Bloomberg Finance LP).


4.	Subject to approval of the AGM to be held on April 26, 2017 .


5.	The dividend per ordinary share in USD has been adjusted compared to the relevant Annual Reports for such years to reflect the actual exchange rates at time of dividend payment.


6.	The exchange rate used to express the proposed dividend per ordinary share in USD is the exchange rate of USD/EUR 1.07 as of January 29, 2017 .

ASML ANNUAL REPORT 2016 4

Exchange Rate Information

We publish our Financial Statements in euro. A portion of our assets, liabilities, net sales and costs 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 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 4 to our Financial Statements.

The following are the Noon Buying Rates certified by the Federal Reserve Bank for customs purposes, expressed in US dollars per euro.




Calendar year	2012	2013	2014	2015	2016	2017	²

Period End	1.32	1.38	1.21	1.09	1.06	1.07
Period Average ¹	1.29	1.33	1.33	1.10	1.10	1.06
Period High	1.35	1.38	1.39	1.20	1.15	1.07
Period Low	1.21	1.28	1.21	1.05	1.04	1.04


1.	The average of the Noon Buying Rates on the last business day of each month during the period presented.


2.	Through January 29, 2017 .



Months of	August 2016	September 2016	October 2016	November 2016	December 2016	January 2017

Period High	1.13	1.13	1.12	1.11	1.08	1.07
Period Low	1.11	1.12	1.09	1.06	1.04	1.04

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. 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, services and Holistic Lithography products 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 and manufacturing capacity utilization of semiconductor manufacturers;

• Semiconductor equipment industry capacity and utilization;

• Changes in semiconductor inventory levels;

• General economic conditions; and

• Access to capital.

Reductions or delays in capital expenditures by our customers could have a material adverse effect on our business, financial condition and results of operations.

ASML ANNUAL REPORT 2016 5

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 positive net income. If sales 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 and service demand, we may also incur increased costs related to inventory obsolescence in an industry downturn, and such inventory obsolescence costs may be higher with our newer technology systems such as EUV. We have grown in terms of employees, facilities and inventories in recent years, including through the acquisitions of Cymer and HMI, so it may be even more difficult for us to reduce costs in order to respond to an industry downturn. In addition, industry downturns generally result in overcapacity, resulting in downward pressure on sales prices and impairment of assets, including inventories, intangible assets, and 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.

Current and future deteriorations in the financial markets and the global economy in general can have a number of effects on our business, including (i) declining business and consumer confidence resulting in reduced, or delayed purchase of our products or a delay in transition to newer technology systems; (ii) reducing the availability of financial resources on favorable terms to finance the future growth of our business, (iii) insolvency of key suppliers resulting in product delays, (iv) an inability of customers to obtain credit to finance purchases of our products, delayed payments from our customers and/or customer insolvencies and (v) other adverse effects that we cannot currently anticipate. If the financial markets and the global economy 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 as our products become increasingly sophisticated, the lead-time required to successfully deliver our systems has grown considerably. 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 sales, damage to customer relationships and we may lose market share.

We are also subject to trends in the key end markets of our customers - Memory and Logic, each of which exhibit different levels of cyclicality. Trends in our end markets may be affected by a number of factors, including business conditions in their respective markets (or in the economy generally), consumer confidence, competition, and changing consumer demand. Decreased demand in the end-markets of any of our customers could cause our customers to reduce their purchases of our systems, which could have a material adverse effect on our business, financial condition and results of operations.

Our business will suffer if we or the industry 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 and expensive technologies;


•	Frequent new product introductions and existing product enhancements;


•	Evolving industry standards;


•	An increasing role of software and system architecture in IC production;


•	Changes in customer requirements, including a heightened importance in system predictable availability and productivity; and


•	Collaboration or cost sharing arrangements for research and development activities.

Our success in developing new products and in enhancing our existing products depends on a variety of factors, including the successful management of our and our suppliers' 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 immersion, EUV and Holistic Lithography. If we or our suppliers 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, due to a failure of our products to meet their development roadmaps or for any other reason, this could result in customers continuing to use existing or alternative technology systems, and we may 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.

ASML ANNUAL REPORT 2016 6

The success of EUV, which we believe is critical for keeping pace with Moore’s Law, which postulates that the number of transistors on a chip doubles approximately every 24 months at equivalent costs, remains dependent on continuing technical advances by us and our suppliers. These advances include, in particular, advances in technology related to the light source, source power, system availability, and scanner performance, without which EUV systems cannot achieve the productivity and yield required to economically justify the higher price of these systems. Other advances necessary for further development of EUV technology include, in particular, advances in high numerical aperture (High-NA). A delay in these technological advances could lead to a delay in the development of these systems or a delay in such systems meeting production requirements, which could discourage or result in much slower adoption of this EUV technology and could delay purchases of these systems. High-NA, in particular, which is a further extension of our EUV technology, requires significant resources for its development. If we are unsuccessful in developing High-NA or if industry adoption is delayed or not achieved, this could impact our business and we may be unable to recoup all investments we have made, which could have a material adverse effect on our results of operations. In addition, the introduction of alternative technologies or processes by our competitors that compete with EUV could discourage adoption of EUV technology.

In addition, our Holistic Lithography offering is focused on enhancing the performance of lithography systems, both in new fabrication development and in existing installed base solutions. Our success in Holistic Lithography depends upon a variety of factors including our ability to design and develop new applications, timely and efficient implementation of our services, product performance and effective direct field support. If we are not successful in developing, marketing and implementing new applications or enhancing our existing applications, our business may suffer.

If the technologies that we pursue to assist our customers in producing smaller and more efficient chips are not as effective as those developed by our competitors, or if our customers adopt new technological architectures that are less focused on other lithography products, this may adversely affect our business, financial condition and results of operations, and we would not recoup the significant investments we have made in EUV and Holistic Lithography.

Furthermore, our systems are complex and may not perform according to specifications or quality standards. The increasing complexity of our systems, particularly of EUV (including High-NA, when available), could lead to quality issues, which may result in additional expenses and may damage our reputation and reduce demand for our products, any of which could have a material adverse effect on our business, financial condition and results of operations. The increasing number of system upgrades as part of our offering also contributes to the risk of quality issues.

We maintain in inventory a certain amount of parts and components for system production and when we stop producing a particular model in favor of newer models, there is a risk that this inventory of parts and components may become obsolete, particularly as a result of the rapid pace of technological change. In such cases, we seek to use such parts and components in new systems, but in case we are not able to do so, this can result in impairments of inventory. Many of these parts and components are particularly expensive and may only be used in a single type of system.

Cadence for the introduction of new systems is lengthening

Our lithography systems have become more complex and costly to develop and build, in particular with respect to our EUV systems, including the further enhancement of EUV technology with High-NA. In addition, some of our customers have experienced delays in implementing their product roadmaps, which has resulted in delayed demand of new systems. These factors resulted in longer development cycles and a longer transition period (or cadence) both for our new systems and industry-wide, increasing the risk of a slowing down of the overall transition period for new systems as predicted by Moore's Law. A lengthening of the cadence for new system purchases by our customers could result in a slower adoption of EUV or any other new technology as a result of delays in the development of new systems or a change in the customer's product roadmaps or investment outlook. As a result of a lengthening of the cadence, our customers have purchased and may continue to purchase existing technology systems rather than new leading-edge systems or may delay their investment in new systems to the extent that such investment is not economical or required given their product cycles. A lengthening of the cadence for the introduction of our new systems can also result in increased competition, as competitors may have more time to develop competing systems. In addition, longer cadence means we face increasing competition from manufacturers who produce systems with lower performance levels than our new systems, particularly with end-market customers who do not require smaller transistors. The change in cadence of our new systems could result in a decrease in the number of new systems or technology we sell in a given year, which could have a material adverse effect on our business, financial condition and results of operations.

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Industry adoption of EUV technology for high volume production may be delayed

EUV represents the next-generation lithography technology for ASML, and we have made significant investments, including our 2013 acquisition of Cymer and our intended investment in Carl Zeiss SMT, to develop EUV technology. To date, we have only sold a limited number of EUV systems. There are a number of development milestones to be met with respect to EUV systems for high volume production. There are a number of factors that may inhibit or delay industry adoption of our EUV systems for high volume production, including those set forth in this Risk Factors section. Any delay in industry adoption of our EUV systems for high volume production could have a material adverse effect on our business, financial condition and results of operations. In addition, for our EUV systems which we sell as part of our commercial sales, we defer a portion of the revenues pending completion of performance milestones agreed with the customer, so to the extent that our systems fail to meet these milestones, our revenues and profitability in certain periods may be lower.

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 cost of ownership of lithography systems based on purchase price, maintenance costs, availability, productivity, and customer service and support costs;


•	The exchange rate of the euro against the functional currency of our competitors and our customers, particularly against the Japanese yen;


•	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 depends upon our ability to develop new and enhanced semiconductor equipment, related applications and services that are 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", and Note 18 to the Financial Statements.

We compete primarily with Nikon and Canon in respect of systems. Each of Nikon and Canon has 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 particular, we have experienced increased competition from Nikon and Canon in existing technologies such as TWINSCAN XT systems, where end-market demand has increased. In addition, adverse market conditions, industry overcapacity or a decrease in the value of the Japanese yen in relation to the euro or the US dollar, could further intensify price-based competition in those regions that account for the majority of our sales, resulting in lower prices and margins and lower sales which could have a material adverse effect on our business, financial condition and results of operations. We also face the risk of a decline in sales if our products and services do not meet our customers' standards, which could result in decline in demand from or loss of such customers.

We also compete with providers of software applications that support or enhance complex patterning solutions, including lithography, such as KLA-Tencor Corporation. These applications effectively compete with our Holistic Lithography offering, which has become an increasingly significant part of our business. The competition we face in our applications business may be higher than for our systems, as there are more competitors and potential competitors in this market and such competitors may have greater financial resources and more experience in this market than us. In addition to competitors in lithography, we may face competition with respect to alternative technologies. If we fail to keep pace with Moore’s Law 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.

In addition, the lengthening of the cadence for the introduction of our new systems can also result in increased competition, as competitors may have more time to develop competing systems. In addition, longer cadence means we face increasing competition from manufacturers who produce systems with lower performance levels than our new systems, particularly with end-market customers who do not require smaller transistors.

Furthermore, a number of business combinations and strategic partnerships among our customers and research partners in the semiconductor industry have occurred, and more could occur in the future. Consolidation among our customers and research partners could affect industry dynamics and could adversely affect our business and margins, which could have a material adverse effect on our business, financial condition and results of operations.

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 components and subassemblies used in our systems including the design thereof, 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, reduced control over pricing and the risk of untimely delivery of these components and subassemblies.

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The number of lithography systems we are able to produce may be limited by the production capacity of Carl Zeiss SMT. Carl Zeiss SMT is our single supplier of lenses, mirrors, illuminators, collectors and other critical optical components (which we refer to as optics). If Carl Zeiss SMT is unable to maintain and increase production levels or if we are unable to maintain our business relationship with Carl Zeiss SMT 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 Carl Zeiss SMT is to terminate its relationship with us or if Carl Zeiss SMT is unable to maintain production of optics 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 Carl Zeiss SMT’s current position as a supplier of optics, a number of other critical components such as drive lasers included in our CO ₂ lasers used in our EUV systems are available from only a limited number of suppliers. We have recently agreed to acquire a 24.9% stake in Carl Zeiss SMT. This acquisition is not yet complete and is subject to conditions. In addition, while we will have certain rights in the governance of Carl Zeiss SMT as a result of our intended acquisition of the 24.9% stake, we will not control Carl Zeiss SMT, so we continue to face the risks described above with respect to Carl Zeiss SMT, notwithstanding our recent agreement to acquire this interest in Carl Zeiss SMT. See “We have made a significant investment in Carl Zeiss SMT, but we will not control Carl Zeiss SMT and may not achieve expected benefits of this transaction.”

Designing and 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. Lead-times in obtaining components have increased as our products have become more complex, and our failure to adequately predict demand for our systems or any delays in the shipment of components can result in insufficient supply of components or, conversely, excess inventory or limiting our capabilities to react fast to changing market conditions. 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.

In addition, as we develop new technologies, such as EUV, this requires our suppliers to participate in the development process so that the components they supply will meet the requirements of our development roadmap, and this may require significant R&D spending and investment on the part of our suppliers, particularly with the long lead-time required for EUV components. If our suppliers are unable to meet our technological and supply demands in line with our development roadmap, this may delay the development and introduction of new products. In addition, our suppliers may not have or may not be willing to spend sufficient financial resources to make the necessary R&D expenditures and investments to enable them (and therefore us) to maintain their development roadmaps and ultimately meet our supply demands. In this case, we may co-invest with our suppliers to continue the R&D required to continue development roadmaps. A failure to obtain adequate supplies of components and other product inputs could lead us to acquire a supplier, which may be costly and involve risks associated with acquisitions.

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. In addition, although Holistic Lithography constitutes an increasing portion of our revenue, a significant portion of those customers are the same customers as those of our systems. Consequently, while the identity of our largest customers may vary from year to year, sales may remain concentrated among relatively few customers in any particular year. In 2016 , recognized net sales to our largest customer accounted for EUR 1,646.2 million , or 24.2 percent of net sales, compared with EUR 1,633.6 million , or 26.0 percent of net sales, in 2015 . 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 EUR 655.3 million , or 51.8 percent of accounts receivable and finance receivables on December 31, 2016 , compared with EUR 704.1 million , or 58.3 percent on December 31, 2015 .

As a result of the foregoing risks, 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.

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We derive most of our revenues from the sale of a relatively small number of products

We derive most of our revenues from the sale of a relatively small number of lithography equipment systems ( 157 units in 2016 and 169 units in 2015 ), with an ASP per system in 2016 of EUR 29.1 million ( EUR 32.4 million for new systems and EUR 4.0 million for used systems) and an ASP per system in 2015 of EUR 25.1 million ( EUR 28.5 million for new systems and EUR 5.1 million for used systems). As a result, the timing of shipment and recognition of revenue for a particular reporting period from a small number of system sales may have a material adverse effect on our business, financial condition and results of operations in that 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;


•	Volatility in the Logic and Memory end-markets as a result of oversupply;


•	Shipment rescheduling;


•	Cancellation or order push-back by customers;


•	Manufacturing difficulties;


•	A delay in the development and delivery of new technology; or


•	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 and reduce our visibility on future sales for the reasons discussed above.

The time window for new product introduction is short 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 each new generation of our products 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, among other things, technology related to the light source, source power, system availability, scanner performance 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.

As a result of the increased time required to introduce new technologies capable of full-scale production, in particular with respect to EUV, we offer customers the ability to upgrade these systems in order for the market to accept new technology enhancements and an increasing number of customers have opted for such upgrades. System upgrades can be complex and result in system downtime costs and quality issues, which could negatively impact our business, financial condition and results of operations.

We are also dependent on our suppliers to maintain their development roadmaps to enable us to introduce new technologies on a timely basis, and if they are unable to keep pace whether due to technological factors, lack of financial resources or otherwise, this could prevent us from meeting our development roadmaps.

Additionally, in connection with our EUV production, we have made advanced payments to suppliers that we may not recoup if we do not reach expected EUV sales levels in the future. We may make similar advance payments (or other investments in our suppliers) to suppliers in connection with EUV or other technologies we develop, and we may not recoup those advanced payments or other investments (e.g. if expected sales are not met). See Note 9 to our Financial Statements.

As lithography technologies become more complex, the success of our R&D programs becomes more uncertain, while their cost rises

Our lithography systems have become increasingly complex, and accordingly, the costs to develop new products and technologies have increased, and we expect such costs to continue to increase. This increase in costs requires us to continue obtaining sufficient funding for our R&D programs. For example, we obtained partial funding for our EUV R&D program through the CCIP. We may however, be unable to obtain this type of funding from customers in the future, or our customers may not show sufficient support for a particular technological development, which could lead us to delay or reduce investments in the R&D programs related to such development, in which case we may be unable or we may determine not to fund R&D investments necessary to maintain our technological leadership. The increasing complexity of new technologies, which leads to increasing cost of R&D programs for new technologies, also increases the risk that a new product or technology may not be successful.

ASML ANNUAL REPORT 2016 10

Furthermore, as the innovation cycle becomes more complex, developing new technology, including EUV technology, requires increased R&D investments by our suppliers in order to meet the technology demands of us and our customers. Our suppliers may not have, or may not be willing to invest in, the resources necessary to continue the development of the new technologies to the extent such investments are necessary, which may result in our contributing funds to such R&D programs or limiting the R&D investments that we can undertake. For example, in connection with our intended acquisition of a 24.9% stake in Carl Zeiss SMT, we have agreed to make significant investments in Carl Zeiss SMT to fund programs for the development of High-NA. There is no assurance that these investments will be sufficient to meet development timetables or that we will recoup the benefits of these investments.

EUV is highly complex and remains under development

EUV technology is highly complex and further improvements in EUV technology are required for volume, production and shipment of EUV systems, including improvements in predictable availability and source power (which we refer to as industrialization of EUV). Such improvements will require further investment by us, our suppliers and our customers. In addition, the improvements in EUV required for EUV industrialization are dependent on technological developments by our suppliers, partners, including Zeiss, and customers. If our suppliers and partners do not advance the development and adoption of our EUV systems or if our customers do not develop the required manufacturing sites to accommodate our EUV systems, this could lead to an extension of the timeline of EUV development, which could have a material adverse effect on our business, financial condition and results of operations.

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 and applications. 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 interpreted 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 broadly similar or similar competing technology.

In addition, legal proceedings 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 proceedings 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.

A disruption in our information technology systems, including incidents related to cyber security, could adversely affect our business operations

We rely on the accuracy, availability and security of our information technology systems. Despite the measures that we have implemented, including those related to cyber security, our systems could be breached or damaged by computer viruses and systems attacks, natural or man-made incidents, disasters or unauthorized physical or electronic access.

From time to time we experience cyber security attacks on our information technology systems, these attacks are increasing and becoming more sophisticated, and may be perpetrated by computer hackers, cyber terrorists or other corporate espionage. These attacks include malicious software (malware), attempts to gain unauthorized access to data, and other electronic security breaches of our information technology systems as well as the information technology systems of our suppliers, customers and other service providers that have led and could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information (including confidential information relating to our customers, employees and suppliers), and corruption of data. To date, none of the attacks we have experienced has materially impacted our business or operations. Nevertheless, any system failure, accident or security breach could result in business disruption, theft of our intellectual property, trade secrets (including our proprietary technology), unauthorized access to, or disclosure of, customer, personnel or supplier information, or corruption of our data and of our systems.

Moreover, there can be no assurance that such measures we have implemented will be sufficient to prevent a system failure, accident or security breach from occurring. To the extent that our business is interrupted or data or proprietary technology or customer data is lost, destroyed or inappropriately used or disclosed, this could adversely affect our competitive position, relationships with customers, employees and suppliers and therefore our business, financial condition and results of operations. In addition, we may be required to incur significant costs to protect against or repair the damage caused by these disruptions or security breaches in the future.

In addition, from time to time, we implement updates to our information technology systems and software, which can disrupt or shutdown our information technology systems. We may not be able to successfully integrate and launch these new systems as planned without disruption to our operations. Information technology system disruptions, if not anticipated and appropriately mitigated, could have a material adverse effect on our operations.

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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 manufacturing of semiconductor products and/or the processes relating to the use of our products infringe one or more patents issued to such third 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 a party to a series of civil litigation and administrative proceedings in which Nikon alleged ASML’s infringement of Nikon patents generally relating to lithography. ASML in turn filed claims against Nikon. Pursuant to agreements executed on December 10, 2004, ASML 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, and payments to Nikon by ASML. Under the Nikon Cross-License Agreement, ASML and Nikon granted to each other a non-exclusive license for use in the manufacture, sale, and use of lithography equipment, under their respective patents. The license granted relating to many of the patents of each party was perpetual, but the license relating to certain other of the patents expired at the end of 2009. Each party had the right to select a limited number of the other party's patents where the license for such patents expired in 2009 to be subject to a permanent covenant not to sue in respect of patent infringement claims. In October 2016, the Patent Selection was completed.

In addition, the Nikon Cross-License Agreement provided that following the termination of some of the licenses granted in the Nikon Cross-License Agreement on December 31, 2009 , there would be a standstill period during which the parties agreed not to bring patent infringement suits against each other. This standstill period ran from January 1, 2010 through December 31, 2014 . Damages resulting from claims for patent infringement occurring during the Cross-License Transition Period are limited to three percent of the net sales price of applicable licensed products including optical components. For more information on the Nikon Cross-License Agreement, see Item 4.B. "Business Overview - Intellectual Property."

Accordingly, from January 1, 2015, both Nikon and we are no longer prohibited under the agreement from bringing claims against each other on the basis of infringement of patents subject to the Nikon Cross-License Agreement, other than perpetually licensed patents. In addition, as described above, the Patent Selection was completed in October 2016. Therefore, there is now a defined group of patents owned by each party for which the license granted to the other party has expired.

If Nikon files suit against us alleging patent infringement, we may incur substantial legal fees and expenses, and we may not prevail. Similarly, if we file suit against Nikon alleging patent infringement, we may incur substantial legal fees and expenses, and we may not prevail. Patent litigation is complex and may extend for a protracted period of time, giving rise to the potential for both substantial costs and diverting the attention of key management and technical personnel. Potential adverse outcomes from patent litigation may include, without limitation, payment of significant monetary damages, injunctive relief prohibiting the sale of products, and/or settlement involving significant costs to be paid by us, any of which may have a material adverse effect on our business, financial condition and/or results of operations. We are unable to predict at this time whether any such patent suit will in fact materialize, or, if so, what its outcome might be.

We are subject to risks in our international operations

The majority of our sales are made to customers outside EMEA , see Note 20 to our Financial Statements. There are a number of risks inherent in doing business in some of those regions:


•	Potentially adverse tax consequences;


•	Unfavorable political or economic environments;


•	Unexpected legal or regulatory changes;


•	An inability to effectively protect intellectual property; and


•	Adverse effects of foreign currency fluctuations.

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.

ASML ANNUAL REPORT 2016 12

In particular, 30.7 percent of our 2016 net sales and 24.7 percent of our 2015 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. In addition, HMI, which we have acquired, is located in Taiwan, and as a result, the risks we face as a result of doing business in Taiwan will increase. Furthermore, certain of our manufacturing facilities as well as customers are located in South Korea. In particular, 23.3 percent of our 2016 net sales and 31.4 percent of our 2015 net sales were derived from customers in South Korea. There are tensions between the Republic of South Korea and the Democratic People’s Republic of Korea (North Korea) since the division of the Korean Peninsula following World War II. The worsening of relations between those two countries or the outbreak of war on the Korean Peninsula could have a material adverse effect on our business, financial condition or results of operations.

In addition, the installation and servicing of our products requires us to travel to our customers’ premises. Natural disasters could affect our ability to do so. For example, the Taiwanese earthquake in 2016 resulted in the disruption of our installation and servicing of systems for our customers in Taiwan. Natural disasters in areas where our customers are located could prevent or disrupt the installation or servicing of our systems. In addition, we have customers located in Israel. If the geopolitical environment prevents travel to Israel, it could result in the disruption of our installation and servicing of systems for our customers.

Lastly, if there is a pandemic outbreak located near any of our customers, it could result in the disruption of our installation and servicing of systems for our customers near the outbreak. Therefore, if there is a natural disaster, geopolitical conflict or pandemic that prevents our ability to travel to our customers’ premises, our business, financial condition and results of operations may be materially adversely effected.

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 cleanroom facilities in Veldhoven, the Netherlands, in Wilton, Connecticut and in San Diego, California, both in the United States, in Pyeongtaek, South-Korea, in Beijing, China and in Linkou and Tainan, 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 such capacity was 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 US dollar, Japanese yen and the euro, as we incur costs of sales predominantly in euros with portions of our net sales and cost of sales also denominated in US dollars.

In addition, a portion of our sales and costs are denominated in US and Taiwanese dollars, particularly following our acquisitions of Cymer in 2013 and HMI in 2016, and a small portion of our operating results are denominated in currencies other than the euro and the US or Taiwanese dollar. Our Financial Statements are expressed in euros. Accordingly, our results of operations are exposed to fluctuations in exchange rates between the euro and such other currencies, and changes in currency exchange rates can result in losses in our Financial Statements. In general, our customers generally run their businesses in US dollars and therefore a weakening of the US dollar against the euro might impact the ability or desire of our customers to purchase our products.

ASML ANNUAL REPORT 2016 13

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.

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.

On November 22, 2016, we acquired all of the outstanding shares of HMI, a supplier of pattern verification systems used for advanced semiconductor devices. We expect that the acquisition of HMI will enhance our holistic lithographic portfolio. However, achieving the benefits of the acquisition will depend in part on the integration of our operations and employees with those of HMI in a timely and efficient manner, and if we fail to do so, this may result in a delay in the benefits expected from the HMI acquisition. There can be no assurance that HMI will successfully execute its product roadmaps, will be successfully integrated in our business or that any of the anticipated benefits will be realized.

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.

In addition, in connection with acquisitions, anti-trust regulators may impose conditions on us, including requirements to divest assets or other conditions that could make it difficult for us to integrate the businesses that we acquire. For example, in connection with the Cymer acquisition we have agreed to maintain Cymer Light Sources as a stand-alone business. Furthermore, as the industry is becoming more consolidated, anti-trust clearances may become harder to obtain, which could inhibit future desired acquisitions.

We may also face challenges with integrating any business we acquire into our organization.

As a result of acquisitions, we have recorded, and may continue to record, a significant amount of goodwill and other intangible assets. Under current accounting guidelines, we must assess, at least annually and potentially more frequently, whether the value of goodwill and other intangible assets has been impaired. Any reduction or impairment of the value of goodwill or other intangible assets will result in additional charges against earnings, which could materially reduce our reported results of operations in future periods.

We have made a significant investment in Carl Zeiss SMT, but we will not control Carl Zeiss SMT and may not achieve expected benefits of this transaction

In November 2016, we announced that we have agreed to acquire a 24.9% interest in Carl Zeiss SMT for EUR 1 billion. This acquisition is expected to complete in the second quarter of 2017, but completion is subject to conditions, including regulatory clearances, and there is no guarantee that we will receive such clearances.

We will have certain governance rights with respect to Carl Zeiss SMT, but Zeiss, with a 75.1% interest in Carl Zeiss SMT, will continue to control most aspects of the operations of Carl Zeiss SMT. Therefore, we may not be able to influence the business of Carl Zeiss SMT in a manner that is optimal for ASML. Disputes between ASML and Zeiss as to the governance of Carl Zeiss SMT could result in a loss of the benefits of this transaction and could harm our relationship with Zeiss, a critical supplier.

In addition, we have agreed to invest EUR 760 million (over a period of 6 years) in Carl Zeiss SMT for R&D, capital expenditures and other supply chain investments in respect of High NA for projects relating to EUV optics, to enable Carl Zeiss SMT to produce optical components enabling High-NA. These R&D, capital expenditures and other supply chain investments may not produce the desired results, and this may adversely affect the development of High-NA technology, an important extension of EUV, which may have a material adverse effect on our business, financial condition and results of operations. In addition, as a result of this intended acquisition, we will record our interest in Carl Zeiss SMT as an equity investment. Under current accounting guidelines, we must assess each reporting period whether there is any indication that this equity investment has been impaired. Any reduction or impairment of the value of this investment made will result in additional charges against earnings, which could materially reduce our reported results of operations in future periods.

ASML ANNUAL REPORT 2016 14

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 depends 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. Our R&D programs 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 research and development programs on a timely basis, which could adversely affect our business, financial condition and results of operations.

In addition, if we lose key employees or officers to retirement, illness or otherwise, particularly a number of our highly qualified professionals and/or senior management, we may not be able to timely find a suitable replacement. Moreover, as a result of the uniqueness and complexity of our technology, qualified engineers capable of working on our systems are scarce and generally not available (e.g. from other industries or companies). As a result, we must educate and train our employees to work on our systems. Therefore, a loss of a number of key professionals and/or senior management can be disruptive, costly and time consuming. Our R&D activities with respect to new technology systems such as EUV and our service activities have increased our need for qualified personnel. Competition for qualified personnel is significant in the area surrounding our headquarters in Veldhoven, the Netherlands and in the other regions where our facilities are located, where a number of high technology companies are located.

Furthermore, the increasing complexity of our products results in a longer learning-curve for new and existing employees and suppliers leading to an inability to decrease cycle times and may result in the incurrence of significant additional costs.

Our suppliers face similar risks in attracting qualified employees, including attracting employees in connection with R&D programs that will support our R&D programs and technology developments. To the extent that our suppliers are unable to attract qualified employees, this could adversely affect our business, financial condition and results of operations.

Changes in taxation could affect our future profitability

We are subject to income taxes in the Netherlands and numerous other jurisdictions. Our effective tax rate has fluctuated in the past and may fluctuate in the future.

Changes in tax legislation in the countries where we operate can affect our effective tax rate. For example, the OECD has recently embarked on a project to propose measures against so called BEPS, which the OECD describes as tax planning strategies that exploit gaps and mismatches in tax rules to reduce overall corporate tax. In October 2015, the OECD published 15 reports on various BEPS topics. These reports introduced new tax concepts which has resulted, and is expected to result, in substantial changes to tax legislation in the countries in which ASML operates.

In particular, one of the OECD BEPS reports introduces minimum requirements for Patent Box Regimes. In 2007, a Patent Box Regime was introduced in The Netherlands, which provides that income generated from qualifying innovative activities is effectively taxed at a beneficial tax rate of currently 5% rather than the Dutch statutory tax rate of 25%. The Patent Box Regime is called Innovation Box in The Netherlands legislation. A portion of our earnings currently qualifies for beneficial tax treatment under the Dutch Innovation Box. To align the Dutch Patent Box Regime with the OECD reports, on September 20, 2016, proposed laws were published pertaining to Innovation Box. This proposal has not been adopted by either of the two chambers of the Dutch Parliament and is therefore not final. Changes in Dutch tax laws to comply with the OECD BEPS report may reduce ASML’s current benefits under the Dutch Innovation Box from January 1, 2017 onwards.

Changes to tax legislation of jurisdictions ASML operates in may adversely impact ASML’s tax position and consequently our net income. In addition, jurisdictions levy corporate income tax at different rates. The distribution of our systems sales over the various jurisdictions in which we operate may vary from year to year, resulting in a different mix of corporate income tax rates applicable to our profits, which can affect the world wide effective tax rate for ASML.

Hazardous substances are used in the production and operation of our systems and failure to comply with applicable regulations or failure to implement appropriate practices for customer and employee environment, health and safety could subject us to significant liabilities

Hazardous substances are used in the production and operation of our lithography systems, which subjects us to a variety of governmental regulations relating to environmental protection and employee and product health and safety, including the transport, use, storage, discharge, handling, emission, generation, and disposal of toxic or other hazardous substances. In addition, operating our machines (which use lasers and other potentially hazardous systems) is dangerous and can result in injury. The failure to comply with current or future regulations could result in substantial fines being imposed on us or other adverse consequences. Additionally, our products have become increasingly complex. The increasing complexity requires us to invest in continued risk assessments and development of appropriate preventative and protective measures for health and safety for both our employees (in connection with the production and installation of our systems) and our customers’ employees (in connection with the operation of our systems). There can be no assurance that the health and safety practices we develop will be adequate to mitigate all health and safety risks. Failing to comply with applicable regulations or the failure of our implemented practices for customer and employee health and safety could subject us to significant liabilities, which could have a material adverse effect on our business, financial condition and results of operations.

ASML ANNUAL REPORT 2016 15

Risks related to our ordinary shares

We may not declare cash dividends and conduct share buyback programs 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 BoM will, upon prior approval from the SB, submit a proposal to the AGM with respect to the amount of dividend to be declared with respect to the prior year. In addition, as part of our plan to return excess cash to shareholders, we conduct share buyback programs from time to time. The dividend proposal and amount of share buyback programs 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 BoM’s views on our potential future liquidity requirements, including for investments in production capacity, the funding of our R&D 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 BoM may decide to propose not to pay a dividend or pay a lower dividend and may adjust the amount of share buyback programs with respect to any particular year in the future, which could have a negative effect on our share price.

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 SB. As a result, holders of ordinary shares may have more difficulty in protecting their interests in the face of actions by members of our SB 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 EUR 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", Item 10 .B. "Memorandum and Articles of Association" and Note 25 to our Financial Statements.

Participating customers in our Customer Co-Investment Program together own a significant amount of our ordinary shares and their interests may not coincide with the interests of our other shareholders

In the CCIP, the Participating Customers, being Intel, Samsung and TSMC, through certain wholly-owned subsidiaries, acquired in aggregate 96,566,077 ASML shares, which represented 23% of our outstanding shares at that time. In the CCIP, all of the Participating Customers agreed to a lock-up arrangement with us which expired in the first half of 2015. As the lock-up has now expired, the Participating Customers are permitted to sell their shares. Based on publicly available information, all three of the Participating Customers are believed to have sold all or a portion of their holdings, although (based on public information) Intel remains a significant shareholder. The sale of a large number of shares by the Participating Customers, or the perception that such sales may occur, could have an adverse effect on the trading price of our shares.

See Item 7.A. "Major Shareholders".

Additionally, the interests of the Participating Customers who continue to own ASML shares 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. When such exceptional circumstances occur, the Participating Customers who continue to own ASML shares, and in particular Intel (due to the percentage of our shares that Intel owns), 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.

Item 4 Information on the Company

A. History and Development of the Company

We commenced business operations in 1984. ASM Lithography Holding N.V. was incorporated in the Netherlands on October 3, 1994 to serve as the holding company for our worldwide operations. 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 +31 40 268 3000. We have operating subsidiaries in the Netherlands, the United States, Italy, France, Germany, the United Kingdom, Ireland, Belgium, Korea, Taiwan, Singapore, China, Hong Kong, Japan, Malaysia and Israel.

From time to time, we pursue acquisitions of businesses that we believe will complement or enhance our core lithography business: these have included the acquisitions of MaskTools (business unit of MicroUnity Systems Engineering Inc.) in 1999, Silicon Valley Group Inc. in 2001, Brion Technologies Inc. in 2007, Wijdeven Motion Holding B.V. and Wijdeven Motion B.V. in 2012, Cymer Inc. in 2013, and HMI in 2016.

ASML ANNUAL REPORT 2016 16

On November 3, 2016 ASML and Zeiss announced that they agreed to strengthen their long-standing and successful partnership in the semiconductor lithography business. The main objective of this partnership is to facilitate the development of the future generation EUV lithography systems, including High-NA technology, due in the first few years of the next decade. We believe that this technology will enable the semiconductor industry to produce much higher performance microchips at lower costs. ASML has agreed with Zeiss to acquire a 24.9% minority stake in Carl Zeiss SMT, for EUR 1 billion in cash. The closing of this transaction is expected in the second quarter of 2017 and is conditional on, among other things, customary merger control approvals. In addition, ASML agreed to support Carl Zeiss SMT's R&D costs, capital expenditures and other supply chain investments, in respect of High-NA, in an amount of EUR 760 million over 6 years.

On November 22, 2016 , we acquired HMI. The acquisition is intended to make a strong product offering even stronger. We believe our metrology technologies are complementary and, when combined, offer the chance to significantly improve process control, and hence yields, for our customers. See Note 2 to our Financial Statements.

See Item 3.D. "Risk Factors - Risks related to ASML - We may be unable to make desirable acquisitions or to integrate successfully any businesses we acquire".

Capital Expenditures and Divestitures

Our capital expenditures (purchases of property, plant and equipment, see the Consolidated Statements of Cash Flows as recorded in the Financial Statements) for 2016 , 2015 and 2014 amounted to EUR 316.3 million , EUR 371.8 million and EUR 358.3 million , respectively. The decreased capital expenditures in 2016 compared to 2015 and 2014 mainly reflect the construction of our EUV production facilities in Veldhoven, the Netherlands in 2015 and 2014. Capital expenditures are primarily financed through cash provided by operating activities. See item 4 .D. "Property, Plant and Equipment" for our expected capital expenditures in 2017 .

B. Business Overview

ASML is one of the world’s leading manufacturers of chip-making equipment. Our vision is to enable affordable microelectronics that improve the quality of life. To achieve this, our mission is to invent, develop, manufacture and service advanced technology for high-tech lithography, metrology and software solutions for the semiconductor industry. ASML's guiding principle is continuing Moore's Law towards ever smaller, cheaper, more powerful and energy-efficient semiconductors. This results in increasingly powerful and capable electronics that enable the world to progress within a multitude of fields, including healthcare, technology, communications, energy, mobility, and entertainment. ASML is a multinational company with offices in 60 cities in 16 countries, headquartered in Veldhoven, the Netherlands. As of December 31, 2016 , we employed 13,991 payroll employees ( 2015 : 12,168 ) and 2,656 temporary employees ( 2015 : 2,513 ), measured in FTEs. ASML is traded on Euronext Amsterdam and NASDAQ under the symbol ASML.

Our Business Model

For our business strategy, see Item 5 . "Operating and Financial Review and Prospects – Executive Summary – Business Strategy - Business Strategy".

Our business model is derived from our "cost of ownership" concept which is based on the following principles:


•	Offering ongoing improvements of productivity, patterning, imaging, overlay and availability by introducing advanced technology based modular platforms, advanced applications and Holistic Lithography solutions outside the traditional lithography business, each resulting in lower costs or higher value per product for our customers;


•	Providing customer service that offers efficient installation and maintenance, superior support and training to optimize manufacturing processes of our customers;


•	Enhancing the capabilities of the installed base of our customers through ongoing field upgrades of productivity, patterning, imaging, overlay, availability and Holistic Lithography solutions, 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; and


•	Providing refurbishing services that effectively increase residual value by extending the life of equipment.

To be able to execute our business model we seek to:


•	Maintain appropriate levels of R&D to offer the most advanced technology suitable for following Moore’s Law, as well as achieving high-throughput and low-cost volume production at the earliest possible date;


•	Be able to attract, train, retain and motivate highly qualified, skilled and educated employees; and


•	Retain operational flexibility in R&D and manufacturing by reinforcing strategic alliances with world class partners, including outsourcing companies.

Our Markets and Products

We have built a collaborative community of suppliers, customers, partners and research institutes that we work with to minimize the cost of innovation and maximize the chance of success. A significant part of the components and modules used in our systems are sourced from our supply chain and assembled in our factories to create the final products delivered to our customers.

Through 2016, all of the top 10 chipmakers 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 with all our customers.

ASML ANNUAL REPORT 2016 17

In 2016, our satisfaction ratings by customers surpassed every lithography competitor. According to VLSI Research, ASML ranks third among the large semiconductor industry equipment suppliers and first among lithography competitors. Our performance has consistently been strong: for more than thirteen years in a row we have both ranked among the top 5 semiconductor industry suppliers and our ranking surpassed that of any of our lithography competitors.

Markets

Memory chips

Memory chips can store a large amount of data in a very small area in electronic products like personal computers, tablets or smartphones. There are two main classes of Memory: DRAM and NAND. With NAND chips, information can be stored even when the device is powered off. DRAM memory is used to enhance the performance of the electronic product. These DRAM and NAND chips are made in dedicated Memory factories.

Logic chips

Logic chips process information in electronic devices. They are produced by two groups of manufacturers. The first group designs and manufactures Logic chips and is referred to as IDMs. The second group are contract manufacturers known as Foundries. Foundry manufacturers do not design chips, but produce chips for other companies.

Total net sales by end-use market for 2014 - 2016 for Memory, Foundry, IDM and net service and field option sales were divided as follows:



Year ended December 31	2014			2015			2016
(in millions)	EUR	% ¹		EUR	% ¹		EUR	% ¹
Memory	2,225.1	38.0	%	2,115.0	33.6	%	1,470.5	21.7	%
Foundry	1,186.0	20.3	%	1,608.1	25.6	%	2,155.2	31.7	%
IDM	831.7	14.2	%	514.1	8.2	%	945.4	13.9	%
Net service and field option sales	1,613.5	27.5	%	2,050.2	32.6	%	2,223.7	32.7	%
Total net sales	5,856.3			6,287.4			6,794.8


1.	As a percentage of total net sales.

Products

General

Our systems are essentially projection systems, comparable to a slide projector. Light is projected using a Reticle, which contains the blueprint of the pattern that will be printed. A lens or mirror focuses the pattern onto the wafer -a thin, round slice of semiconductor material- which is coated with a light-sensitive chemical. When the exposed parts are etched away, the pattern is revealed. Because lithography patterns the structures on a chip, it is lithography that determines how small the features on the chip can be, and how densely chip makers can pack transistors together. In other words, lithography is crucial to follow the path described by Moore’s Law.

For a further discussion on Moore's law see Item 5 "Operating and Financial Review and Prospects - Executive Summary - Business Strategy - Business Strategy".

Systems

In 2000 we introduced the TWINSCAN platform, which is the basis for our current and next-generation systems, which are expected to be capable of extending shrink technology with MPT techniques. We offer TWINSCAN systems, equipped with i-line, KrF and ArF light sources for 300 mm processing wafers for manufacturing environments for which imaging at a small resolution is required. The modular upgradeable design philosophy of the older systems has been further refined and applied in the TWINSCAN design.

Due to the increasing demand for 200 mm systems in the market place, i.e. driven by several applications like Internet of Things, ASML has re-introduced TWINSCAN 200 mm systems equipped with i-line and KrF light sources, which are sold alongside the 300 mm version. These systems can be built new, unlike the PAS steppers and scanners, which can be only refurbished and are difficult to source in large volumes.

TWINSCAN systems also include immersion lithography systems (TWINSCAN immersion systems). With a TWINSCAN immersion system, wafer measurement, including focus and alignment, is completed in the dry stage, while the imaging process, using water, is completed in the wet stage. This immersion technology places water 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. We fostered this wet technology and has experienced strong demand for immersion-based systems; this technology has been adopted by all of our leading customers. We are one of the world’s leaders (measured in revenues) in immersion technology and we were the world’s first producer of dual-stage design lithography systems.

We have developed different immersion systems for different customer needs. The TWINSCAN NXT platform enables next generations of semiconductors through the so-called MPT which requires two or more exposures per layer on a chip, enabling precise imaging patterns and lines by using our TWINSCAN NXT planar wafer stage and breakthrough grid metrology.

ASML ANNUAL REPORT 2016 18

In 2016 we shipped 46 TWINSCAN NXT:1980 systems to support increasingly demanding multiple-patterning performance requirements. Demonstrating 1.2 nanometer (nm) dedicated chuck overlay and better than 10 nm focus uniformity, the NXT:1980 features new grid calibrations and hardware that enables chipmakers to achieve tighter process windows for next-generation process nodes. The NXT:1980Di improves throughput by 10% to 275 wafers per hour, compared to the NXT:1970Ci.

In 2010, we achieved a major milestone with EUV lithography when we shipped our first NXE:3100 system. NXE systems are equipped with EUV light source technology, based upon a tin plasma, producing light at a wavelength of 13.5 nm. The NXE system has an innovative optical technology, utilizing reflective mirrors rather than the traditional refractive optics, with a NA of 0.25. The light in a NXE system operates in a vacuum environment, through the entire optical path, to the 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 predominant lithography technology for the coming years. NXE systems are targeted for production of ICs down to minimum features of 13 nm with single patterning, addressing current Memory and Logic roadmaps and processes down to the 5 nm node. Extension beyond this 5 nm is possible, using High-NA.

The success of EUV is dependent on, and subject to, the successful implementation of, among other things, technology related to the light source, throughput, system availability, patterning, imaging, overlay and other technologies specific to EUV, by us and our suppliers. We acquired Cymer on May 30, 2013, with the goal of achieving our strategic objective of delivering an economically viable EUV scanner to semiconductor manufacturers as soon as reasonably possible. Combining Cymer’s expertise in EUV light sources with our expertise in lithography systems design and integration reduces the risks related to further development of EUV technology.

In 2013, we shipped our first NXE:3300B systems. The NXE:3300B system is the successor of the NXE:3100 system and is our third-generation EUV-system. A NXE:3300B system combines a wavelength of 13.5 nm and an optical system with a NA of 0.33 to provide imaging at a resolution of 22 nm. Compared to the NXE:3100 system, the NXE:3300B system has among other things a better NA as well as an improved light source.

In April 2015 we signed an agreement with one of our major US customers to deliver a minimum of 15 EUV lithography systems to support increased development activity and pilot production of future-generation manufacturing processes. This customer has indicated that it intends to use EUV lithography for multiple processing steps in future process technology nodes.

Our fourth-generation EUV-system, the NXE:3350B, achieves an overlay of 1.0 nm, a 50% improvement over the NXE:3300B, and also features projection optics with a higher transmission, which means it generates higher throughput from a given EUV power source. In addition, the availability of systems in the field improved during 2016, with systems achieving a four-week availability of more than 80 percent regularly across the installed base; the best result was more than 90 percent over four weeks. Consistency of availability between systems and across sites still needs to be improved. EUV lithography met our 2016 productivity and availability targets. We achieved a productivity of more than 1,500 wafers per day, on a 3 day average in 2016 on an NXE:3350B system at a customer site. We shipped five of our latest NXE:3350B systems and plan to ship our first next generation system, NXE:3400B, in the first quarter of 2017. They will be used in our customers' factories for preparing the introduction of EUV into high volume manufacturing.

ASML Lithography System Product Portfolio for new systems:




System ¹	Resolution	Wavelength	Light source	Numerical aperture

TWINSCAN DUV SYSTEMS ²
TWINSCAN XT:400	350 nm	365 nm	i-line	0.48-0.65
TWINSCAN XT:800	120 nm	248 nm	KrF	0.55-0.80
TWINSCAN XT:860	110 nm	248 nm	KrF	0.55-0.80
TWINSCAN XT:10X0	80 nm	248 nm	KrF	0.50-0.93
TWINSCAN XT:1460	65 nm	193 nm	ArF	0.65-0.93
TWINSCAN NXT:19XX immersion	38 nm	193 nm	ArF	0.85-1.35

TWINSCAN EUV SYSTEMS
NXE:3300	22 nm	13.5 nm	EUV	0.33
NXE:3350	16 nm	13.5 nm	EUV	0.33
NXE:3400	13 nm	13.5 nm	EUV	0.33


1.	This table does not include used systems or system enhancements on steppers and scanners and products other than systems (e.g. YieldStar or computational lithography products).


2.	The X in the product number represents different models in the product portfolio within the same resolution. For example, XT:10X0 can either represent XT:1000 or XT:1060.

ASML ANNUAL REPORT 2016 19

ASML’s MPS business refurbishes PAS 5500 and TWINSCAN lithography equipment and offers associated services. Our PAS 5500 product family, which we no longer manufacture but continue to refurbish, comprises advanced wafer steppers and Step & Scan systems equipped with i-line, KrF and ArF light sources for processing wafers up to 200 mm in diameter, and are employed in volume manufacturing to achieve design nodes requiring imaging at a resolution down to 90 nm.

Installed base products and services

We continuously develop and sell a range of product options and enhancements designed to increase throughput and improve patterning and overlay to optimize cost of ownership over the entire life of our systems. This is complemented by full system upgrade packages which enable our TWINSCAN NXT immersion scanners to be upgraded from one model to another. This enables customers to migrate these systems in production from one process technology node to another, meeting tighter lithography requirements for the more advanced process technology nodes.

Our customers optimize their scanner performance by taking into account the entire chip creation process, from design to volume manufacturing, an approach we call Holistic Lithography. 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 patterning at higher resolutions. Semiconductor manufacturers face increasingly smaller margins of error as they shrink chip features. Holistic Lithography provides a way to shrink within these margins, offering additional significant revenue-generating and cost-saving opportunities for our customers.

Our computational lithography products capture detailed knowledge of scanner design and real performance, which enables our systems 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. Our current computational lithography portfolio comprises both traditional products, as well as solutions that directly interface with the numerous calibration controls in our scanner to optimize performance.

To provide a total solution for scanner control we offer our own advanced wafer metrology system: YieldStar. This wafer metrology system leverages 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. YieldStar uses scatterometry technology for overlay and CD measurements. YieldStar scatterometry provides high overlay and low cost wafer metrology data that can be used for further improving the performance of our systems.

In 2012, ASML began shipment of the third generation YieldStar metrology system, the S200C, which featured higher throughput and measurement overlay to support tighter on product wafer overlay and focus control performance of the NXT:19X0 systems. In 2014, we introduced the fourth generation YieldStar Metrology system, the 250D, available in both stand-alone and integrated version. The YieldStar 250D contains a source with wavelengths up to 765nm and has sensor improvements whereas the YieldStar 200 series enables more precise overlay measurement of thicker stacks with increased sampling as well as in-line focus and CD. In 2015, we shipped the first YieldStar 1250D, a measurement tool, which helps identify any inaccuracies in chips during the production cycle, enabling customers to make improvements and enhance the efficiency of their machines and therefore reduce cost. In 2016, we released the next generation metrology system: the YieldStar 350E. Built for the more exacting demands of today’s multiple patterning lithography, it generates 40% more metrology data than its predecessor — and that can even go up to 70% more data for the most advanced and complex 10 nm logic node.

On November 22, 2016 , we acquired HMI. We believe the addition of HMI’s e-beam portfolio and technology to our existing Holistic Lithography portfolio offers the opportunity for a new class of products to provide logic and memory customers with a comprehensive control strategy, helping them achieve faster time to market and improved yield. We have also identified new process control opportunities, built on the same unique and proven approach that will continue to provide additional value to our customers. The largest new opportunity resides in the extension of overlay control to a comprehensive control of Pattern Fidelity. For more information, see Item 4 .A. "History and Development of the Company".

Our service business has been growing and is expected to grow the coming years and is critical to our overall success. We strive to define a comprehensive and cohesive service product offering to keep our customers' installed base in continued competitive operation. Our service business strategy puts customer value and satisfaction as first priority while seeking to optimize our net sales and gross margins. In order to maximize our total value proposition to our customers, the service product portfolio is structured in accordance with customers' technology node life cycle using a wide variety of service products. Furthermore, we offer our customers OnPulse contracts on DUV sources, providing on-site support from certified service engineers and continuous real-time light source monitoring. These contracts, used to enhance light source productivity, offer CLS customers predictable light source running costs that scale directly with pulse utilization .

ASML ANNUAL REPORT 2016 20

Sales and Customer Service

Our top priority is to provide customers with the best possible products and services. We work closely with them to ensure we understand their needs, priorities and challenges. Only by collaborating and aligning with our customers we can help them to produce ever smaller and more energy efficient chips, thereby realizing Moore’s law and sustaining the growth of the industry as a whole.

The cost of new semiconductor fabrication equipment continues to be a large incentive driving semiconductor manufacturing productivity improvements. Industry leaders are realizing that on their own, they cannot afford to do the learning necessary to maximize equipment investment. Hence, partnerships, collaboration, and the sharing of combined knowledge between ASML and its customers is key in optimization of equipment productivity.

We strive to meet the needs of our customers by regularly reviewing and aligning, at all levels, with customer demands, product roadmaps, support requirements and business terms.

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 systems and system upgrades.

We market and sell our products through our direct sales force.

Our account managers, field and application engineers, service and technical support specialists are located throughout Asia, the US and Europe. We have established an industrial site in Linkou and Tainan, Taiwan . The primary goal of this site is to serve as a supplementary engine to propel ASML’s long-term growth, by means of:


•	Featuring customer support and training, logistics, refurbishment, technology and application development and also producing all YieldStar systems;


•	Enabling sourcing of equipment modules, components and services in the region; and


•	Performing as a training center to develop worldwide talent for our workforce and customers.

Revenue per Geographic Market

In 2016 , we derived 75.3 percent of net sales from Asia, 16.6 percent from the US and 8.1 percent from EMEA ( 2015 : Asia: 77.3 percent ; US: 19.3 percent and EMEA: 3.4 percent ; 2014 : Asia: 64.3 percent ; US: 32.3 percent and EMEA: 3.4 percent ).

Manufacturing, Logistics and Suppliers

The execution of our business model is supported by outsourcing production of a significant part of components and modules that comprise our lithography systems, working in partnership with suppliers from all over the world. Our manufacturing activities comprise subassembly and testing of certain modules and the final assembly and fine tuning/ testing of a complete system from components and modules that are manufactured to our specifications by third parties and by us. All of our manufacturing activities are performed in cleanroom facilities in Veldhoven, the Netherlands, in Wilton, Connecticut and in San Diego, California, both the US, in Beijing, China, in Linkou and Tainan, Taiwan and in Pyeongtaek, South Korea. We procure system components and subassemblies from single suppliers or a limited group of suppliers in order to ensure overall quality and on-time delivery. We jointly operate a strategy with suppliers known as "value sourcing", which is based on competitive performance. The essence of value sourcing is to maintain a supply base that is world class and globally competitive.

Value sourcing is intended to align the performance of our suppliers with our requirements on quality, logistics, technology, cost, and sustainability management.

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 sourcing of products, where possible or required.

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.

On November 3, 2016 ASML and Zeiss announced that they agreed to strengthen their long-standing and successful partnership in the semiconductor lithography business. For more information, s ee Item 4 .A. "History and Development of the Company".

ASML ANNUAL REPORT 2016 21

In addition to Carl Zeiss SMT we also rely on other outside vendors for the components and subassemblies used in our systems and sources, each of which is obtained from a limited number of suppliers many of whom have almost exclusive competences in their respective industries.

We have a flexible labor model with a mix of fixed and flexible contracted labor throughout our departments and facilities in Veldhoven, the Netherlands. This reinforces our ability to adapt to semiconductor market cycles, including support for potential 24/7 production activities as needed.

Maximizing the flexibility of our technically-skilled workforce means we can shorten lead-times, adding value for customers. Flexibility also reduces our working capital requirements.

Research and Development

The semiconductor manufacturing industry is subject to rapid technological changes driven by Moore’s Law. We believe that continued and timely development and introduction of new and enhanced products 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 Veldhoven, the Netherlands, in Wilton, Connecticut, San Diego and San Jose, California, all in the US, in Shenzhen and Beijing, both in China and in Linkou and Tainan, both in Taiwan. 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.

On July 9, 2012, we announced our CCIP to accelerate our development of EUV technology and 450mm silicon wafer technology, the latter was paused in 2013. For further information about CCIP, see Note 27 to our Financial Statements.

During 2013, together with imec (an independent research partner), we established an advanced patterning center located at the imec campus in Leuven, Belgium. Together we plan to address upcoming scaling challenges due to the chips industry's move towards single digit nanometer dimensions.

As of 2014, in order to conduct fundamental and applied research in areas that are key to unlocking innovation in the global semiconductor industry, we established ARCNL in Amsterdam, the Netherlands, together with the Foundation for Fundamental Research on Matter (part of the Netherlands Organization for Scientific Research) and the University of Amsterdam / Vrije Universiteit Amsterdam.

During 2015, researchers from ASML, ARCNL, Tata Steel and Vrije Universiteit Amsterdam joined forces to develop new techniques for imaging surfaces based on lensless microscopy.

On November 3, 2016 ASML and Zeiss announced that they agreed to strengthen their long-standing and successful partnership in the semiconductor lithography business. For more information about this strengthening of this partnership, see Item 4 .A. "History and Development of the Company".

On November 22, 2016 , we acquired HMI. For more information about this acquisition, see Item 4 .A. "History and Development of the Company".

See Item 4 .B. "Business Overview – Our Markets and Products - Products" and Item 5 .A. "Operating Results—Results of Operations 2016 compared to 2015 – Research and Development Costs".

Intellectual Property

We rely on IPR such as patents, copyrights and trade secrets to protect our proprietary technology. We aim to obtain ownership rights on technology developed by us or for us, alternatively, to have license rights in place with respect to such technology.

Our IPR management focuses on protecting ASML’s intellectual property and respecting the intellectual property of other parties. Preservation of intellectual property and other assets is one of our business principles and part of our Code of Conduct.

ASML ANNUAL REPORT 2016 22

In connection with entering into the Nikon Cross-License Agreement, ASML entered into a sublicense agreement with Zeiss, effective November 12, 2004, pursuant to which Zeiss granted ASML a non-exclusive license of certain of the rights it received from Nikon under the Nikon-Zeiss Patent Cross-License Agreement between Nikon and Zeiss effective November 12, 2004.

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. The Canon Cross-License Agreement expired on December 31, 2016.

See Item 3 .D. "Risk Factors – Risks related to ASML – Failure to adequately protect the intellectual property rights upon which we depend could harm our business" and "Risk Factors – Risks related to ASML – 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 cost of ownership of lithography systems based on purchase price, maintenance costs, availability, productivity, and customer service and support costs;


•	The exchange rate of the euro against the functional currency of our competitors and our customers, particularly against the Japanese yen;


•	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 for lithography systems and the investments required to be a significant competitor in this market segment has resulted in increased competition for market share through aggressive prosecution of patents. Our competitiveness depends 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 regulations 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 safety, environmental 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. The impact of these changes in regulation could adversely affect our business, financial condition and our results of operations even where the specific regulations do not directly apply to us or to our products.

C. Organizational Structure

ASML Holding N.V. is a holding company that operates through its subsidiaries. Our major operating subsidiaries, each of which is ultimately wholly-owned by ASML Holding N.V., are ASML Netherlands B.V., ASML Systems B.V., ASML Hong Kong Ltd. and ASML US Inc.

See Exhibit 8.1 for a list of our main subsidiaries.

ASML ANNUAL REPORT 2016 23

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 Veldhoven, the Netherlands, in Wilton, Connecticut, and San Diego, California, both in the US, in Linkou and Tainan, both in Taiwan and in Pyeongtaek, South-Korea. The book value of land and buildings owned amounts to EUR 1,082.0 million as of December 31, 2016 compared with EUR 1,067.7 million as of December 31, 2015 . See Note 12 to our Financial Statements.

Subject to market conditions, we e xpect that our capital expenditures (purchases of property, plant and equipment) in 2017 will be approximately EUR 300 million . These expenditures will mainly consist of further expansion and upgrades of facilities. We expect to finance these capital expen ditures through cash generated by operations and existing cash and cash equivalents.

Facilities in Europe

Our headquarters, main manufacturing and R&D facilities are located at a single site in Veldhoven, the Netherlands. This state-of-the-art facility includes 66 thousand square meters of office space and 50 thousand square meters of cleanroom used for manufacturing and R&D activities and 24 thousand square meters of warehouses. Our facilities in Veldhoven, the Netherlands are partly owned and partly leased. During 2015 we have exercised purchase options which are effectuated in 2016. Some of our office facilities at our headquarters in Veldhoven, the Netherlands, are financed through a special purpose vehicle that is a VIE. We also lease several sales and service facilities at locations across Europe.

Facilities in the United States

Our US head office is located in a 5 thousand square meter office building in Chandler, Arizona. We maintain R&D and manufacturing operations in a 28 thousand square meter facility in Wilton, Connecticut, and a 9 thousand square meter facility in San Jose, California. Furthermore, our facilities in San Diego include 25 thousand square meters of buildings used for manufacturing and office space, 19 thousand square meters of buildings used for engineering and R&D activities and 7 thousand square meters of buildings used for warehousing. As a result of the HMI acquisition, our facilities in San Jose, California expanded by approximately 34 thousand square meters for R&D and local sales and service activities.

Facilities in Asia

Our Asian headquarters is located in Hong Kong, The People’s Republic of China. In addition, our facility in Linkou, Taiwan comprises a cleanroom (approximately 3 thousand square meters) and office space (approximately 6 thousand square meters). Our facility in Korea comprises of a cleanroom (approximately 700 square meters) and office space (approximately 6 thousand square meters). We also lease and own several sales, service and training facilities at locations across Asia. As a result of the Cymer acquisition, we acquired a manufacturing facility in Pyeongtaek, South Korea, mainly used for refurbishment activities of light sources. As a result of the HMI acquisition, we acquired manufacturing facilities in Tainan, Taiwan (approximately 8 thousand square meters) and Beijing, China (approximately 4 thousand square meters) and office space in Hsinchu, Taiwan (approximately 2 thousand square meters). Additionally, both Cymer and HMI lease various smaller locations across Asia which are mainly used for local sales and service activities.

Item 4A Unresolved Staff Comments

Not applicable.

Item 5 Operating and Financial Review and Prospects

All information disclosed in this item 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 included in Item 18 "Financial Statements".

Executive Summary

Business Strategy

Our Vision and Mission

Our vision is to enable affordable microelectronics that improve the quality of life.

To achieve this, our mission is to invent, develop, manufacture and service advanced technology for high-tech lithography, metrology and software solutions for the semiconductor industry. ASML's guiding principle is continuing Moore's Law towards ever smaller, cheaper, more powerful and energy-efficient semiconductors. This results in increasingly powerful and capable electronics, with faster processing speeds, that enable the world to progress within a multitude of fields, including healthcare, technology, communications, energy, mobility, and entertainment. ASML creates economic value with strong financial results; social value by enhancing the welfare of our employees, suppliers and the communities we operate in; and environmental value by improving the energy efficiency of chips.

Our Strategy

We are a focused supplier of patterning products and services to IC manufacturers, providing high-performance hardware and software that allow our customers to increase the value and capability of their microchips, while reducing their cost. We work with a network of long-term partners to share the risk and reward of inventing, designing and manufacturing our high-end and market-leading technology. We set ourselves aggressive targets to get our innovations into the hands of our customers faster, while enhancing the value and reliability of our products with well-integrated software and services.

ASML ANNUAL REPORT 2016 24

We have the following strategic objectives that we want to achieve for our stakeholders in the period from 2016 to 2021:


•	Employees: We want to secure long-term employability for our employees by offering them continuous professional and personal development. We need to equitably balance the company’s need for flexibility with our employees’ desire for long-term employment and security.


•	Suppliers : We need to create long-term relationships with our suppliers based on technological capability, reliability and transparency. We do this as we share with them both the risks and rewards of our business.


•	Customers: For our customers, we need to create customer value by enabling the continued shrinkage of integrated circuits. We need to deliver quality and help reduce total cost of ownership of both our systems and services.


•	Society : We aim to achieve our business objectives in a responsible manner, taking into account the economic, social and environmental impact of our activities.


•	Shareholders: For our investors, we need to improve our financial results and strive for profitability. We seek to meet targets for total net sales, gross margin, expenditure, cash conversion, and return on investment.

These are translated into five corporate priorities and several, more detailed, business priorities that guide our entire company.


•	Corporate Priority 1 - "Make it work": Execute the product and installed base services roadmap in EUV, DUV and Holistic Lithography.


•	Corporate Priority 2 - "Make it well": Deliver quality products and services that consistently meet or exceed the expectations as agreed with customers, reinforced by an ASML quality culture.


•	Corporate Priority 3 - "Make it together": Drive the patterning ecosystem with customers, suppliers and peers in target market segments.


•	Corporate Priority 4 - "Make it worth it": Improve return on investments for ASML and its stakeholders with a focus on cost of ownership and cost awareness.


•	Corporate Priority 5 - "Make us grow": Develop our people and processes to support the growth of the organization towards a EUR 11 billion company.

In addition to our corporate priorities, other strategic priorities are to proceed with the successful industrialization of EUV, secure DUV competitiveness, build a leadership position in patterning fidelity control and plan for the introduction of High-NA.

For more information about our corporate priorities, see our 2016 Integrated Report as published on our Website .

See item 4.B. "Business Overview - Our Markets and Products".

Profitability

Our long-term business and financial model targets an annual revenue opportunity (ASML and HMI combined) of around EUR 11 billion in 2020 and a target EPS of more than EUR 9 , thereby creating significant value for all stakeholders. Our roadmap to an annual revenue opportunity of EUR 11 billion is primarily based on organic growth. ASML continuously reviews its product roadmap and has, from time to time, made focused acquisitions to enhance the industrial value of its product offering. Based on such reviews and the assessment of clear potential product and value synergies, ASML may also entertain focused merger and acquisition activities in the future.

ASML ANNUAL REPORT 2016 25

ASML Operations Update on Key Performance Indicators

The following table presents the key performance indicators used by our BoM and senior management to regularly measure performance.



Year ended December 31	2014		2015		2016
(in millions, unless otherwise indicated)	EUR	% ¹	EUR	% ¹	EUR	% ¹

Sales
Total net sales	5,856.3		6,287.4		6,794.8
Increase in total net sales (%)	11.6		7.4		8.1
Net system sales	4,242.8		4,237.2		4,571.1
Net service and field option sales	1,613.5		2,050.2		2,223.7
Sales of systems (in units)	136		169		157
ASP of total system sales	31.2		25.1		29.1
ASP of new system sales	35.6		28.5		32.4
ASP of used system sales	5.8		5.1		4.0
Value of systems backlog ²	2,772.4		3,184.3		3,961.3
Systems backlog (in units) ²	82		79		83
ASP of systems backlog ²	33.8		40.3		47.7
ASP of systems backlog (New) ²	42.0		46.3		55.8
ASP of systems backlog (Used) ²	4.7		3.2		4.1
Immersion systems recognized (in units) ³	76		67		70
EUV systems recognized (in units)	5		1		4
Profitability
Gross profit	2,596.4	44.3	2,895.7	46.1	3,044.5	44.8
Income from operations	1,282.2	21.9	1,565.1	24.9	1,657.7	24.4
Net income	1,196.6	20.4	1,387.2	22.1	1,471.9	21.7
Liquidity
Cash and cash equivalents	2,419.5		2,458.7		2,906.9
Short-term investments	334.9		950.0		1,150.0
Net cash provided by operating activities	1,025.2		2,025.5		1,665.9
Free cash flow ⁴	664.0		1,652.6		1,341.2


1.	As a percentage of total net sales.


2.	Our systems backlog and net bookings include all system sales orders for which written authorizations have been accepted (for EUV starting with the NXE:3350B).


3.	Included in the total number of immersion systems recognized in 2016 are 46 units of our most advanced immersion technology NXT:1980 systems ( 2015 : 7 and 2014 : 0 ).

Free cash flow is defined as net cash provided by operating activities minus purchase of property, plant and equipment ( 2016 : EUR 316.3 million ; 2015 : EUR 371.8 million and 2014 : EUR 358.3 million ) and purchase of intangible assets ( 2016 : EUR 8.4 million ; 2015 : EUR 1.1 million and 2014 : EUR 3.0 million ). We believe that free cash flow is an important liquidity metric, reflecting cash that is available for acquisitions, to repay debt and to return money to our shareholders by means of dividends and share buybacks. Property, plant and equipment and purchase of intangible assets are deducted from net cash provided by operating activities because these payments are necessary to support the maintenance and investments in our assets to maintain the current asset base. Free cash flow therefore provides an alternative measure (in addition to net cash provided by operating activities) for investors to assess our ability to generate cash from our business. For further details about purchase of property, plant and equipment and purchase of intangible assets see the Consolidated Statements of Cash Flows .

Backlog

We started 2016 with a systems backlog of 79 systems. In 2016 , we booked orders for 160 systems, and recognized sales for 157 systems (including 1 NXE:3300B system, which was not included in backlog). This resulted in a systems backlog of 83 as of December 31, 2016 .

As of December 31, 2016 , our systems backlog was valued at EUR 3,961.3 million and includes 83 systems with an ASP of EUR 47.7 million . As of December 31, 2015 , the systems backlog was valued at EUR 3,184.3 million and included 79 systems with an ASP of EUR 40.3 million . The ASP of our systems backlog increased as of December 31, 2016 compared to 2015 mainly as a result of the inclusion of 13 additional EUV systems.

For discussion on the main key performance indicators indicated above, see Item 5 .A. "Operating Results" and Item 5 .B. "Liquidity and Capital Resources".

ASML ANNUAL REPORT 2016 26

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 Financial Statements, which have been prepared in conformity with US GAAP. The preparation of our 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 net sales and costs during the reported periods. Actual results could differ from those estimates. We evaluate our estimates continuously 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 could be materially and adversely affected.

See Note 1 to our Financial Statements for a summary of our significant accounting policies.

Results of Operations 2016 Compared to 2015

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 or otherwise affect our results of operations, described in Item 3 .D. "Risk Factors".

Set out below are our Consolidated Statements of Operations data for the years ended December 31, 2015 and 2016 :



Year ended December 31	2015		2016
(in millions)	EUR		EUR

Total net sales	6,287.4		6,794.8
Cost of sales	(3,391.7	)	(3,750.3	)
Gross profit	2,895.7		3,044.5
Other income	83.2		93.8
Research and development costs	(1,068.1	)	(1,105.8	)
Selling, general and administrative costs	(345.7	)	(374.8	)
Income from operations	1,565.1		1,657.7
Interest and other, net	(16.5	)	33.7
Income before income taxes	1,548.6		1,691.4
Provision for income taxes	(161.4	)	(219.5	)
Net income	1,387.2		1,471.9

Set out below are our Consolidated Statements of Operations data for the years ended December 31, 2015 and 2016 expressed as a percentage of our total net sales:



Year ended December 31	2015		2016

Total net sales	100.0		100.0
Cost of sales	(53.9	)	(55.2	)
Gross profit	46.1		44.8
Other income	1.3		1.4
Research and development costs	(17.0	)	(16.3	)
Selling, general and administrative costs	(5.5	)	(5.5	)
Income from operations	24.9		24.4
Interest and other, net	(0.3	)	0.5
Income before income taxes	24.6		24.9
Provision for income taxes	(2.6	)	(3.2	)
Net income	22.1		21.7

ASML ANNUAL REPORT 2016 27

Total Net Sales and Gross Profit

The following table shows a summary of sales data, units sold, gross profit and ASP data for the years ended December 31, 2015 and 2016 :



Year ended December 31	2015	2016
(in millions, unless otherwise indicated)	EUR	EUR

Total net sales	6,287.4	6,794.8
Net system sales	4,237.2	4,571.1
Net service and field option sales	2,050.2	2,223.7
Total sales of systems (in units)	169	157
Total sales of new systems (in units)	144	139
Total sales of used systems (in units)	25	18
Gross profit as a percentage of net sales	46.1	44.8
ASP of system sales	25.1	29.1
ASP of new system sales	28.5	32.4
ASP of used system sales	5.1	4.0

In 2016 we delivered record financial performance, with contributions from each of our wide range of product offerings, notably DUV and Holistic Lithography. It was also the year when the industry turned the corner on the introduction of EUV. We laid the foundation for further expansion of our pattern fidelity strategy with the acquisition of HMI. We strengthened our partnership with Zeiss by agreeing to acquire a minority stake in Carl Zeiss SMT to secure the extension of EUV beyond the next decade.

We shipped 46 TWINSCAN NXT:1980 systems in 2016, supporting the ramp of the 10 nm node as well as process development for the 7 nm foundry node. With the introduction of the NXT:1980, we have shortened the time to maturity, enabling a faster, more cost-effective node ramp. More customers are now recognizing the value of upgrading their existing NXT systems to the latest performance, which has supported our field upgrade sales. We also continue to support our XT and NXT systems with productivity upgrades and as part of the transition from planar to NAND, we have supported a large additional number of system relocations, helping customers to optimize their ramp plans.

Total net sales increased by 8.1 percent , driven by an increase in net system sales of 7.9 percent and an increase in net service and field option sales of 8.5 percent in 2016 compared to 2015. The increase in net system sales is mainly due to an increase in the number of EUV systems recognized in 2016 compared to 2015 (2016: 4 and 2015:1), which have a higher ASP than our DUV systems. The increase in net service and field option sales is mainly driven by an increase in the sales of productivity and focus upgrade packages.

The increase of the ASP of our new systems sold is due to a shift in the product mix of systems sold towards more high-end systems (e.g. more EUV and ArFi systems, less KrF systems) in 2016 compared to 2015 .

Gross profit increased by EUR 148.8 million mainly due to a shift in the product mix of systems sold towards more high-end systems.

Gross profit as a percentage of total net sales decreased from 46.1 percent in 2015 to 44.8 percent in 2016 primarily driven by higher EUV system sales (which currently have a gross margin below the average of our DUV systems), partly offset by a shift in product mix of systems sold towards more high-end systems.

Other Income

Other income consists of contributions for R&D programs under the NRE funding arrangements from certain Participating Customers in the CCIP and amounted to EUR 93.8 million for 2016 ( 2015 : EUR 83.2 million ).

ASML ANNUAL REPORT 2016 28

Research and Development Costs

R&D costs (net of credits and excluding contributions under the NRE Funding Agreements from Participating Customers in the CCIP) were EUR 1,105.8 million in 2016 as compared to EUR 1,068.1 million in 2015 . R&D costs for both 2016 and 2015 were primarily focused on programs supporting EUV, DUV immersion, and Holistic Lithography. In 2016, R&D activities mainly related to:


•	EUV - Further improving productivity, and supporting the design and industrialization of our NXE:3400B system including pellicle development.


•	DUV immersion - Focused on development of our next generation immersion platform, the NXT:2000i, as well as maturing the product introduction in the field of our NXT:1980 system.


•	Holistic Lithography - Further development of YieldStar, process window control and enlargement solutions.

Selling, General and Administrative Costs

SG&A costs increased by 8.4 percent mainly driven by HMI acquisition related expenses, an increase in the number of employees, and further impacted by exchange rate fluctuations, primarily related to our US operations.

Interest and Other, Net

Interest and other, net increased by EUR 50.2 million in 2016 compared to 2015 . In addition, in 2016 we recognized EUR 55.2 million gain on foreign currency revaluations on transactions and balances relating to the HMI acquisition in Interest and other, net.

Income Taxes

The effective tax rate increased to 13.0 percent of income before income taxes in 2016 compared to 10.4 percent in 2015 . This increase is mainly due to a change in legislation. Prior to 2016 , the RDA was a corporate income tax credit used for R&D activities. As of 2016 , the RDA is converted into a wage tax benefit reducing R&D costs.

Net Income

Net income in 2016 amounted to EUR 1,471.9 million , or 21.7 percent of total net sales, representing EUR 3.46 basic net income per ordinary share, compared with net income in 2015 of EUR 1,387.2 million , or 22.1 percent of total net sales, representing EUR 3.22 basic net income per ordinary share.

Results of Operations 2015 Compared to 2014

Set out below our Consolidated Statements of Operations data for the years ended December 31, 2014 and 2015 :



Year ended December 31	2014		2015
(in millions)	EUR		EUR

Total net sales	5,856.3		6,287.4
Cost of sales	(3,259.9	)	(3,391.7	)
Gross profit	2,596.4		2,895.7
Other income	81.0		83.2
Research and development costs	(1,074.1	)	(1,068.1	)
Selling, general and administrative costs	(321.1	)	(345.7	)
Income from operations	1,282.2		1,565.1
Interest and other, net	(8.6	)	(16.5	)
Income before income taxes	1,273.6		1,548.6
Provision for income taxes	(77.0	)	(161.4	)
Net income	1,196.6		1,387.2

ASML ANNUAL REPORT 2016 29

Set out below are our Consolidated Statements of Operations data for the years ended December 31, 2014 and 2015 expressed as a percentage of our total net sales:



Year ended December 31	2014		2015

Total net sales	100.0		100.0
Cost of sales	(55.7	)	(53.9	)
Gross profit	44.3		46.1
Other income	1.4		1.3
Research and development costs	(18.3	)	(17.0	)
Selling, general and administrative costs	(5.5	)	(5.5	)
Income from operations	21.9		24.9
Interest and other, net	(0.1	)	(0.3	)
Income before income taxes	21.7		24.6
Provision for income taxes	(1.3	)	(2.6	)
Net income	20.4		22.1

Net Sales and Gross Profit

The following table shows a summary of net sales, units sold, gross profit and ASP data for the years ended December 31, 2014 and 2015 :



Year ended December 31	2014	2015
(in millions EUR, unless otherwise indicated)	EUR	EUR

Net sales	5,856.3	6,287.4
Net system sales	4,242.8	4,237.2
Net service and field option sales	1,613.5	2,050.2
Total sales of systems (in units)	136	169
Total sales of new systems (in units)	116	144
Total sales of used systems (in units)	20	25
Gross profit as a percentage of net sales	44.3	46.1
ASP of system sales	31.2	25.1
ASP of new system sales	35.6	28.5
ASP of used system sales	5.8	5.1

Net sales increased by 7.4 percent, driven by the increase in net service and field option sales of 27.1 percent, with a similar level of net system sales in 2015 compared to 2014. The increase in net service and field option sales was mainly driven by:


•	An increase in the sales of productivity and focus upgrade packages; and


•	Higher service sales mainly resulting from an increased installed base.

The decrease of the ASP of our new systems sold was due to a shift in the product mix of systems sold towards more lower-end systems (more KrF systems and less EUV systems) in 2015 compared to 2014 .

Gross profit increased by EUR 299.3 million mainly due to higher service and field option sales and lower EUV system sales (which did not contribute to gross profit).

Gross profit as a percentage of net sales increased from 44.3 percent in 2014 to 46.1 percent in 2015 primarily driven by lower EUV system sales (which did not contribute to gross profit).

Other Income

Other income consisted of contributions for R&D programs under the NRE funding arrangements from certain Participating Customers in the CCIP and amounted to EUR 83.2 million for 2015 (2014: EUR 81.0 million).

Research and Development Costs

R&D costs (net of credits and excluding contributions under the NRE Funding Agreements from Participating Customers in the CCIP) were EUR 1,068.1 million in 2015 as compared to EUR 1,074.1 million in 2014 . R&D costs for both 2015 and 2014 were primarily focused on programs supporting EUV, DUV immersion, and Holistic Lithography. In 2015, R&D activities mainly related to:


•	EUV - Further improving availability and productivity, and supporting the design of our NXE:3400B system;


•	DUV immersion - Focused on the final stages of development relating to our NXT:1980 systems, of which we shipped the first systems in 2015, as well as development of future DUV platforms; and


•	Holistic Lithography - Further development of Yieldstar and process window control solutions.

ASML ANNUAL REPORT 2016 30

Selling, General and Administrative Costs

SG&A costs increased by 7.7 percent mainly driven by an increase in the number of employees, further impacted by exchange rate fluctuations, primarily related to our US operations.

Income Taxes

The effective tax rate increased to 10.4 percent of income before income taxes in 2015 compared to 6.0 percent in 2014. In 2014 the tax rate was favorably impacted by settling agreements entered into by ASML Netherlands B.V. and Cymer LLC., prior to our acquisition of Cymer in 2013, at different tax rates.

Net Income

Net income in 2015 amounted to EUR 1,387.2 million , or 22.1 percent of total net sales, representing EUR 3.22 basic net income per ordinary share, compared with net income in 2014 of EUR 1,196.6 million , or 20.4 percent of total net sales, representing EUR 2.74 basic net income per ordinary share.

B. Liquidity and Capital Resources

Our cash and cash equivalents increased to EUR 2,906.9 million as of December 31, 2016 from EUR 2,458.7 million as of December 31, 2015 and our short-term investments increased to EUR 1,150.0 million as of December 31, 2016 from EUR 950.0 million as of December 31, 2015 .

Our principal sources of liquidity consist of cash flows from operations, cash and cash equivalents as of December 31, 2016 of EUR 2,906.9 million , short-term investments as of December 31, 2016 of EUR 1,150.0 million and available credit facilities as of December 31, 2016 of EUR 700.0 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 financial institutions that have good credit ratings and in money market funds that invest in high-rated short-term debt securities of financial institutions and governments. Our investments are denominated in euros and US dollar.

Our available credit facilities amount to EUR 700.0 million as of December 31, 2016 and as of December 31, 2015 . No amounts were outstanding under these credit facilities at the end of 2016 and 2015 . The amounts available at December 31, 2016 and 2015 consisted of one EUR 700.0 million committed revolving credit facility with a group of banks. In 2015, the terms and conditions of the facility were amended by, among other things, removing the financial covenant and by extending the maturity until 2020 . In 2016, we exercised our extension option, extending the maturity date to 2021. Outstanding amounts under this credit facility will bear interest at EURIBOR or LIBOR plus a margin that depends on our credit rating.

In July 2016 , we completed an offering of our EUR 500 million 0.625 percent senior notes due 2022 , with interest payable annually on July 7. 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 July 7, 2022 .

Also in July 2016 , we completed an offering of our EUR 1,000 million 1.375 percent senior notes due 2026 , with interest payable annually on July 7. 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 July 7, 2026 .

In November 2016 , we completed an offering of our EUR 750 million 1.625 percent senior notes due 2027 , with interest payable annually on May 28. 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 May 28, 2027 .

We have the following repayment obligations relating to our Eurobonds:


•	EUR 238.2 million in 2017;


•	EUR 500.0 million in 2022;


•	EUR 750.0 million in 2023;


•	EUR 1,000.0 million in 2026; and


•	EUR 750.0 million in 2027.

ASML seeks to ensure that our principal sources of liquidity will be sufficient to satisfy its liquidity requirements throughout every phase of the industry cycles.

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 our other sources of liquidity are sufficient to satisfy our current requirements, including our expected capital expenditures and repayment obligations in 2017. 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 repayments.

See Consolidated Statements of Cash Flows and Notes 4 , 5 , 14 , 15 , 25 and 26 to our Financial Statements.

ASML ANNUAL REPORT 2016 31

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 2016 Compared to 2015 ".

Intellectual Property Matters

D. Trend Information

We expect that Moore’s Law will continue in the coming decade including industry fundamentals of a decline in cost per transistor. There is a strong demand for advanced ICs, supported by a value chain with means and incentive to support this. However, cost and process complexity of shrinking with multiple patterning together with new device structures and materials reshapes customer roadmaps, resulting in a continued need to improve DUV lithography performance while exploiting execution of agreed EUV targets for the future and complementing it with a portfolio of product options, enhancements and upgrade packages that support product stewardship and optimize the cost of ownership over the entire lifetime of our systems. It also results in zero tolerance for non-performance, driving improvement of quality and cost efficiency of our products and services.

We expect the following in the first-quarter of 2017:


•	Total net sales of approximately EUR 1.8 billion ;


•	Shipment of our first NXE:3400B EUV system, for which we expect to record revenue in the third quarter of 2017, as this system will ship in a non-final configuration. Together with the five NXE:3350B systems already shipped before 2017, it will be used in our customers' factories for preparing the introduction of EUV into high volume manufacturing;


•	Net service and field option sales will be driven by continued demand for Holistic Lithography options, high value upgrades and our growing installed base;

•

Gross margin of around 47 percent including the effect from the purchase price allocation for the HMI acquisition. The negative impact of the purchase price allocation adjustments is about one percentage point. The impact of the HMI acquisition on gross profit for the full fiscal year is expected to be about EUR 90 million and is expected to decrease to about EUR 40 million per year from 2018 onwards;


•	R&D costs of about EUR 320 million . The increase in R&D costs is driven by the inclusion of HMI and accelerated investments in Pattern Fidelity metrology, our contributions to Carl Zeiss SMT's High-NA developments, our own High-NA development acceleration and the strong US Dollar;


•	Other income of about EUR 23 million , which consists of contributions from the participants of the CCIP;


•	SG&A costs of about EUR 95 million ; and


•	An effective annualized tax rate of between 13 and 14 percent .

In Holistic Lithography, we successfully completed the acquisition of HMI in November 2016 and began the integration of HMI's e-beam systems into our Holistic Lithography portfolio.

The following table sets forth our systems backlog ¹ as of December 31, 2015 and 2016 .



Year ended December 31	2015	2016
(in millions EUR, unless otherwise indicated)

New systems backlog (in units)	68	70
Used systems backlog (in units)	11	13
Total systems backlog (in units)	79	83
Value of new systems backlog	3,149.6	3,907.9
Value of used systems backlog	34.7	53.4
Total value of systems backlog	3,184.3	3,961.3
ASP of new systems backlog	46.3	55.8
ASP of used systems backlog	3.2	4.1
ASP of total systems backlog	40.3	47.7


1.	Our systems backlog includes all system sales orders for which written authorizations have been accepted (for EUV starting with the NXE:3350B).

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.

ASML ANNUAL REPORT 2016 32

Logic chip manufacturers have built up capacity for the 10 nm node in 2016, and we also saw healthy demand from Memory manufacturers both for DRAM and NAND production. Together with solid growth in net service and field option sales. These trends are expected to continue into 2017.

Regarding EUV, we executed on the customer-aligned productivity and availability targets, which gave customers the confidence to place 13 orders in 2016, bringing our EUV backlog to 18 systems worth EUR 2.0 billion , or about half of the total backlog at December 31, 2016. These orders show that customers are committed to take EUV into production, and we expect that the first customers will start volume manufacturing with EUV at the 7 nm logic node and the mid-10 nm DRAM node. We are now moving to the next phase of EUV industrialization. We remain committed to deliver the performance requirements for customer volume manufacturing, while continuing to build up our manufacturing, supply chain and service capabilities.

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" and item 3 .D. "Risk Factors".

E. Off-Balance Sheet Arrangements

None.

F. Tabular Disclosure of Contractual Obligations

Our contractual obligations as of December 31, 2016 can be summarized as follows:



Payments due by period (in thousands)	Total EUR	1 year EUR	2 year EUR	3 year EUR	4 year EUR	5 year EUR	After 5 years EUR

Long-Term Debt Obligations, including interest expense ¹	3,757,498	306,215	83,752	56,718	56,762	56,246	3,197,805
Operating Lease Obligations	103,568	35,486	23,613	18,616	13,577	7,050	5,226
Purchase Obligations	2,202,595	1,923,647	233,021	9,481	7,901	7,417	21,128
Zeiss High-NA Funding Commitment	748,000	129,000	219,500	179,500	113,000	69,000	38,000
Total Contractual Obligations ²	6,811,661	2,394,348	559,886	264,315	191,240	139,713	3,262,159


1.	See Note 14 to our Financial Statements for the amounts excluding interest expense.


2.	We have excluded unrecognized tax benefits for an amount of EUR 136.4 million as the amounts that will be settled in cash are not known and the timing of any payments is uncertain.

Long-term debt obligations mainly relate to interest payments and principal amounts of our Eurobonds. See Note 14 to our Financial Statements.

Operating lease obligations include leases of equipment and facilities. Lease payments recognized as an expense were EUR 45.2 million , EUR 45.1 million and EUR 43.9 million for the years ended December 31, 2016 , 2015 and 2014 , 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. During 2015 we have exercised these options which are effectuated in 2016, therefore no purchase options exist as per year end December 31, 2016.

Purchase obligations exist of purchase commitments towards 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, 2016 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 typically agree with our supply chain partners give us additional flexibility to adapt our purchase obligations to our requirements in light of the cyclicality and technological developments inherent in the industry in which we operate. We establish a provision for cancellation costs when the liability has been incurred and the amount of cancellation fees is reasonably estimable.

On November 3, 2016 ASML and Zeiss announced that they agreed to strengthen their long-standing and successful partnership in the semiconductor lithography business. ASML has agreed with Zeiss to support Carl Zeiss SMT's R&D costs, capital expenditures and other supply chain investments, in respect of High NA, for an amount of EUR 760.0 million over 6 years . At the end of 2016 an amount of EUR 12.0 million was paid, resulting in a remaining commitment as of December 31, 2016 of EUR 748.0 million .

G. Safe Harbor

See Part I "Special Note Regarding Forward-Looking Statements".

ASML ANNUAL REPORT 2016 33

Item 6 Directors, Senior Management and Employees

A. Directors and Senior Management

The members of our SB and our BoM are as follows:



Name	Title	Year of Birth	Term Expires
Gerard J. Kleisterlee ^{2, 3}	Chairman of the Supervisory Board	1946	2019
Douglas A. Grose ^2,3	Vice Chairman and Member of the Supervisory Board	1950	2017
Pauline F.M. van der Meer Mohr ^1,2	Member of the Supervisory Board	1960	2017
Wolfgang H. Ziebart ^3,4	Member of the Supervisory Board	1950	2017
Clara (Carla) M.S. Smits-Nusteling ¹	Member of the Supervisory Board	1966	2017
Johannes (Hans) M.C. Stork ^{3, 4}	Member of the Supervisory Board	1954	2018
Antoinette (Annet) P. Aris ^3,4	Member of the Supervisory Board	1958	2019
Rolf-Dieter Schwalb ^1,4	Member of the Supervisory Board	1952	2019
Peter T.F.M. Wennink	President, Chief Executive Officer and Chairman of the Board of Management	1957	2018
Martin A. van den Brink	President, Chief Technology Officer and Vice Chairman of the Board of Management	1957	2018
Frits J. van Hout	Executive Vice President, Chief Program Officer and member of the Board of Management	1960	2017
Frédéric J.M. Schneider-Maunoury	Executive Vice President, Chief Operations Officer and Member of the Board of Management	1961	2018
Wolfgang U. Nickl	Executive Vice President, Chief Financial Officer and Member of the Board of Management	1969	2018


1.	Member of the AC.


2.	Member of the Selection and Nomination Committee.


3.	Member of the Technology and Strategy Committee.


4.	Member of the RC.


5.	Ms. Van der Meer Mohr and Messrs. Grose and Ziebart are to retire by rotation at the 2017 AGM.

Mr. Van der Poel retired from the SB per the 2016 AGM.

The Works Council has an enhanced right to make recommendations for nomination of one-third of the members of the SB, which recommendations may be rejected by the SB in limited circumstances. See Item 6.C. "Board Practices — Supervisory Board". At the AGM held in 2009, Ms. Van der Meer Mohr was appointed pursuant to this recommendation right, and at the 2013 AGM she was reappointed in accordance with this recommendation right. At the 2014 AGM, Mr. Stork was appointed pursuant to this recommendation right. At the 2015 AGM, Ms. Aris was appointed based on this enhanced recommendation right.

The SB spends considerable time discussing its future composition, in view of the rotation schedule and envisaged changes in the coming years. For the fulfillment of vacancies several factors are taken into consideration. The SB profile includes the intention to have at least 30 percent representation of each gender in ASML’s SB. This aspect will be taken into account in the nominations for (re)appointment of SB members that will be submitted to the 2017 AGM.

There are no family relationships among the members of our SB and our BoM.

Director and Officer Biographies

Gerard J. Kleisterlee

Mr. Kleisterlee was appointed to our SB in April 2015 and was appointed Chairman in 2016. Mr. Kleisterlee joined Philips in 1974. In 2001 Mr. Kleisterlee became President and CEO of the Board of Management of Royal Philips N.V., a position he has held until 2011. Currently, Mr. Kleisterlee is the Chairman of the Board of Vodafone Group Plc. and Non-Executive Director of Royal Dutch Shell Plc.

Douglas A. Grose

Mr. Grose was appointed to our SB in April 2013. Mr. Grose was CEO of GlobalFoundries. Mr. Grose also served as senior vice president of technology development, manufacturing and supply chain for AMD. Prior to that, Mr. Grose spent 25 years at IBM as General Manager of technology development and manufacturing for the systems and technology group. Currently, Mr. Grose is the CTO of BessTech and a member of the Board of Directors of SBA Materials, Inc.

ASML ANNUAL REPORT 2016 34

Pauline F.M. van der Meer Mohr

Ms. Van der Meer Mohr was appointed to our SB in March 2009. Ms. Van der Meer Mohr 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 has held several senior executive roles at the Royal/Dutch Shell group of companies in various areas. Ms. Van der Meer Mohr served as President of the Executive Board of the Erasmus University Rotterdam, the Netherlands until December, 2015. Currently, Ms. Van der Meer Mohr is the Chairperson of the supervisory board of EY Netherlands LLP, a member of the supervisory board of Royal DSM N.V., Non-Executive Director of HSBC Holdings Plc, Chairperson of the supervisory board of Nederlands Danstheater and a member of the Board Concertgebouw Fonds.

Wolfgang H. Ziebart

Mr. Ziebart was appointed to our SB in March 2009. Mr. Ziebart was President and CEO of Infineon Technologies A.G. Prior to that, Mr. Ziebart was on the Boards of Management of car components manufacturer Continental A.G. and automobile producer BMW A.G. Mr. Ziebart was the Group Engineering Director of Jaguar Land Rover Ltd. until April 2015. Currently, Mr. Ziebart is the Chairman of the supervisory board of Nordex SE and a member of the Board of Autoliv, Inc.

Clara (Carla) M.S. Smits-Nusteling

Ms. Smits-Nusteling was appointed to our SB in April 2013. Ms. Smits-Nusteling was CFO and a member of the Board of Management of Royal KPN N.V. Ms. Smits-Nusteling also held several finance and business related positions at Royal KPN N.V. and PostNL. Currently, Ms. Smits-Nusteling is a Non-Executive Director of the Board of Tele2 AB, a member of the Management Board of the Foundation Unilever N.V. Trust Office, Non-Executive Director of the Board of Directors of Nokia Corporation and lay judge of the Enterprise Court of the Amsterdam Court of Appeal.

Johannes (Hans) M.C. Stork

Mr. Stork was appointed to our SB in April 2014. Mr. Stork held various management positions at IBM Corporation, Hewlett Packard Company, Texas Instruments, Inc. and Applied Materials, Inc., including Senior Vice President and CTO of Texas Instruments, Inc. and Group Vice President and CTO of Applied Materials, Inc. Further, Mr. Stork was a member of the Board of Sematech. Currently, Mr. Stork serves as Senior Vice President and CTO of ON Semiconductor Corporation and is also a member of the Scientific Advisory Board of imec.

Antoinette (Annet) P. Aris

Ms. Aris was appointed to our SB in April 2015. Ms. Aris is Adjunct Professor of Strategy at INSEAD, France, a position she has held since 2003. From 1994 to 2003 Ms. Aris was a partner at McKinsey & Company in Germany. Ms. Aris was a member of the Board of Directors of Sanoma Oyj until April, 2015 and a member of the supervisory board of Kabel Deutschland AG until July, 2015. Currently, Ms. Aris is a Non-Executive Director of Thomas Cook Plc. and a member of the supervisory boards of ProSiebenSat.1 AG, Jungheinrich AG and ASR Nederland N.V.

Rolf-Dieter Schwalb

Mr. Schwalb was appointed to our SB in April 2015. Mr. Schwalb was CFO and member of the Board of Management of Royal DSM N.V. from 2006 to 2014. Prior to his appointment at DSM, Mr. Schwalb was CFO and member of the Executive Board of Beiersdorf AG. Before that, Mr. Schwalb held a variety of management positions in Finance, IT and Internal Audit at Beiersdorf AG and Procter & Gamble Co.

Peter T.F.M. Wennink

Mr. Wennink joined ASML in January, 1999 and was appointed as Executive Vice President, CFO and member of our BoM in July, 1999. Mr. Wennink was appointed as President and CEO on July 1, 2013. 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 Bank Insinger de Beaufort N.V. until December 31, 2016. Mr. Wennink is a member of the Dutch Institute of Registered Accountants, a member of the supervisory board of the Eindhoven University of Technology, and a member of the Advisory Board of the Investment Committee of Stichting Pensioenfonds ABP (Dutch pension fund for government employees). Mr. Wennink further serves on the board of the FME-CWM (the employers’ organization for the technology industry in the Netherlands).

Martin A. van den Brink

Mr. Van den Brink joined ASML when the company was founded in 1984. Mr. Van den Brink held several positions in engineering and from 1995 he served as Vice President Technology. Mr. Van den Brink was appointed as Executive Vice President Product & Technology and member of the BoM in 1999. On July 1, 2013, Mr. Van den Brink was appointed as President and CTO. Mr. Van den Brink 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 UvA, the Netherlands.

ASML ANNUAL REPORT 2016 35

Frits J. van Hout

Mr. Van Hout joined ASML in 1984 and rejoined ASML in 2001, after an eight year absence. He was appointed as a member of our BoM on March 26, 2009. Mr. Van Hout was appointed as Executive Vice President and CPO on July 1, 2013. Prior to that, Mr. Van Hout served as Executive Vice President and CMO, Executive Vice President Integral Efficiency, Senior Vice President Customer Support and held various other positions. From 1992 until 2001, Mr. Van Hout served as CEO of the Beyeler Group and held various management positions at Datacolor International. Mr. van Hout earned a Master’s degree in Theoretical Physics (1981), University of Oxford; and a Master’s degree in Applied Physics (1984), Eidgenössische Technische Hochschule, Zürich. Mr. Van Hout is a member of the Board of the Stichting Brainport, the Eindhoven Region Economic Development Board.

Frédéric J.M. Schneider-Maunoury

Mr. Schneider-Maunoury joined ASML in December, 2009, as Executive Vice President and COO and was appointed to our BoM on March 24, 2010. Prior to joining ASML, Mr. Schneider-Maunoury served as Vice President Thermal Products Manufacturing of the power generation and rail transport equipment group ALSTOM. Previously, Mr. Schneider-Maunoury was general manager of the worldwide Hydro Business of ALSTOM. Further, Mr. Schneider-Maunoury held various positions at the French Ministry of Trade and Industry. Mr. Schneider-Maunoury is a graduate of Ecole Polytechnique (1985) and Ecole Nationale Supérieure des Mines (1988) in Paris.

Wolfgang U. Nickl

Mr. Nickl joined ASML in December, 2013, as Executive Vice President and CFO and was appointed as a member of our BoM per the 2014 AGM. Prior to joining ASML, Mr. Nickl served as Executive Vice President and CFO at Western Digital Corporation, a US-headquartered, NASDAQ-listed developer and manufacturer of storage devices, where he held several financial and operational leadership roles. Before Western Digital, Mr. Nickl gained experience in finance and IT consulting. He earned a BA in Business from the University of Cooperative Education in Stuttgart, Germany, and an MBA from the University of Southern California’s Marshall School of Business in Los Angeles, United States.

B. Compensation

The information required by Item 6 .B. is incorporated by reference from our 2016 Statutory Annual Report (pages 6 through 11 and 106 through 109) which is included as exhibit 99.1 on Form 6-K furnished with the SEC on February 8, 2017 .

C. Board Practices

General

We endorse the importance of good corporate governance, of 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 BoM, the SB , 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 are the publication of our annual and quarterly financial results as well as press releases and publications posted on our Website.

Our corporate governance structure is intended to:


•	Provide shareholders with regular, reliable, relevant and transparent information regarding our activities, structure, financial condition and results of operations, performance and other information, including information on our social, ethical and environmental matters and policies;


•	Apply high-quality standards for disclosures, 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 BoM. Independent, non-executive members serve on the SB, which supervises and advises the members of the BoM in performing their management tasks. The BoM has the duty to keep the SB informed, consult with the SB on important matters and submit certain important decisions to the SB for its approval. The SB is responsible for supervising, monitoring and advising the BoM on: (i) the achievement of ASML's objectives, (ii) ASML's 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) the compliance with applicable legislation and regulations.

SB members are prohibited from serving as officers or employees of ASML, and members of the BoM cannot serve on the SB.

Board of Management

The BoM consists of at least two members or such larger number of members as determined by the SB. Members of the BoM are appointed by the SB. The SB must notify the General Meeting of Shareholders of the intended appointment of a member of the BoM. In accordance with the Dutch Corporate Governance Code, members of the BoM shall be appointed for a maximum period of four years, but may be re-appointed. Members of the BoM serve until the end of the term of their appointment, voluntary retirement, or suspension or dismissal by the SB. In the case of dismissal, the SB must first inform the General Meeting of Shareholders of the intended removal.

ASML ANNUAL REPORT 2016 36

The SB determines the remuneration of the individual members of the BoM, in line with the remuneration policy adopted by the General Meeting of Shareholders, upon a proposal of the SB. ASML’s remuneration policy is included in the Supervisory Board Report of the 2016 Statutory Annual Report.

For more details on the BoM, see Item 6 .A. "Directors and Senior Management" and Item 6 .B. "Compensation".

Supervisory Board

The SB consists of at least three members or such larger number as determined by the SB. The SB prepares a profile in relation to its size and composition; ASML’s SB profile is posted on ASML’s Website.

Members of the SB are appointed by the General Meeting of Shareholders from nominations of the SB. Nominations must be reasoned and must be made available to the General Meeting of Shareholders and the Works Council simultaneously. Before the SB presents its nominations, both the General Meeting of Shareholders and the Works Council may make recommendations (which the SB may reject). In addition, the Works Council has an enhanced right to make recommendations for nomination of one-third of the members of the SB, which recommendation may only be rejected by the SB: (i) if the relevant person is unsuitable or (ii) if the SB would not be duly composed if the recommended person were appointed as a SB member. If no agreement can be reached between the SB and the Works Council on these recommendations, the SB may request the Enterprise Chamber of the Amsterdam Court of Appeal to declare its objection legitimate. Any decision of the Enterprise Chamber on this matter is non-appealable.

Nominations of the SB may be rejected by the General Meeting of Shareholders by an absolute majority of the votes representing one-third of the total outstanding capital. If the votes cast in favor of such resolution do not represent one-third of the total outstanding capital, a new meeting can be convened at which the nomination can be rejected by an absolute majority. If a nomination is rejected, the SB must make a new nomination. If a nomination is not rejected and the General Meeting of Shareholders does not appoint the nominated person, the SB will appoint the nominated person.

Members of the SB 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 SB. 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 one-third of the total outstanding capital, dismiss the SB in its entirety for lack of confidence. In such event, the Enterprise Chamber of the Amsterdam Court of Appeal shall appoint new members of the SB at the request of the BoM.

Upon the proposal of the SB, the General Meeting of Shareholders determines the remuneration of the members of the SB. A member of the SB may not be granted any shares or share options by way of remuneration.

For more details on the SB, see Item 6 .A "Directors and Senior Management" and Item 6 .B."Compensation".

Approval of Board of Management Decisions

The BoM 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 BoM and the SB have adopted Rules of Procedure for each of the BoM, SB and the four Committees of the SB. These Rules of Procedure are posted on our Website.

Directors and Officers Insurance and Indemnification

Members of the BoM and SB, as well as certain senior management members, are insured under ASML’s Directors and Officers Insurance Policy. Although the insurance policy provides for broad coverage, our directors and officers may incur uninsured liabilities. ASML has agreed to indemnify its members of the BoM and SB against any claims arising in connection with their position within ASML, provided that such claim is not attributable to willful misconduct or intentional recklessness.

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 NASDAQ and by the SEC. See also Item 16 .G. "Corporate Governance".

ASML ANNUAL REPORT 2016 37

The Code came into effect on January 1, 2004 and was amended as of January 1, 2009. 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. In February 2016 the Dutch Corporate Governance Code Monitoring Committee started a consultation process that has led to a revision of the Code. The amended Code was published on December 8, 2016 and came into effect on January 1, 2017. As part of the continued effort of our SB and BoM to ensure that our practices and procedures comply with Dutch corporate governance requirements, we are currently assessing the implications of the amended Code for our corporate governance structure.

ASML reports on its compliance with the Code in its 2016 Statutory Annual Report.

Committees of ASML’s Supervisory Board

While retaining overall responsibility, the SB assigns certain of its tasks to its four Committees: the AC, the RC, the Selection and Nomination Committee and the Technology and Strategy Committee. Members of these Committees are appointed from among the SB members.

The Chairman of each Committee reports to the SB the issues and items discussed in each meeting. In addition, the minutes of each Committee are available to all members of the SB, enabling the SB to make the appropriate decisions.

Audit Committee

The current members of our AC are Ms. Smits-Nusteling (Chairperson), Ms. Van der Meer Mohr, and Mr. Schwalb, each of whom is an independent, non-executive member of our SB in accordance with the NASDAQ Listing Rules and SEC regulations. The SB has determined that each of Ms. Smits-Nusteling and Mr. Schwalb qualify as AC financial expert pursuant to Section 407 of the Sarbanes-Oxley Act and the rules promulgated thereunder. Our external auditor, CEO, CFO, Corporate Controller, Corporate Chief Accountant, Vice President Corporate Risk and Assurance, as well as other ASML employees invited by the Chairperson of the AC may also attend the meetings of the AC. The Chairman of our SB, Mr. Kleisterlee, attends the AC meetings whenever possible.

The AC assists the SB 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 our disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)).

In 2016, the AC held nine scheduled meetings, either in person or via conference call.

Remuneration Committee

The current members of our RC are Mr. Schwalb (Chairman), Ms. Aris, Mr. Stork and Mr. Ziebart, each of whom is an independent, non-executive member of our SB in accordance with the NASDAQ Listing Rules. In 2016, the RC held seven scheduled meetings, either in person or via conference call.

For details on the RC,see Item 6 .B. "Compensation".

Selection and Nomination Committee

The current members of our Selection and Nomination Committee are Mr. Kleisterlee (Chairman), Mr. Grose and Ms. Van der Meer Mohr. Each of the members is an independent, non-executive member of our SB in accordance with the NASDAQ Listing Rules.

The Selection and Nomination Committee assists the SB in:


•	Preparing the selection criteria and appointment procedures for members of ASML’s SB and BoM;


•	Periodically evaluating the scope and composition of the BoM, the SB, and proposing the profile of the SB in relation thereto;


•	Periodically evaluating the functioning of the BoM and the SB and the individual members of those boards and reporting the results thereof to the SB; and


•	Proposing (re-)appointments of members of the BoM and the SB, and supervising the policy of the BoM in relation to the selection and appointment criteria for senior management.

The Selection and Nomination Committee furthermore discusses corporate governance developments that may affect ASML, for example those based on legislative proposals, but also the outcome of the Report of the Monitoring Committee with respect to compliance with the Code, as well as revisions to the Code.

In 2016, the Selection and Nomination Committee held three scheduled meetings, either in person or by conference call.

Technology and Strategy Committee

The current members of our Technology and Strategy Committee are Mr. Grose (Chairman), Ms. Aris, Mr. Kleisterlee, Mr. Stork, and Mr. Ziebart. 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, but are not entitled to vote in the meetings.

ASML ANNUAL REPORT 2016 38

The Technology and Strategy Committee assists the SB in relation to the following responsibilities and may prepare resolutions for the SB 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 SB with respect to matters related thereto.

In 2016, the Technology and Strategy Committee held six scheduled meetings, either in person or via conference call.

Disclosure Committee

ASML has a DC to ensure compliance with applicable disclosure requirements arising under US and Dutch law and applicable stock exchange rules, US GAAP, IFRS as adopted by the EU and the Sarbanes-Oxley Act. The DC is composed of various members of senior management in the departments corporate risk & assurance, investor relations, communications, corporate legal, treasury, finance & control and corporate strategy & marketing, and reports to the CEO and CFO. The DC informs the AC about the outcome of the DC meetings.

The DC gathers all relevant financial and non-financial information and assesses materiality, timeliness and necessity for disclosure of such information. In addition the DC advises the CEO and CFO on the effectiveness of the disclosure controls and procedures and, of the internal control over financial reporting, each as contemplated by the Sarbanes-Oxley Act.

During 2016, the DC reviewed, among other things, the quarterly and annual financial results announcements, announcements of strategic transactions, the Statutory Interim Report, the Annual Report on Form 20-F and the Statutory Annual Report. In addition, the DC also advised the CEO and CFO on the effectiveness of the disclosure controls and procedures, and of the internal control over financial reporting in accordance with disclosures and certifications required under the Sarbanes-Oxley Act.

D. Employees

The following table presents our total numbers of payroll employees and temporary employees as of December 31, 2016 , 2015 and 2014 (in FTEs). These employees work primarily in manufacturing & logistics and in R&D:



As of December 31	2014	2015	2016
Payroll Employees	11,318	12,168	13,991
Temporary Employees	2,754	2,513	2,656
Total in FTEs	14,072	14,681	16,647

During 2016 , the average number of payroll employees in FTEs was 12,852 , and the average number of temporary employees in FTEs employed was 2,565 . The increase s in payroll employees in FTEs in 2016 compared to 2015 and in 2015 compared to 2014 are in line with our net sales growth. Additionally the increase in payroll employees in FTEs in 2016 compared to 2015 includes an addition of approximately 700 HMI FTEs.

For a more detailed description of our payroll employee information, see Notes 17 and 21 to our Financial Statements.

Our future success also depends on our ability to attract, train, retain and motivate highly qualified, skilled and educated employees, who are in great demand. We are particularly reliant 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 – Risks related to ASML – 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 BoM of any Dutch company that runs an enterprise with a Works Council must seek the non-binding advice of the Works Council before taking certain decisions with respect to ASML, such as those related to a major restructuring or a change of control. In case the Works Council renders a contrary advice on a particular decision and the BoM nonetheless wishes to proceed, the BoM 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 respective decision can only be taken with the approval of the Dutch District Court.

E. Share Ownership

For information with respect to the grant of shares and stock options to our employees see Note 17 to our Financial Statements, Item 6 .B. "Compensation" and Item 7 .A. "Major Shareholders".

ASML ANNUAL REPORT 2016 39

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 that reported to the AFM or SEC a beneficial ownership of ordinary shares that is at least 3.0 percent (5.0 percent, in the case of the SEC) of our ordinary shares issued and outstanding , as well as the ordinary shares (including shares underlying options) owned by our members of the BoM (which includes those persons specified in Item 6 .A. "Directors, Senior Management and Employees"), as a group, as of December 31, 2016 . The information set out below with respect to shareholders other than the BoM is solely based on public filings with the SEC and AFM as of January 31, 2017.



Identity of Person or Group	Shares Owned	Percent of Class ⁶
Capital Group International, Inc ¹	67,265,695	15.65	%
Stichting Administratiekantoor MAKTSJAB/Intel ²	62,977,877	14.65	%
BlackRock Inc. ³	28,406,210	6.61	%
Members of ASML’s Board of Management (5 persons) ^4,5	210,291	0.05	%

As reported to the AFM on April 25, 2014, Capital Group International, Inc. and CRMC, which we believe to be an affiliate of Capital Group International, Inc., indirectly have 605,391,255 voting rights corresponding to 67,265,695 shares (based on nine votes per share) of our ordinary shares but do not have ownership rights related to those shares. Capital World Investors reported on a Schedule 13-G/A filed with the SEC on February 12, 2016, that it is the beneficial owner of 47,701,246 shares of our ordinary shares as a result of its affiliation with CRMC. In addition, the Growth Fund of America reported to the AFM on May 15, 2014 that it owns 3.22% of our outstanding shares. We believe that some or all of these shares are included within the shares reported to be owned by Capital Group International, Inc., as set forth above.


2.	Stichting Administratiekantoor MAKTSJAB owns the stated percentage of our ordinary shares and has issued corresponding depository receipts to Intel. Intel has reported that it has sold a portion of these shares that it initially acquired, but has not reported the number of shares sold.


3.	Based solely on the Schedule 13-G/A filed by BlackRock Inc. with the SEC on January 19, 2017; BlackRock reports voting power with respect to 25,484,553 of these shares. A public filing with the AFM on December 29, 2016 shows aggregate holdings of various BlackRock funds of 4.83 percent, based on total number of issued shares at the time, and 5.94 percent in voting rights.


4.	Does not include unvested shares granted to members of the BoM. Further information required by Item 7 .A. is incorporated by reference from our SB report as included in our 2016 Statutory Annual Report, see Item 6 .B. "Compensation".


5.	No shares are owned by members of the SB.

As a percentage of the total number of ordinary shares issued and outstanding ( 429,941,232 ) as of December 31, 2016 , which excludes 9,258,282 ordinary shares which have been issued but are held in treasury by ASML. Please note that share ownership percentages reported to the AFM are expressed as a percentage of the total number of ordinary shares issued (including treasury stock) and that accordingly, percentages reflected in this table may differ from percentages reported to the AFM.

The Intel Stichting acquired the shares indicated above as part of our CCIP in the second half of 2012 (as did the Stichtingen that acquired shares for the other Participating Customers in the CCIP). The Intel Stichting does not vote on the ordinary shares held by it, unless instructed to do so by Intel in accordance with its shareholder agreement with us. Intel is not entitled to vote on the ASML shares held by the Intel Stichting, except in certain exceptional circumstances: i) the authorization of certain significant share issuances and share repurchases, ii) any amendment to the Articles of Association that would materially affect the specific voting rights of Intel, iii) any significant change in the identity or nature of ASML or its business, iv) the dissolution of ASML, v) any merger or demerger which would result in a material change in the identity or nature of ASML or its business.

We do not issue share certificates. See Item 10 .B. "Memorandum and Articles of Association".

As of December 31, 2016 , 68,073,837 ordinary shares were held by 358 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 FMSA.

The disclosure obligations under the FMSA 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 EU, 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 3.0, 5.0, 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 FMSA 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.

ASML ANNUAL REPORT 2016 40

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), (v) held by a third party with whom such person has agreed to temporarily transfer voting rights against payment, (vi) financial instruments of which the increase in value is wholly or partially dependent on an increase in value of our shares or distributions in respect thereof (including certain cash settled financial instruments such as contracts for difference and total return swaps), (vii) put options pursuant to which a person can be required to purchase our shares, and (viii) other contracts under which a person has a position economically comparable to having our shares. 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 FMSA.

We may request Euroclear Nederland and its admitted institutions as well as intermediaries, institutions and custodians of investment funds (in the Netherlands and abroad) of which we reasonably expect that they hold our shares other than as beneficial owner, to provide certain details on the identity and number of shares held, of their clients for whom they hold our shares. We must keep the information received confidential. We may only make such requests during a period of 60 days prior to the day on which our General Meeting of Shareholders will be held. No details are required to be given in respect of shareholders with an interest of less than 0.5 percent of our issued share capital. A shareholder who, individually or together with other shareholders, holds an interest of at least 10 percent of the issued share capital may request us to establish the identity of our shareholders in this manner so that we can forward to them information provided by such shareholder in respect of an item on the agenda for the General Meeting. This request may only be made during a period of 60 days until (and not including) the 42nd day before the day on which the General Meeting of Shareholders will be held.

B. Related Party Transactions

Intel is the largest participant in the CCIP, with an aggregate funding commitment of EUR 829.0 million and having made an investment in 15 percent of our ordinary shares (after giving effect to the synthetic share buyback in November 2012).

Please see Note 27 to our Financial Statements for more information about the CCIP. See Note 28 to our Financial Statements for details on sales to Intel in 2016 and outstanding balances as of December 31, 2016 .

There have been no other material 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 Note 17 to our Financial Statements. Furthermore, ASML has not granted any personal loans, guarantees, or the like to members of the BoM or SB.

C. Interests of Experts & Counsel

Not applicable.

Item 8 Financial Information

A. Consolidated Statements and Other Financial Information

Consolidated Financial Statements

See Item 18 "Financial Statements".

Export Sales

See Note 20 to our Financial Statements.

Legal Proceedings

See Item 4 .B. "Business Overview – Intellectual Property" and Note 18 to our Financial Statements.

ASML ANNUAL REPORT 2016 41

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 BoM will, upon prior approval from the SB, 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 BoM’s views on our potential future liquidity requirements, including for investments in production capacity, the funding of our R&D 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 2016 , a proposal to declare a dividend of EUR 1.20 per ordinary share will be submitted to the 2017 AGM.

B. Significant Changes

No significant changes have occurred since the date of our Financial Statements. See Item 5 .D. "Trend Information" and Note 29 to the Financial Statements.

Item 9 The Offer and Listing

A. Offer and Listing Details

Our ordinary shares are listed for trading in the form of registered ASML NASDAQ shares and in the form of registered ASML Euronext Amsterdam shares. The principal trading market of our ordinary shares is Euronext Amsterdam. Our ordinary shares also trade on NASDAQ. For more information see Item 10 .B. "Memorandum and Articles of Association".

Our shares listed on NASDAQ are registered with J.P. Morgan, our New York Transfer Agent, pursuant to the terms of the Transfer Agent Agreement between ASML and J.P Morgan. Our shares listed on Euronext Amsterdam are held in dematerialized form through the facilities of Euroclear Nederland, the Dutch centralized securities custody and administration system. The New York Transfer Agent charges shareholders a fee of up to USD 5.00 per 100 shares for the exchange of our shares listed at NASDAQ for our shares listed at Euronext Amsterdam and vice versa.

Dividends payable on our shares listed at NASDAQ are declared in euro and converted to US dollars at the rate of exchange at the close of business on the date determined by the BoM. The resulting amounts are distributed through the New York Transfer Agent and no charge is payable by holders of our shares listed at NASDAQ 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. The New York Transfer Agent has waived its fees associated with routine services to ASML associated with our shares listed at NASDAQ. In addition, the New York Transfer Ag ent in consideration of its acting as Transfer Agent has agreed to make a contribution towards covering ce rtain expenses incurred by ASML in connection with the issuance and transfer of our shares listed on NASDAQ. In the year ended December 31, 2016 , the Transfer Agent contributed USD 0.6 million towards coverage of expenses incurred by ASML (which mainly comprised of audit, advisory, legal and listing fees incurred due to the existence of our share listing on NASDAQ).

ASML ANNUAL REPORT 2016 42

The following table sets forth, for the periods indicated, the high and low closing prices of our shares listed at NASDAQ and our shares listed at Euronext Amsterdam.



	ASML NASDAQ shares USD		ASML Euronext Amsterdam shares EUR
	High	Low	High	Low
Annual Information
2016	112.20	76.51	107.00	70.86
2015	113.80	83.08	103.80	73.64
2014	109.64	79.90	89.88	57.57
2013	100.96	63.08	74.30	47.20
2012	64.68	40.91	49.36	31.81
Quarterly Information
4th quarter 2016	112.20	99.20	107.00	90.64
3rd quarter 2016	110.83	94.61	99.35	84.66
2nd quarter 2016	101.39	91.30	89.78	79.91
1st quarter 2016	99.90	76.51	88.18	70.86

4th quarter 2015	96.33	85.97	88.96	74.47
3rd quarter 2015	106.68	83.08	98.26	73.64
2nd quarter 2015	113.80	94.50	103.80	88.22
1st quarter 2015	110.75	98.65	101.85	84.67
Monthly Information
January 2017	122.97	109.92	115.00	105.15
December 2016	112.20	99.78	107.00	93.79
November 2016	105.32	99.20	99.50	91.19
October 2016	108.96	100.39	97.93	90.64
September 2016	109.86	101.71	97.69	90.17
August 2016	110.83	105.45	99.35	93.13

B. Plan of Distribution

Not applicable.

C. Markets

See Item 9 .A. "Offer and Listing Details".

D. Selling Shareholders

Not applicable.

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

Our Articles of Association included as Exhibit 99.1 to our form 6-K filed furnished with the SEC on February 8, 2013 (the "Articles of Association").

Current Authorizations to Issue and Repurchase Ordinary Shares

Our BoM has the power to issue ordinary and preference shares if and insofar as the BoM has been authorized to do so by the General Meeting of Shareholders. The BoM requires the approval of the SB for such an issue. An authorization of the BoM to issue 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 or preference shares, upon the proposal of the BoM, which proposal must be authorized by the SB.

ASML ANNUAL REPORT 2016 43

At our 2016 AGM, our shareholders authorized the BoM to issue ordinary shares and/or rights thereto through October 29, 2017, up to an aggregate maximum of 5.0 percent of ASML’s issued share capital, at April 29, 2016, plus an additional 5.0 percent of ASML's issued share capital at April 29, 2016 that may be issued in connection with mergers, acquisitions and/or (strategic) alliances. At our 2017 AGM, our shareholders will be asked to extend this authority through October 26, 2018.

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, the BoM has the power subject to approval of the SB, to restrict or exclude the preemptive rights of holders of ordinary shares. At our 2016 AGM, our shareholders authorized the BoM through October 29, 2017, subject to approval of the SB, to restrict or exclude preemptive rights of holders of ordinary shares up to a maximum of 10 percent of our issued share capital at April 29, 2016 . At our 2017 AGM, our shareholders will be asked to extend this authority through October 26, 2018.

In addition, the articles of association provide for 9,000 ordinary shares B with a nominal value of EUR 0.01. Each ordinary share B entitles the holder thereof to cast one vote at the General Meeting of Shareholders. Holders of fractional shares had the opportunity, until July 31, 2013, to convert fractional shares into ordinary shares B to obtain voting rights with respect to those fractional shares. No ordinary shares B have been issued.

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 SB and the authorization of shareholders at our General Meeting of Shareholders, which authorization may not be for more than 18 months. The BoM is currently authorized, subject to SB approval, to repurchase as of April 29, 2016 through October 29, 2017, up to a maximum of two times 10.0 percent of ASML’s issued share capital as of April 29, 2016, at a price between the nominal value of the ordinary shares purchased and 110.0 percent of the market price of these securities on Euronext Amsterdam or NASDAQ. At our 2017 AGM, our shareholders will be asked to extend this authorization through October 26, 2018.

C. Material Contracts

Acquisition of Hermes Microvision, Inc.

On June 16, 2016, ASML and HMI entered into a share swap agreement pursuant to which ASML acquired HMI for a consideration of TWD 99.7 billion ( EUR 2.9 billion ). The acquisition was completed on November 22, 2016. See Note 2 to our Financial Statements.

Investment in Carl Zeiss SMT GmbH

On November 2, 2016, ASML, Zeiss, Carl Zeiss SMT Holding Management GmbH, Carl Zeiss SMT, and the Partnership entered into the CZ SMT Investment Agreement.

Under the CZ SMT Investment Agreement, we agreed to acquire a 24.9% limited partnership interest in the Partnership, which will be the sole owner of Carl Zeiss SMT, our sole supplier of critical optical components. The closing of the transaction is expected in the second quarter of 2017 and the purchase price for the interest is EUR 1.0 billion.

The CZ SMT Investment Agreement includes customary representations with respect to the Partnership and Carl Zeiss SMT. Completion of the acquisition of the limited partnership interest pursuant to the CZ SMT Investment Agreement is conditional on, among other things, merger control approvals. The CZ SMT Investment Agreement may be terminated by either party if closing has not occurred by October 31, 2017.

In accordance with the CZ SMT Investment Agreement, at closing, ASML, Zeiss, and Carl Zeiss SMT Holding Management GmbH will enter into the CZ SMT Partnership Agreement, establishing the Partnership. Under the CZ SMT Partnership Agreement, we have been granted minority protection and veto rights in the Partnership. The CZ SMT Partnership Agreement also includes transfer restrictions, including rights of first refusal and drag-along rights.

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-Dutch residents to hold or vote ordinary shares. Cash distributions, if any, payable in euros on our shares listed at Euronext Amsterdam 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 our shares listed at NASDAQ shall be declared in euros but paid in US dollars, converted at the rate of exchange at the close of business on the date fixed for that purpose by the BoM in accordance with the Articles of Association.

ASML ANNUAL REPORT 2016 44

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, and/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 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 Holder 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; and


•	Does not carry out and has not carried out any activities which generate taxable profit in the Netherlands or taxable income in the Netherlands to which the holding of our ordinary shares was connected.

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 representative in the Netherlands (Dutch enterprise) and the ordinary shares are attributable to this permanent establishment or permanent representative, 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 our ordinary shares are attributable and certain conditions are met; 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 put into place with valid commercial reasons that reflect economic reality; 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.

ASML ANNUAL REPORT 2016 45

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.

Under certain circumstances, a reduction of Dutch dividend withholding tax can be obtained:

An exemption at source is available if:


•	The participation exemption applies and the ordinary shares are attributable to a business carried out in the Netherlands;


•	An exemption at source is available for dividend distributions to certain qualifying EU/EEA resident corporate holders;


•	Certain tax exempt organizations (e.g. pension funds and excluding collective investment vehicles) resident in EU/EEA member states or in qualifying non-EU/EEA states may be eligible for a refund of Dutch witholding tax upon their request. Based on a proposed domestic law not yet entered into force, in those circumstances, an exemption at source may also become available upon request;

•

Upon request and under certain conditions, certain qualifying Non-Resident Individual and Corporate Holders of ordinary shares resident in EU/EEA member states or in a qualifying non-EU/EEA state may be eligible for a refund of Dutch dividend withholding tax insofar the withholding tax levied is higher than the personal and corporate income tax which would have been due if they were resident of the Netherlands.

Furthermore, 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 US, Canada, Switzerland, Japan, most EU member states, as well as many other countries. Under the treaty between the US and the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the "US Tax Treaty"), dividends paid by us to a Non-Resident Holder that is a resident of the US as defined in the US 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 US corporate shareholders owning directly at least 10.0 percent of our voting power, a reduction to 5.0 percent, provided that the Holder is the beneficial owner of the dividends received and 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 shareholder owning directly at least 80.0 percent of our voting power and meeting all other requirements. The US 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, in principle, remain subject to the statutory withholding rate of 15.0 percent and are required to file for a refund of such withholding, however such organizations may become eligible for the exemption at source when the proposed domestic law as described above has entered into force.

A Non-Resident Holder may not claim the benefits of the US Tax Treaty unless (i) he/she is a resident of the United States of America 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 US 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 US 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 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.

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/she 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.

ASML ANNUAL REPORT 2016 46

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.

United States Taxation

The following is a discussion of the material US 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 our outstanding voting shares, investors who hold ordinary shares as part of hedging or conversion transactions and investors whose functional currency is not the US dollar) may be subject to special rules. In addition, the discussion does not address any alternative minimum tax or any state, local, FIRPTA-related US federal income tax consequences, or non-US tax consequences.

This discussion is based on the US-Netherlands Income tax treaty, 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 IRS will not challenge one or more of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, a ruling from the IRS or an opinion of counsel with respect to the US 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 US federal, state, local or non-US tax laws to which they may be subject.

As used herein, the term ‘United States Holder’ means a beneficial owner of ordinary shares for US 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 US; or


•	A corporation or other entity treated as a corporation for US federal income tax purposes created or organized in or under the laws of the US or of any political subdivision thereof; or


•	An estate of which the income is subject to US federal income taxation regardless of its source; or


•	A trust whose administration is subject to the primary supervision of a court within the US and which has one or more US persons who have the authority to control all of its substantial decisions.

If an entity treated as a partnership for US federal income tax purposes owns ordinary shares, the US 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 US federal income tax consequences of holding and disposing of the ordinary shares.

Passive Foreign Investment Company Considerations

We believe we were not a PFIC for US federal income tax purposes in 2016 and that we will not be a PFIC in 2017 . 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 our actual PFIC status in any particular year until the close of the taxable year in question. We have not conducted a detailed study at this time to confirm our non-PFIC status. If we 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) we make out of our current or accumulated earnings and profits (as determined for US 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 US corporations in respect of dividends received from other US corporations. The amount of the dividend distribution includible in income of a United States Holder should be the US 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 US dollars. Distributions in excess of current and accumulated earnings and profits, as determined for US federal income tax purposes, will be treated as a non-taxable return of capital to the extent of the United States Holder’s US tax basis in the ordinary shares and thereafter as taxable capital gain. We presently do not maintain calculations of our earnings and profits under US federal income tax principles. If we do 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.

ASML ANNUAL REPORT 2016 47

Subject to limitations provided in the United States Internal Revenue Code, a United States Holder may generally deduct from its US federal taxable income, or credit against its US 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-US taxes paid or accrued in that year. In addition, Dutch dividend withholding taxes will likely not be creditable against the United States Holder’s US tax liability to the extent we are 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 we are required to pay to the Dutch Tax Administration but does not reduce the amount of tax we are required to withhold from dividends.

For US foreign tax credit purposes, dividends paid by us 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 US-source gain or loss. The rules governing the foreign tax credit are complex and we suggest 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 Relief Reconciliation Act of 2003, as amended by the Working Families Tax Relief Act of 2004, the American Jobs Creation Act of 2004, and the American Taxpayer Relief Act of 2012, reduces to 20.0 percent the maximum tax rate for certain dividends received by individuals, 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-US corporation (other than a PFIC) generally will be considered to be a qualified foreign corporation if: (i) the shares of the non-US corporation are readily tradable on an established securities market in the US or (ii) the non-US corporation is eligible for the benefits of a comprehensive income tax treaty with the US 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 us 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 US federal income tax purposes in an amount equal to the difference between the amount realized, if paid in US dollars, or the US 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 US dollar, as the case may be, and the United States Holder’s US tax basis (determined in US 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 US federal income tax purposes. Gain or loss from the sale or other disposition of ordinary shares generally will be treated as US source income or loss for US 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 US dollars will be treated as ordinary income or loss from sources within the US. Each United States Holder should consult his or her tax advisor with regard to the translation rules applicable when computing its adjusted US 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 US 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 amounts withheld under the backup withholding rules might be refunded (or credited against the beneficial owner’s US 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 US federal and other tax laws.

F. Dividends and Paying Agents

Not applicable.

ASML ANNUAL REPORT 2016 48

G. Statement by Experts

Not applicable.

H. Documents on Display

We are subject to certain reporting requirements of 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 SEC 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 SEC, 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 SEC under cover of a Form 6-K.

Documents we file with the SEC are publicly available at its public reference room at 100 F Street, N.E., Washington, DC 20549, United States. The SEC also maintains a website that contains reports and other information regarding registrants that are required to file electronically with the SEC. The address of this website is http://www.sec.gov. Please call the SEC at 1-800-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. Our overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potentially adverse effects on our financial condition and results from operations. 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 meet its obligations, we only enter into transactions with a limited number of major financial institutions that have good credit ratings. Also, we 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.

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 US dollars, Taiwanese dollars and Japanese yen and to a limited extent in other currencies. Therefore, we are exposed to foreign currency exchange risks.

Details of the forward foreign exchange contracts and hedging activities are included in Note 4 to our 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 interest-bearing 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.

Details of the interest rate swaps and hedging activities are included in Note 4 to our Financial Statements.

Financial Instruments

We use foreign exchange contracts to manage our foreign 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 derivative financial instruments:



As of December 31	2015			2016
(in thousands)	Notional amount EUR	Fair Value EUR		Notional amount EUR	Fair Value EUR

Forward foreign exchange contracts	898,227	(2,675	)	1,311,599	(63,517	)
Interest rate swaps	1,013,053	115,618		3,263,053	83,676

The valuation technique used to determine the fair value of forward foreign exchange contracts (used for hedging purposes) approximates the NPV 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.

ASML ANNUAL REPORT 2016 49

The valuation technique used to determine the fair value of interest rate swaps (used for hedging purposes) is the NPV 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 US dollar, the euro and Taiwanese 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 net income or equity, as shown.



	2015				2016
(in thousands)	Impact on net income EUR		Impact on equity EUR		Impact on net income EUR		Impact on equity EUR

US dollar	(4,778	)	22,834		(15,779	)	17,527
Japanese yen	189		(7,495	)	1,561		(399	)
Taiwanese dollar	(3,690	)	—		(6,959	)	(23,385	)
Other currencies	(2,473	)	—		(1,887	)	—
Total	(10,752	)	15,339		(23,064	)	(6,257	)

It is our policy to limit the effects of currency exchange rate fluctuations on our Consolidated Statements of Operations . The increased effect on net income in 2016 compared with 2015 reflects our higher net exposure at year end 2016 . The negative effect on net income as presented in the table above for 2016 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 US dollar and Japanese yen transactions are recognized in equity. The US dollar and Japanese yen effect on equity in 2016 compared with 2015 is the result of an decrease in outstanding purchase hedges and increase in outstanding sales hedges.

The effects of the fair value movements of net investment hedges, entered into for Taiwanese dollar are recognized in equity. This effect is offset by the translation adjustment on the net investment also recorded in equity. This offset is not included in the table above.

For a 10.0 percent weakening of the foreign currencies against the euro, there would be approximately an equal but opposite effect on net income and equity.

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 net income and equity. A positive amount indicates an increase in net income and equity.



	2015		2016
(in thousands)	Impact on net income EUR	Impact on equity EUR	Impact on net income EUR	Impact on equity EUR

Effect of a 1.0 percent point increase in interest rates	24,486	622	7,524	295

The positive effect on net income mainly relates to our cash and cash equivalents and short-term investments. The positive effect on equity, 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 approximately an equal but opposite effect on net income and equity.

See Notes 4 and 5 to our Financial Statements for more information on our Financial Risk Management including Credit Risk Management.

Item 12 Description of Securities Other Than Equity Securities

Not applicable.

ASML ANNUAL REPORT 2016 50

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, 2016 , ASML’s senior management conducted an evaluation, under the supervision and with the participation of ASML’s CEO and CFO, 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 CEO and CFO have concluded that, as of December 31, 2016 , 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 CEO and CFO, 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. Under the supervision and with the participation of ASML’s CEO and CFO, ASML’s management conducted an evaluation of the effectiveness of ASML’s internal control over financial reporting as of December 31, 2016 based upon the framework in "Internal Control – Integrated Framework" (2013) 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, 2016 at providing reasonable assurance regarding the reliability of financial reporting and the preparation of the Financial Statements for external purposes in conformity with US GAAP.

ASML management has excluded HMI and its subsidiaries from its assessment of internal control over financial reporting as of December 31, 2016, as it was acquired on November 22, 2016 . HMI and its subsidiaries are included in our consolidated financial statements as from the date of acquisition, and constituted 2.6% of consolidated total assets (excluding any purchase price allocation effect) and 0.4% of consolidated total net sales for the year ended December 31, 2016. Under guidelines established by the SEC, companies are allowed to exclude acquired companies from their assessment of internal control over financial reporting during the year such company was acquired.

KPMG Accountants N.V. , an independent registered public accounting firm, has audited the 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, 2016 , 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 SB has determined that effective April 22, 2015, Ms. Smits-Nusteling and Mr. Schwalb, both independent members of the SB, qualify as an Audit Committee Financial Expert. See also Item 6 .A. "Directors and Senior Management" and Item 6 .C. "Board Practices".

B. Code of Ethics

ASML fosters a culture of integrity where people comply with the law and with our Code of Conduct and Business Principles. We promote an open and honest culture that encourages people to speak up about irregularities and where senior management set the right example.

ASML ANNUAL REPORT 2016 51

Code of Conduct

Our Code of Conduct describes what ASML stands for and believes in:


•	We respect people and planet;


•	We operate with integrity;


•	We preserve our assets;


•	We manage professionally; and


•	We encourage to Speak Up.

The Code of Conduct and Business Principles can be found on the Governance section of ASML's website. Information on our Website is not incorporated into, and does not form a part of this Annual Report.

Business Principles

The Code of Conduct ha s been translated into a set of practical Business Principles for all employees which provide greater clarity about the standards we expect our employees to follow and the behavior they must adopt. The Business Principles help to drive ethical and balanced behavior, control our business exposures, and safeguard our reputation. Employees must consult the business principles for their day-to-day guidance. The Business Principles focus on five core areas mentioned above.

Code of Conduct Complaints

We encourage our employees to speak up and feel free to raise ethical issues without the fear of retaliation. ASML has a Speak Up policy in place for reporting issues relating to a (possible) breach of the Code of Conduct, including complaints of a financial nature (whistleblower’s policy). For those employees who feel more comfortable speaking up anonymously, there is an external Speak Up system available (phone and webmail). The Speak Up policy can be found on the Governance section of ASML’s website. Information on our Website is not incorporated into, and does not form a part of this Annual Report.

For more information about this topic see our 2016 Integrated Report as published on our Website. Information on ASML's website is not incorporated into, and does not form a part of, this Annual Report.

C. Principal Accountant Fees and Services

KPMG has served as our independent registered public accounting firm for the year ending December 31, 2016 . The following table sets out the aggregate fees for professional audit services and other services rendered by KPMG and their member firms and/or affiliates in 2016 :



Year ended December 31 (in thousands)	2016
Year ended December 31 (in thousands)	KPMG Accountants N.V. EUR	KPMG Network EUR	Total EUR

Audit fees	1,269	307	1,576
Audit-related fees	100	—	100
Tax fees	—	—	—
Other fees	—	—	—

Principal accountant fees	1,369	307	1,676

Audit fees and audit-related fees

Audit fees primarily relate to the audit of the Financial Statements as set out in this Annual Report, our Statutory Annual Report, limited procedures on our quarterly results, certain agreed-upon procedures on the targets achieved in order for the RC to assess compliance with the Remuneration Policy and services related to our statutory and regulatory filings of our subsidiaries. Audit-related fees relate to sustainability assurance services and other permissible non-audit services.

The AC has approved the external audit plan and audit fees for the year 2016 .

Deloitte has served independent registered public accounting firm for the year ending December 31, 2015. The following table sets out the aggregate fees for professional audit services and other services rendered by Deloitte and their member firms and/or affiliates in 2015 :



Year ended December 31	2015
(in thousands)	Deloitte Accountants B.V. EUR	Deloitte Network EUR	Total EUR

Audit fees in relation to annual reports	1,323	—	1,323
Other audit fees	68	359	427
Tax fees	157	2	159

Principal accountant fees	1,548	361	1,909

ASML ANNUAL REPORT 2016 52

Audit fees in relation to annual reports and other audit fees

Audit fees primarily relate to the audit of the Financial Statements as set out in this Annual Report, our Statutory Annual Report, limited procedures on our quarterly results, agreed upon procedures related to our Remuneration Report and services related to our statutory and regulatory filings and our subsidiaries.

Tax fees

The tax fees include tax compliance services and tax advisory services.

The AC monitors compliance with the Dutch and US rules on non-audit services provided by an independent registered public accounting firm, which outlines strict separation of audit and advisory services for 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 repayments, subject to our actual and anticipated level of liquidity requirements, our current share price, other market conditions and other relevant factors.

On January 20, 2016 we announced our intention to repurchase approximately EUR 1.5 billion of our own shares within the 2016-2017 timeframe. This program includes an amount of approximately EUR 500.0 million remaining from the prior share repurchase program, announced January 21, 2015. We intend to cancel the shares upon repurchase. During the period from January 21, 2016 up to December 31, 2016, we purchased 4.8 million shares that will be canceled for a total consideration of EUR 400.0 million . In the light of the acquisition of HMI and the announced investment in Carl Zeiss SMT, we have paused the share buyback program. As a result, the 2016–2017 program may not be completed for the full amount. Otherwise, the current program will remain in place, yet it may be further suspended, modified or discontinued at any time. Furthermore, no shares were canceled in 2016 , and we intend to cancel 7.7 million shares in 2017 .

The following tables provide a summary of shares repurchased by ASML in 2016 and a historic overview of previous share buyback programs, respectively:



Period	Total number of shares purchased	Average price paid per Share (EUR)	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 (EUR thousands)
January 21 - 31, 2016	268,537	82.08	268,537	1,477,957
February 1 - 29, 2016	1,306,921	78.12	1,575,458	1,375,859
March 1 - 31, 2016	1,045,133	86.51	2,620,591	1,285,449
April 1 - 30, 2016	1,138,127	87.95	3,758,718	1,185,356
May 1 - 31, 2016	278,182	82.15	4,036,900	1,162,504
June 1 - 30, 2016	560,410	85.57	4,597,310	1,114,552
July 1 - 31, 2016	166,068	87.63	4,763,378	1,100,000
August 1 - 31, 2016	—	—	4,763,378	1,100,000
September 1 - 30, 2016	—	—	4,763,378	1,100,000
October 1 - 31, 2016	—	—	4,763,378	1,100,000
November 1 - 30, 2016	—	—	4,763,378	1,100,000
December 1 - 31, 2016	—	—	4,763,378	1,100,000

Total	4,763,378	83.97

ASML ANNUAL REPORT 2016 53



Period	Year	Total amount paid (in EUR millions)	Total Number of Shares Purchased	Average Price Paid per Share (EUR)

Share Buybacks	2006	677.2	40,385,139	16.77
Synthetic Share Buyback	2007	1,011.9	55,093,409	18.37
Share Buybacks	2007	359.8	17,000,000	21.16
Share Buybacks	2008	87.6	5,000,000	17.52
Share Buybacks	2011	700.0	25,674,576	27.26
Synthetic Share Buyback	2012	3,728.3	93,411,216	39.91
Share Buybacks	2012	535.2	13,478,058	39.71
Share Buybacks	2013	300.0	4,614,179	65.02
Share Buybacks	2014	700.0	9,981,375	70.13
Share Buybacks	2015	564.9	6,272,776	90.05
Share Buybacks	2016	400.0	4,763,378	83.97

Total / Average ¹		5,336.6	182,262,890	29.28


1.	Totals and average are excluding the synthetic share buyback executed in 2012 as part of our CCIP.

F. Change in Registrant’s Certifying Accountant

At the AGM he ld on April 22, 2015, KPMG Accountants N.V. was appointed as the new external audit firm for ASML for the 2016 reporting year. The appointment of KPMG Accountants N.V. was the result of a tender and selection process completed in June 2014 and the recommendation of KPMG Accountants N.V. by the AC.

The change in auditors was made to comply with the Dutch Audit Profession Act, which, as it was enforced in 2015, required the replacement of any external audit firm that performed the statutory audits of ASML for a period of eight consecutive years (effective as of January 1, 2016, this period was extended to ten consecutive years).

During the two years prior to December 31, 2015, (1) Deloitte Accountants B.V. had not issued any reports on the financial statements of ASML or on the effectiveness of internal control over financial reporting that contained an adverse opinion or a disclaimer of opinion, nor were the auditors’ reports of Deloitte Accountants B.V. qualified or modified as to uncertainty, audit scope, or accounting principles, (2) there has not been any disagreement over any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to Deloitte Accountants B.V.’s satisfaction would have caused it to make reference to the subject matter of the disagreement in connection with its auditors’ reports, or any “reportable event” as described in Item 16F(a)(1)(v) of Form 20-F.

Furthermore, in the two years prior to December 31, 2015, we have not consulted with KPMG Accountants N.V. regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered with respect to the consolidated financial statements of ASML; or (ii) any matter that was the subject of a disagreement as that term is used in Item 16F(a)(1)(iv) of Form 20-F or a “reportable event” as described in Item 16F(a)(1)(v) of Form 20-F.

ASML ANNUAL REPORT 2016 54

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 is exempt from NASDAQ's requirements regarding the solicitation of proxies and the provision of proxy statements for General Meetings of Shareholders. ASML does furnish proxy statements and solicit proxies for the General Meeting of Shareholders. Dutch corporate law sets a mandatory (participation and voting) record date for Dutch listed companies at the twenty-eighth day prior to the date of the General Meeting of Shareholders. Shareholders registered at such record date are entitled to attend and exercise their rights as shareholders at the General Meeting of Shareholders, regardless of sale of shares after the record date.

•

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 our Annual Report to shareholders is not required under Dutch corporate law or Dutch securities laws, or by 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 Reports 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) no later than 42 days prior to convocation of the AGM. In addition, we post a copy of our Annual Reports on our Website prior to the AGM.

•

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 BoM, approves equity compensation arrangements for the BoM and approves the remuneration for the SB. The RC evaluates the achievements of individual members of the BoM with respect to the short and long-term quantitative performance, the full SB evaluates the quantitative performance criteria. Equity compensation arrangements for employees are adopted by the BoM within limits approved by the AGM.

H. Mine Safety Disclosure

Not applicable.

ASML ANNUAL REPORT 2016 55

Part III

Item 17 Financial Statements

Not applicable.

Item 18 Financial Statements

In response to this item, we incorporate herein by reference our Financial Statements set out on pages F-2 through F-51 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 SEC on February 8, 2013)
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) ¹
4.2		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) ¹
4.3		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, 2014) ¹
4.7		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) ¹
4.8		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 SEC on July 5, 2007 (file No. 333-144356))
4.9		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 SEC on October 13, 2009 (file No. 333-162439))
4.10		ASML Board of Management Umbrella Share Plan (Incorporated by reference to the Registrant's Registration Statement on Form S-8 filed with the SEC on April 14, 2015 (file No. 333-203390))
4.11		450mm NRE Funding Agreement between ASML Holding N.V. and Intel Corporation, dated July 9, 2012 (Incorporated by reference to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2012) ¹
4.12		EUV NRE Funding Agreement between ASML Holding N.V. and Intel Corporation, dated July 9, 2012 (Incorporated by reference to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2012) ¹
4.13		Shareholder Agreement between ASML Holding N.V., Intel Holdings B.V., Intel Corporation and Stichting Administratiekantoor MAKTSJAB dated September 12, 2012 (Incorporated by reference to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2012)
4.14		Share Swap Agreement between ASML Holding N.V. and Hermes Microvision, Inc., dated June 16, 2016 ²
4.15		Investment Agreement among ASML Holding N.V., Zeiss, Carl Zeiss SMT, Carl Zeiss SMT Holding GmbH & Co. KG and Carl Zeiss SMT Holding Management GmbH, dated November 2, 2016 ²
8.1		List of Main Subsidiaries ²
12.1		Certification of CEO and CFO Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 ²
13.1		Certification of CEO and CFO Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 ²
15.1		Consent of Independent Registered Public Accounting Firm ²
15.2		Consent of Independent Registered Public Accounting Firm ²
15.3		Letter dated February 7, 2017 from Deloitte Accountants B.V. ²
101.INS		XBRL Instance Document ²
101.SCH		XBRL Taxonomy Extension Schema Document ²
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document ²
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document ²
101.LAB		XBRL Taxonomy Extension Label Linkbase Document ²
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document ²


1.	Certain information omitted pursuant to a request for confidential treatment filed separately with the SEC.


2.	Filed at the SEC herewith.

ASML is party to five debt instruments under which the total amount of securities under each debt instrument does not exceed 10 percent of the total assets of ASML and its subsidiaries on a consolidated basis. Pursuant to paragraph 2(b) (i) of the instructions to the exhibits to Form 20-F, ASML agrees to furnish a copy of such instruments to the SEC upon request.

ASML ANNUAL REPORT 2016 56

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/ Peter T.F.M. Wennink

Peter T.F.M. Wennink

President, CEO and member of the Board of Management

Dated: February 7, 2017

/s/ Wolfgang U. Nickl

Wolfgang U. Nickl

Executive Vice President, CFO and member of the Board of Management

Dated: February 7, 2017

ASML ANNUAL REPORT 2016 57

ASML ANNUAL REPORT 2016 58

Financial Statements

Index to Financial Statements



F-2	Consolidated Statements of Operations
F-3	Consolidated Statements of Comprehensive Income
F-4	Consolidated Balance Sheets
F-5	Consolidated Statements of Shareholders’ Equity
F-7	Consolidated Statements of Cash Flows
F-9	Notes to the Consolidated Financial Statements
F-50	Report of Independent Registered Public Accounting Firm

ASML ANNUAL REPORT 2016 F-1

Consolidated Statements of Operations



	Year ended December 31	2014		2015		2016
Notes	(in thousands, except per share data)	EUR		EUR		EUR

20	Net system sales	4,242,790		4,237,183		4,571,118
	Net service and field option sales	1,613,487		2,050,192		2,223,634

20	Total net sales	5,856,277		6,287,375		6,794,752
	Cost of system sales	(2,335,512	)	(2,212,965	)	(2,389,160	)
	Cost of service and field option sales	(924,391	)	(1,178,666	)	(1,361,112	)

21	Total cost of sales	(3,259,903	)	(3,391,631	)	(3,750,272	)

	Gross profit	2,596,374		2,895,744		3,044,480
27	Other income	81,006		83,200		93,777
21, 22	Research and development costs	(1,074,035	)	(1,068,077	)	(1,105,763	)
21	Selling, general and administrative costs	(321,110	)	(345,732	)	(374,760	)

	Income from operations	1,282,235		1,565,135		1,657,734
23	Interest and other, net	(8,600	)	(16,515	)	33,644

	Income before income taxes	1,273,635		1,548,620		1,691,378
19	Provision for income taxes	(76,995	)	(161,446	)	(219,484	)

	Net income	1,196,640		1,387,174		1,471,894

1	Basic net income per ordinary share	2.74		3.22		3.46
1	Diluted net income per ordinary share ¹	2.72		3.21		3.44
	Number of ordinary shares used in computing per share amounts
1	Basic	437,142		430,639		425,598
1	Diluted ¹	439,693		432,644		427,684

ASML ANNUAL REPORT 2016 F-2

Consolidated Statements of Comprehensive Income



	Year ended December 31	2014	2015		2016
Notes	(in thousands)	EUR	EUR		EUR

	Net income	1,196,640	1,387,174		1,471,894

	Other comprehensive income:

	Foreign currency translation, net of taxes:
	Gain (loss) on foreign currency translation and effective portion of hedges on net investments	230,388	272,427		120,452
	Financial instruments, net of taxes:
4	Gain (loss) on derivative financial instruments	17,375	9,872		5,990
4	Transfers to net income	6,691	(21,995	)	2,410
	Other comprehensive income, net of taxes	254,454	260,304		128,852

	Total comprehensive income, net of taxes	1,451,094	1,647,478		1,600,746
	Attributable to equity holders	1,451,094	1,647,478		1,600,746

ASML ANNUAL REPORT 2016 F-3

Consolidated Balance Sheets



	As of December 31	2015		2016
Notes	(in thousands, except share and per share data)	EUR		EUR

	Assets
5	Cash and cash equivalents	2,458,717		2,906,868
5	Short-term investments	950,000		1,150,000
6	Accounts receivable, net	803,696		700,206
7	Finance receivables, net	280,523		447,384
19	Current tax assets	19,080		11,622
8	Inventories, net	2,573,730		2,780,878
19	Deferred tax assets ¹	133,131		—
9	Other assets	488,824		560,471
	Total current assets	7,707,701		8,557,429

7	Finance receivables, net	124,036		117,232
19	Deferred tax assets ¹	29,012		34,940
9	Other assets	450,882		612,305
10	Goodwill	2,624,552		4,873,894
11	Other intangible assets, net	738,170		1,322,924
12	Property, plant and equipment, net	1,620,678		1,687,237
	Total non-current assets	5,587,330		8,648,532

	Total assets	13,295,031		17,205,961

	Liabilities and shareholders’ equity
	Accounts payable	527,894		593,197
13	Accrued and other liabilities	2,566,593		2,236,012
19	Current tax liabilities	3,654		201,930
14	Current portion of long-term debt	4,211		247,672
	Provisions	2,441		1,785
19	Deferred tax liabilities ¹	2,379		—
	Total current liabilities	3,107,172		3,280,596

14	Long-term debt	1,125,474		3,071,793
19	Deferred and other tax liabilities ¹	256,740		396,837
	Provisions	2,445		20,524
13	Accrued and other liabilities	414,369		615,730
	Total non-current liabilities	1,799,028		4,104,884

	Total liabilities	4,906,200		7,385,480

16, 18	Commitments and contingencies	—		—

	Cumulative Preference Shares; EUR 0.09 nominal value;
	700,000,000 shares authorized at December 31, 2016 and 2015;
	none issued and outstanding per December 31, 2016 and 2015	—		—

	Ordinary Shares B; EUR 0.01 nominal value;
	9,000 shares authorized at December 31, 2016 and 2015
	none issued and outstanding per December 31, 2016 and 2015	—		—

	Ordinary shares; EUR 0.09 nominal value;
	699,999,000 shares authorized at December 31, 2016;
	429,941,232 issued and outstanding at December 31, 2016;
	699,999,000 shares authorized at December 31, 2015;
	427,986,682 issued and outstanding at December 31, 2015;
	Issued and outstanding shares	38,786		39,391
	Share premium	3,070,332		3,693,587
	Treasury shares at cost	(476,922	)	(796,173	)
	Retained earnings	5,284,315		6,282,504
	Accumulated other comprehensive income	472,320		601,172
25	Total shareholders’ equity	8,388,831		9,820,481

	Total liabilities and shareholders’ equity	13,295,031		17,205,961


1.	As of January 1, 2016, ASML early adopted the amendment to ASC 740 “Income taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”, which requires that deferred tax liabilities and assets are classified as non-current in the consolidated balance sheets. The comparative figures have not been adjusted to reflect this change in accounting policy.

ASML ANNUAL REPORT 2016 F-4

Consolidated Statements of Shareholders’ Equity



		Issued and Outstanding Shares
		Number ¹		Amount		Share Premium		Treasury Shares at Cost		Retained Earnings		Accumulated OCI ²		Total
Notes	(in thousands)			EUR		EUR		EUR		EUR		EUR		EUR

	Balance at January 1, 2014	440,852		40,092		2,912,862		(364,702	)	4,376,613		(42,438	)	6,922,427

Components of comprehensive income:
	Net income	—		—		—		—		1,196,640		—		1,196,640
	Foreign currency translation and effective portion of hedges on net investments	—		—		—		—		—		230,388		230,388
4	Gain on financial instruments, net of taxes	—		—		—		—		—		24,066		24,066
	Total comprehensive income	—		—		—		—		1,196,640		254,454		1,451,094

	CCIP:
27	Fair value differences ³	—		—		28,086		—		—		—		28,086

26	Purchase of treasury shares	(9,981	)	—		—		(700,000	)	—		—		(700,000	)
26	Cancellation of treasury shares	—		(852	)	—		610,698		(609,846	)	—		—
17, 21	Share-based payments	—		—		63,380		—		—		—		63,380
17	Issuance of shares	2,064		186		(6,250	)	64,561		(46,904	)	—		11,593
25	Dividend paid	—		—		—		—		(267,962	)	—		(267,962	)
17, 19	Tax benefit from share-based payments	—		—		3,972		—		—		—		3,972
	Balance at December 31, 2014	432,935		39,426		3,002,050		(389,443	)	4,648,541		212,016		7,512,590

Components of comprehensive income:
	Net income	—		—		—		—		1,387,174		—		1,387,174
	Foreign currency translation and effective portion of hedges on net investments	—		—		—		—		—		272,427		272,427
4	Loss on financial instruments, net of taxes	—		—		—		—		—		(12,123	)	(12,123	)
	Total comprehensive income	—		—		—		—		1,387,174		260,304		1,647,478

	CCIP:
27	Fair value differences ³	—		—		17,888		—		—		—		17,888

26	Purchase of treasury shares	(6,273	)	(297	)	—		(564,590	)	—		—		(564,887	)
26	Cancellation of treasury shares	—		(462	)	—		389,302		(388,840	)	—		—
17, 21	Share-based payments	—		—		59,070		—		—		—		59,070
17	Issuance of shares	1,325		119		(12,336	)	87,809		(60,250	)	—		15,342
25	Dividend paid	—		—		—		—		(302,310	)	—		(302,310	)
17, 19	Tax benefit from share-based payments	—		—		3,660		—		—		—		3,660
	Balance at December 31, 2015	427,987		38,786		3,070,332		(476,922	)	5,284,315		472,320		8,388,831

Components of comprehensive income:
	Net income	—		—		—		—		1,471,894		—		1,471,894
	Foreign currency translation and effective portion of hedges on net investments	—		—		—		—		—		120,452		120,452
4	Gain on financial instruments, net of taxes	—		—		—		—		—		8,400		8,400
	Total comprehensive income	—		—		—		—		1,471,894		128,852		1,600,746

	CCIP:
27	Fair value differences ³	—		—		27,927		—		—		—		27,927

26	Purchase of treasury shares	(4,763	)	—		—		(400,000	)	—		—		(400,000	)
26	Cancellation of treasury shares	—		—		—		—		—		—		—
17, 21	Share-based payments ⁴	—		—		49,162		—		—		—		49,162
17	Issuance of shares ⁵	6,717		605		545,284		80,749		(27,840	)	—		598,798
25	Dividend paid	—		—		—		—		(445,865	)	—		(445,865	)
17, 19	Tax benefit from share-based payments	—		—		882		—		—		—		882
	Balance at December 31, 2016	429,941		39,391		3,693,587		(796,173	)	6,282,504		601,172		9,820,481

ASML ANNUAL REPORT 2016 F-5

As of December 31, 2016 , the number of issued shares was 439,199,514 . This includes the number of issued and outstanding shares of 429,941,232 and the number of treasury shares of 9,258,282 . As of December 31, 2015 , the number of issued shares was 433,332,573 . This includes the number of issued and outstanding shares of 427,986,682 and the number of treasury shares of 5,345,891 . As of December 31, 2014 , the number of issued shares was 438,073,643 . This includes the number of issued and outstanding shares of 432,935,288 and the number of treasury shares of 5,138,355 .


2.	As of December 31, 2016 , accumulated OCI, net of taxes, consists of EUR 593.1 million relating to foreign currency translation gain ( 2015 : EUR 472.6 million gain ; 2014 : EUR 200.1 million gain ) and EUR 8.1 million relating to unrealized gains on financial instruments ( 2015 : EUR 0.3 million losses ; 2014 : EUR 11.9 million gains ).


3.	In 2016 , EUR 27.9 million ( 2015 : EUR 17.9 million ; 2014 : EUR 28.1 million ) is recognized to increase equity to the fair value of the shares issued to the Participating Customers in the CCIP. The portion of the NRE funding allocable to the shares is recognized over the NRE Funding Agreements period (2013-2017).


4.	Share-based payments include an amount of EUR 1.5 million in relation to the fair value compensation of unvested equity awards exchanged as part of the acquisition of HMI.


5.	Issuance of shares includes 5,866,001 ordinary shares issued in relation to the acquisition of HMI for a total fair value of EUR 580.6 million .

ASML ANNUAL REPORT 2016 F-6

Consolidated Statements of Cash Flows



	Year ended December 31	2014		2015		2016
Notes	(in thousands)	EUR		EUR		EUR

	Cash Flows from Operating Activities
	Net income	1,196,640		1,387,174		1,471,894
Adjustments to reconcile net income to net cash flows from operating activities:
9, 11, 12, 14	Depreciation and amortization ¹	254,644		296,884		356,928
10, 11, 12	Impairment	10,528		2,287		3,466
12	Loss on disposal of property, plant and equipment ²	3,502		1,630		5,233
17, 21	Share-based payments	63,380		59,070		47,701
6	Allowance for doubtful receivables	133		3,870		3,161
8	Allowance for obsolete inventory	162,821		211,801		73,035
19	Deferred income taxes	(59,050	)	45,349		(580	)
	Changes in assets and liabilities:
6	Accounts receivable	(164,850	)	243,097		187,427
7	Finance receivables	51,132		(145,278	)	(156,140	)
8	Inventories ² ^, ³	(293,404	)	(87,777	)	(43,662	)
9	Other assets	(112,424	)	(146,272	)	(152,905	)
13	Accrued and other liabilities	36,524		235,446		(273,930	)
	Accounts payable	(136,192	)	(77,090	)	50,917
19	Current income taxes	11,822		(4,611	)	93,361
	Net cash provided by operating activities	1,025,206		2,025,580		1,665,906

	Cash Flows from Investing Activities
12	Purchase of property, plant and equipment ³	(358,280	)	(371,770	)	(316,338	)
11	Purchase of intangible assets	(2,952	)	(1,108	)	(8,384	)
5	Purchase of short-term investments	(504,756	)	(950,000	)	(2,520,000	)
5	Maturity of short-term investments	849,776		334,864		2,320,000
	Cash from (used for) derivative financial instruments	—		(171,899	)	(15,034	)
	Loans issued and other investments	—		—		(7,427	)
2	Acquisition of subsidiaries (net of cash acquired)	—		—		(2,641,295	)
	Net cash used in investing activities	(16,212	)	(1,159,913	)	(3,188,478	)

	Cash Flows from Financing Activities
25	Dividend paid	(267,962	)	(302,310	)	(445,865	)
25, 26	Purchase of treasury shares	(700,000	)	(564,887	)	(400,000	)
2	Net proceeds from issuance of shares	39,679		33,230		582,742		⁴
14	Net proceeds from issuance of notes	—		—		2,230,619		⁵
14	Repayment of debt	(4,128	)	(3,639	)	(4,739	)
17, 19	Tax benefit (deficit) from share-based payments	3,972		3,660		882
	Net cash from (used in) financing activities	(928,439	)	(833,946	)	1,963,639

	Net cash flows	80,555		31,721		441,067
	Effect of changes in exchange rates on cash	8,238		7,509		7,084
	Net increase in cash and cash equivalents	88,793		39,230		448,151
5	Cash and cash equivalents at beginning of the year	2,330,694		2,419,487		2,458,717
5	Cash and cash equivalents at end of the year	2,419,487		2,458,717		2,906,868
	Supplemental Disclosures of Cash Flow Information:
	Interest and other paid	(42,439	)	(43,710	)	(55,688	)
	Income taxes paid	(124,325	)	(126,908	)	(115,856	)

ASML ANNUAL REPORT 2016 F-7

In 2016 , depreciation and amortization includes EUR 290.8 million of depreciation of property, plant and equipment ( 2015 : EUR 243.0 million , 2014 : EUR 209.5 million ), EUR 63.5 million of amortization of intangible assets ( 2015 : EUR 51.2 million , 2014 : EUR 43.9 million ) and EUR 2.6 million of amortization of underwriting commissions and discount related to the bonds and credit facility ( 2015 : EUR 2.7 million , 2014 : EUR 1.2 million ).


2.	In 2016 , an amount of EUR 22.8 million ( 2015 : EUR 72.7 million , 2014 : EUR 30.7 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 12 .


3.	In 2016 , an amount of EUR 21.6 million ( 2015 : EUR 91.0 million , 2014 : EUR 95.5 million ) of the additions in property, plant and equipment relates to non-cash transfers from 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 12 .


4.	Net proceeds from issuance of shares includes an amount of EUR 536.6 million which is included in the consideration transfered for the acquisition of HMI. For further details see Note 2 .


5.	Net proceeds from issuance of notes relate to the total cash proceeds of EUR 2,230.6 million (net of incurred transaction costs) from the issuance of our EUR 500 million 0.625 percent senior notes due 2022 , our EUR 1,000 million 1.375 percent senior notes due 2026 and our EUR 750 million 1.625 percent senior notes due 2027.

ASML ANNUAL REPORT 2016 F-8

Notes to the Consolidated Financial Statements

1 . General Information / Summary of Significant Accounting Policies

ASML, with its corporate headquarters in Veldhoven, the Netherlands, is engaged in the development, production, marketing, selling and servicing of advanced semiconductor equipment systems, exclusively consisting of lithography systems. ASML’s principal operations are in the Netherlands, the US and Asia.

Our shares are listed for trading in the form of registered shares on NASDAQ and on Euronext Amsterdam. The principal trading market of our ordinary shares is Euronext Amsterdam.

Basis of Preparation

The accompanying Consolidated Financial Statements are stated in thousands of EUR unless indicated otherwise.

The accompanying Consolidated Financial Statements have been prepared in conformity with US GAAP . We have reclassified certain prior period amounts to conform to current period presentation.

Use of Estimates

The preparation of our Consolidated Financial Statements in conformity with US 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 net sales and costs during the reported periods. Actual results could differ from those estimates. We evaluate our estimates continuously 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 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 Financial Statements. Our most critical accounting estimates include:


•	Revenue Recognition;


•	Business Combinations;


•	Inventories;


•	Income Taxes;


•	Contingencies and Litigation; and


•	Evaluation of Long-lived Assets for Impairment.

Principles of Consolidation

The Consolidated Financial Statements include the Financial Statements of ASML Holding N.V. and all of its subsidiaries and the VIE of which ASML is the primary beneficiary. All intercompany profits, balances and transactions have been eliminated in the consolidation.

Subsidiaries

Subsidiaries are all entities over which ASML has the control to govern financial and operating policies generally accompanying a shareholding of more than 50 percent of the outstanding voting rights. As from the date that these criteria are met, the financial data of the relevant subsidiaries are included in the consolidation.

Business Combinations

Acquisitions of subsidiaries are included on the basis of the acquisition method. The cost of acquisition is measured based on the consideration transferred at fair value, the fair value of identifiable assets distributed and the fair value of liabilities incurred or assumed at the acquisition date (i.e., the date which we obtain control). The excess of the costs of an acquired subsidiary over the net of the amounts assigned to identifiable 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 VIE and, thus whether we are the VIE’s primary beneficiary. We consolidate a VIE when we have a variable interest that provides us with a controlling financial interest. We are deemed to have a controlling financial interest in a VIE if both of the following characteristics are met: 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.

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 on the respective balance sheet dates. Income and costs are translated into euros based on the average exchange rate for the corresponding period. The resulting translation adjustments are recorded directly in shareholders’ equity.

ASML ANNUAL REPORT 2016 F-9

Derivative Financial Instruments

We use derivative financial instruments for the management of foreign currency risks and interest rate risks. We measure all derivative financial instruments based on fair values derived from market prices of the instruments. We 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. 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, that is 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 Statements 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 and other, net.

Cash Flow Hedge

Changes in the fair value of a derivative that is designated and qualified as a cash flow hedge are recorded in OCI , 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 OCI 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 net 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 and other, net.

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 . The gain or loss relating to the ineffective portion is recognized in the Consolidated Statements of Operations as interest and other, net. 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.

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 3 months or less at the date of acquisition.

ASML ANNUAL REPORT 2016 F-10

Short-term Investments

Investments with remaining maturities longer than 3 months and less than 1 year at the date of acquisition are presented as short-term investments. Gains and losses other than impairments, interest income and foreign exchange results, are recognized in OCI until the short-term investments are derecognized. Upon derecognition, the cumulative gain or loss recognized in OCI, is recognized in the Consolidated Statements of Operations.

Accounts Receivable

Accounts receivable are measured at fair value and are subsequently measured at amortized cost using the effective interest rate method, less allowance for doubtful debts.

Inventories

Inventories are stated at the lower of cost (applying the 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, technical obsolescence 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 RUs for the purpose of impairment testing. The allocation is made to those RUs that are expected to benefit from the business combination in which the goodwill arose. Goodwill is tested for impairment annually at the start of the fourth quarter 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 brands, intellectual property, developed technology, customer relationships, and other intangible assets. Other intangible assets are stated at cost, less accumulated amortization and accumulated impairment losses (for the amount exceeding goodwill). 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 our finite-lived other intangible assets:




Category	Estimated useful life

Brands	20 years
Intellectual property	3 - 10 years
Developed technology	6 - 15 years
Customer relationships	8 - 18 years
Other	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 our property, plant and equipment:




Category	Estimated useful life

Buildings and constructions	5 - 45 years
Machinery and equipment	2 - 5 years
Leasehold improvements	5 - 10 years
Furniture, fixtures and other equipment	3 - 5 years

Land is not depreciated.

ASML ANNUAL REPORT 2016 F-11

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 at the start of the fourth quarter 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 RU. This test is based on a two-step approach for each RU (being an operating segment or one level below an operating segment) in which goodwill has been recorded. To determine whether it is necessary to perform this two-step approach we may first assess qualitative factors. If we determine that it is more likely than not (a likelihood of more than 50 percent ) that the fair value of a RU is less than its carrying amount (including goodwill), the two-step impairment test is performed. In the first step, the recoverability of goodwill is tested by comparing the carrying amount of the RU including goodwill with the fair value of the RU. If the carrying amount of the RU is higher than the fair value of the RU, 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 RU in the same manner as goodwill is determined in a business combination. Any excess of the carrying amount over the implied fair value is recognized as an impairment loss.

Indefinite-lived other intangible assets are tested for impairment annually at the start of the fourth quarter and whenever events or changes in circumstances indicate that the carrying amount of the indefinite-lived other intangible assets may not be recoverable. To determine whether it is necessary to perform a quantitative test, we may first assess qualitative factors. If we determine that it is more likely than not (a likelihood of more than 50 percent ) that the fair value of the asset is less than its carrying amount, the quantitative test is performed. We have an unconditional option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. The quantitative impairment test for indefinite-lived other intangible assets consists of a comparison of the fair value of these assets with their carrying amounts. Any excess of the carrying amount over the fair value is recognized as an impairment loss.

Finite-lived 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. An impairment loss is recognized only if the carrying amount of finite-lived other intangible assets and property, plant and equipment is not recoverable and exceeds its fair value. The carrying amount is not recoverable if it exceeds the sum of the (un)discounted forecasted cash flows to result from the use and eventual disposition of such asset. An impairment loss is measured as the amount by which the carrying amount exceeds its fair value.

In determining the fair value of long-lived assets, we make estimates about future cash flows. These estimates are based on our strategic plan updated with the latest available projections of the semiconductor industry and our income 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 our WACC. It is possible that actual results may differ from our plans, estimates and assumptions. 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.

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. Prior to shipment, systems undergo a FAT in our cleanroom 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. A system is shipped, and revenue is recognized, only after all contractual specifications are met or discrepancies from agreed-upon specifications are waived and customer sign-off is received for acceptance. 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. When the remaining obligation is essential to the functionality of the delivered system, all revenue 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, we initially defer revenue recognition until acceptance of the new technology based system or field option and completion of installation at the customer’s 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 16 years , has occurred on only two occasions: 2000 (TWINSCAN) and 2010 (EUV).

ASML ANNUAL REPORT 2016 F-12

We have no significant repurchase commitments in our general sales terms and conditions. From time to time we repurchase systems that we have manufactured and sold and, following refurbishment, we resell those systems to other customers. This repurchase decision is mainly driven by market demand expressed by other customers and less frequently 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, 2016 and 2015 , 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 free or discounted products or services (award credits) to our customers as part of a volume purchase agreement. In some instances these volume discounts can be used to purchase field options (system enhancements) and services. The related amount is recorded as a reduction in net sales at time of system shipment. The sales transaction that gives rise to these award credits is accounted for as a multiple element sales 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 and earned. 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).

Net sales are recognized excluding the taxes levied on sales (net basis).

For certain contracts and constructive obligations on which a loss is evident, we recognize the anticipated loss to the extent the costs of completing these contracts and constructive obligations exceed the amount of the contract price. When we satisfy these obligations, we utilize the related liability.

Multiple-Element Arrangements

The main portion of our net sales is derived from contractual arrangements with our customers that have multiple deliverables (elements), which mainly include the sale of our systems, installation and training services and extended and enhanced (optic) warranty contracts. The requirements for establishing separate units of accounting in a multiple element arrangement require that the allocation of arrangement consideration to each deliverable is based on the relative selling price of the deliverable.

Each element in the arrangement is accounted for as a separate unit of accounting provided the following criteria are met: i) the delivered products or services have value to the customer on a standalone basis; and ii) 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 sales 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 605-25 is as follows:


•	VSOE – The price at which we sell the element in a separate stand-alone transaction;


•	TPE – Evidence from us or other companies of the value of a largely interchangeable element in a transaction;


•	BESP – Our best estimate of the selling price of an element in the transaction.

To determine the selling price in multiple element arrangements, we establish VSOE of the selling price for installation, training services and extended and enhanced (optic) warranty contracts. VSOE for installation is determined based on the costs we have to incur for the installation increased by the average margin that we realize on billable labor and materials consumed in comparable services (such as relocating a system to another customer site). VSOE for extended and enhanced (optic) warranty contracts is determined on the basis of equivalent products we sell on a standalone basis, such as full service contracts and billable lens swaps, and which are subject to normal price negotiations. Revenue from installation and training services is recognized when the services are completed. Revenue from 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 best 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.

For our NXE:3300B and NXE:3350B systems, we are unable to determine VSOE for installation, extended and enhanced (optic) warranty contracts. We determined for NXE:3300B and NXE:3350B systems that BESP is the appropriate reference in the fair value hierarchy for installation, extended and enhanced (optic) warranty contracts. We review selling prices periodically and maintain internal controls over the establishment and updates of these elements.

ASML ANNUAL REPORT 2016 F-13

Lease Arrangements

A lease is classified as a sales-type lease if any of the following lease classification criteria is 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; or

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 lessee at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor.

Revenue is recognized at commencement of the lease term of a sales-type lease if the collectability of the minimum lease payments is reasonably predictable an there are no uncertainties surrounding unreimbursable costs. 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 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 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 .

The extended and enhanced (optic) warranty on our systems is accounted for as a separate element of multiple element revenue recognition transactions.

Customer Co-Investment Program

In connection with the CCIP, we entered into investment agreements, shareholders agreements, NRE Funding Agreements and a commercial agreement with Participating Customers.

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 605-25 Multiple-Element Arrangements guidance, the following two separate elements are identified: (1) the share issuance (governed by the investment agreements and the shareholder agreements) and (2) the NRE funding and commercial discounts and credits (governed by the NRE Funding Agreements and the commercial agreement with Intel).

The shares issued to the Participating Customers are recorded at fair value based on quoted share prices ( EUR 3,977.4 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 ( EUR 39.91 ) was recorded as a deduction from shareholders’ equity upon issuance of the shares ( EUR 123.4 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 ( 2013-2017 ). 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 CCIP. Based on the commercial discounts and credits (governed by the commercial agreement with Intel) and the significant related party relationship, all NRE funding from Intel will be deferred and recognized in the Consolidated Statement of Operations only when the commercial discounts and credits are earned.

In addition, see Other Income for further explanation on the accounting policies with respect to CCIP.

Accounting for Shipping and Handling Fees and Costs

ASML bills the customer for, and recognizes as net sales, any charges for shipping and handling costs. The related costs are recognized as cost of sales.

Cost of Sales

Cost of system sales and field option sales comprise direct product costs such as materials, labor, cost of warranty, depreciation, amortization, shipping and handling costs and related overhead costs.

Costs of service sales comprise direct service costs such as materials, labor, depreciation and overhead costs.

ASML ANNUAL REPORT 2016 F-14

Other Income

The portion of the NRE funding from TSMC and Samsung not allocable to the shares issued to those Participating Customers under the CCIP is recognized in other income when the R&D costs relating to lithography projects are recognized over the NRE funding period ( 2013-2017 ).

R&D Costs and Credits

Costs relating to R&D are charged to operating expenses as incurred. ASML receives subsidies and other grants from several Dutch and international (inter-)governmental institutes (‘government grants’). These government grants that cover R&D costs relating to approved projects are recorded as R&D credits in the R&D costs in the Consolidated Statements of Operations.

Government grants are not recognized until there is reasonable assurance that ASML will comply with the conditions and that the grants will be received.

Government grants that are received as compensation for expenses or losses already incurred, or for the purpose of giving immediate financial support to ASML with no future related costs are recognized in the Consolidated Statements of Operations in the period in which they become receivable.

Borrowing Costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time that the assets are substantially ready for their intended use or sale.

Share-based Payments

Compensation expenses in relation to share-based payments 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 high credit ratings and with a life equal to the expected life of the equity-settled share-based payments. The grant-date fair value of shares is determined based on the closing price of our shares listed at Euronext Amsterdam on the grant-date.

The grant-date fair value of the equity-settled share-based payments is, based on the terms and conditions, expensed 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.

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 for the differences. Tax expense includes current taxes on profit as well as actual or potential withholding taxes on current and expected income from group companies.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which 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.

We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon settlement. While we believe we have appropriate support for the positions taken on our tax returns, we regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes, and adjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.

ASML ANNUAL REPORT 2016 F-15

Contingencies and Litigation

In connection with proceedings and claims, our management evaluates, based on the relevant facts and legal principles, the likelihood of an unfavorable outcome and whether the amount of the loss can 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.

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.

The basic and diluted net income per ordinary share has been calculated as follows:



Year ended December 31	2014	2015	2016
(in thousands, except per share data)	EUR	EUR	EUR

Net income	1,196,640	1,387,174	1,471,894

Weighted average number of shares outstanding	437,142	430,639	425,598
Basic net income per ordinary share	2.74	3.22	3.46

Weighted average number of shares outstanding	437,142	430,639	425,598
Plus shares applicable to
Options and conditional shares	2,551	2,005	2,086

Dilutive potential ordinary shares	2,551	2,005	2,086

Diluted weighted average number of shares	439,693	432,644	427,684
Diluted net income per ordinary share ¹	2.72	3.21	3.44

Comprehensive Income

Comprehensive income consists of net income and OCI.

OCI refers to gains and losses that are not included in net income (loss), but recorded directly in shareholders’ equity. For the years ended December 31, 2016 , 2015 and 2014 comprehensive income consists of net income, unrealized gains and losses on financial instruments, being derivative financial instruments designated for cash flow hedge accounting, net of taxes, and unrealized gains and losses on foreign currency translation and effective portion of hedges on net investments, net of taxes.

New US GAAP Accounting Pronouncements

For the below mentioned ASUs, issued in 2016 and up to the date of this report, the impact on our Financial Statements needs to be assessed:

In March 2014, FASB issued ASU No. 2014-9 "Revenue From Contracts With Customers". In August 2015, the FASB amended ASU No. 2014-9 to defer the effective date by one year to annual reporting periods beginning after December 15, 2017 (ASU 2015-14 "Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date" ). In March 2016, the FASB released ASU No. 2016-08 "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)" which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10 "Revenue from Contracts with Customers (Topic 606)" which clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard. In

ASML ANNUAL REPORT 2016 F-16

May 2016 ASU No. 2016-12 "Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients" was issued by the FASB which affects entities with transactions included within the scope of Topic 606. The scope of that Topic includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration.

The standard is a joint project of the FASB and the IASB, to clarify the principles for recognizing revenue and to develop a common revenue standard for US GAAP and IFRS that would:


•	Remove inconsistencies and weaknesses in previous revenue requirements;

• Provide a more robust framework for addressing revenue issues;

• Improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets;

• Provide more useful information to users of financial statements through improved disclosure requirements; and

• Simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer.

The new standard is effective for interim and annual periods beginning after December 15, 2017 and allows for either full retrospective adoption or modified retrospective adoption. We have selected full retrospective adoption and will therefore restate all years presented in our Consolidated Financial Statements upon adoption.

We are currently assessing the impact of adopting ASC 606 on our Consolidated Financial Statements, by assessing all contracts that have an impact on net system sales and net service and field option sales over 2016. As our assessment of all contracts is not yet finalized we cannot quantify or identify all:


•	The impact on our net system sales and net service and field option sales over 2016;


•	Deviations from our current revenue recognition accounting policies; and


•	The potential impact of other significant matters.

In February 2016, FASB issued ASU No. 2016-2 " Leases (Topic 842)". The o bjective of this topic is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements by lessees. The new Standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and supersede the leases requirements in Topic 840, Leases. Early application is permitted for all entities as of the beginning of an interim or annual reporting period. We are currently in the process of determining the impact of implementing this Standard on our Consolidated Financial Statements.

ASU No. 2016-13 "Financial Instruments - Credit Losses (Topic 326)" was issued by the FASB in June 2016 and will provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The Update is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently in the process of determining the impact of implementing this Standard on our Consolidated Financial Statements.

In October 2016, ASU No. 2016-16 "Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other Than Inventory" was issued by the FASB. The purpose of this Update is to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The Update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This change in accounting will be adjusted based on a modified retrospective basis with a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. The material impact of implementing this standard on our Consolidated Financial Statements mainly relates to a so-called bi-lateral advanced pricing agreement between the US and Dutch tax authorities on a inter group transfer of intellectual property rights.

2 . Business Combinations

On November 22, 2016 , we concluded the acquisition of HMI and obtained control through acquiring 100 percent of the issued share capital of HMI, for a total consideration of EUR 3.0 billion . There were no contingent consideration arrangements. The total consideration was allocated to other intangible assets of EUR 606.6 million , other net assets of EUR 259.2 million and goodwill of EUR 2,115.1 million .

Prior to the acquisition, HMI was the world’s leading provider of e-beam inspection tools and solutions for defect control and yield management in the advanced semiconductor manufacturing process for R&D and high volume production. HMI is headquartered in Hsinchu, Taiwan, where the business operations are primarily carried out, next to R&D and technical support. Other sites where HMI is located are in Tainan, Taiwan (R&D and manufacturing), Beijing, China (R&D and manufacturing), San Jose, US (R&D and technical support), Kyungki-do, South-Korea (sales and technical support) and Tokyo, Japan (sales and technical support).

With the acquisition of HMI, we will enter into two new markets, being wafer inspection as well as mask inspection for EUV lithography. In addition, we will expand our efforts in the process control market. The combination of ASML and HMI will allow us to further enhance our product offering at an accelerated pace. The metrology technologies are complementary (in short, HMI provides hardware and ASML’s computational lithography division ASML Brion provides software) and when combined, they will offer the chance to significantly improve process control, and hence yields, for customers. As such, the acquisition further enables us to provide Holistic Lithography and process control.

ASML ANNUAL REPORT 2016 F-17

The following table summarizes the major classes of consideration transferred, and the recognized amounts of the fair value of the identifiable assets distributed and the fair value of the liabilities incurred or assumed at the acquisition date. The amounts recorded for the acquisition as disclosed below are provisional. The measurement period remains open as we may further revise our preliminary purchase price allocation during the remainder of the measurement period when we obtain additional information, which might impact the fair value of assets and liabilities. Under ASC 805 , adjustments to provisional fair values and goodwill may be made in the period subsequent to the business combination. The period during which such an adjustment is permitted is limited to 12 months from the date of acquisition.




	November 22, 2016
(in thousands)	EUR ¹

Cash and cash equivalents	294,216
Accounts receivable, net	57,899
Current tax assets	146
Inventories, net	111,650
Deferred tax assets	2,000
Other assets, current and non-current	3,209
Other intangible assets, net	606,635
Property, plant and equipment, net	52,068

Assets acquired	1,127,823

Accounts payable	3,741
Current tax liabilities	1,713
Accrued and other liabilities, current and non-current	54,154
Deferred and other tax liabilities	202,390

Liabilities assumed	261,998

Total net identifiable assets	865,825

Consideration for the transaction on November 22, 2016 ²	2,935,511
Fair value of shares ³	43,983
Fair value of unvested equity awards to be exchanged	1,461
Total consideration transferred	2,980,955

Goodwill on acquisition	2,115,130


1.	Amounts were converted into euro at the rate of TWD/EUR 33.965 .


2.	The consideration for the transaction includes an amount of EUR 536.6 million which has been reinvested in ASML through ASML ordinary shares bought by HEC and certain HMI officers (certain HMI shareholders) leaving a net consideration paid in cash of EUR 2,398.9 million .

As part of the consideration transferred, certain HMI shareholders agreed to purchase 5,866,001 ASML ordinary shares for a price of TWD 3,106 ( EUR 91.48 ) per share. These shares were valued at EUR 98.98 being the opening price on Euronext at November 22, 2016 . The difference ( EUR 44.0 million ) between EUR 536.6 million and the fair value of the shares ( EUR 580.6 million ) at November 22, 2016 is included as purchase consideration.

The majority of the goodwill arising on the acquisition of HMI is attributable to buyer specific synergies, net sales and profits assigned to future multi-beam technology, net sales and profits assigned to next generation single-beam technology and HMI workforce. Synergies relate to the unique combination of HMI's inspection tools and our defect prediction/PFC software.

All goodwill has been allocated to the RU ASML. None of the goodwill recognized is expected to be deductible for income tax purposes.

In the period between the date of acquisition and December 31, 2016 HMI contributed EUR 25.7 million to net sales and a loss of EUR 5.4 million to net income (including a charge of EUR 13.7 million related to the purchase price allocation adjustments).

In 2016 , we incurred EUR 18.7 million transaction costs relating to the acquisition of HMI. These costs are included in SG&A.

The following unaudited pro forma summary presents estimated consolidated information of ASML as if the HMI acquisition has occurred on January 1, 2015 . These amounts have been calculated after applying our accounting policies and adjusting the results of HMI to reflect the charges and benefits assuming the fair value adjustments had been applied from January 1, 2015 with the consequential tax effects.

ASML ANNUAL REPORT 2016 F-18



	Unaudited		Unaudited
Pro Forma Year ended December 31	2015		2016
(in millions)	EUR		EUR

Total net sales	6,478		6,919
Net income	1,351	¹	1,504	²


1.	Pro forma net income was adjusted to include EUR 47 million of non-recurring costs related to the fair value adjustments to acquisition date inventory and includes EUR 29 million of acquisition related costs incurred in 2016.


2.	Pro forma net income was adjusted to exclude EUR 9 million of non-recurring costs related to the fair value adjustments to acquisition date inventory and excludes EUR 29 million of acquisition related costs incurred in 2016.

3 . 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 short-term investments consist of deposits with an original maturity beyond three months with financial institutions that have good credit ratings. The fair value of the deposits is determined with reference to quoted market prices in an active market 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 judgment.

The valuation technique used to determine the fair value of forward foreign exchange contracts (used for hedging purposes) approximates the NPV 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.

Our Eurobonds serve as hedged items in fair value hedge relationships in which we hedge the variability of changes in the fair value of our Eurobonds 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 amounts of the Eurobonds are adjusted for the effective portion of these fair value changes only. For the actual aggregate carrying amount and the fair value of our Eurobonds, see Note 14 .

ASML ANNUAL REPORT 2016 F-19

The following table presents our financial assets and financial liabilities that are measured at fair value on a recurring basis:



As of December 31, 2016	Level 1	Level 2	Level 3	Total
(in thousands)	EUR	EUR	EUR	EUR

Assets measured at fair value
Derivative financial instruments ¹	—	134,059	—	134,059
Money market funds ²	2,151,969	—	—	2,151,969
Short-term investments ³	—	1,150,000	—	1,150,000
Total	2,151,969	1,284,059	—	3,436,028

Liabilities measured at fair value
Derivative financial instruments ¹	—	113,900	—	113,900

Assets and Liabilities for which fair values are disclosed
Long-term debt ⁴	3,386,213	—	—	3,386,213


1.	Derivative financial instruments consist of forward foreign exchange contracts and interest rate swaps. See Note 4 .


2.	Money market funds are part of our cash and cash equivalents. See Note 5 .


3.	Short-term investments consist of deposits with an original maturity longer than three months. See note 5 .


4.	Long-term debt relates to Eurobonds. See Note 14 .



As of December 31, 2015	Level 1	Level 2	Level 3	Total
(in thousands)	EUR	EUR	EUR	EUR

Assets measured at fair value
Derivative financial instruments ¹	—	133,803	—	133,803
Money market funds ²	659,295	—	—	659,295
Short-term investments ³	—	950,000	—	950,000
Total	659,295	1,083,803	—	1,743,098

Liabilities measured at fair value
Derivative financial instruments ¹	—	20,860	—	20,860

Assets and Liabilities for which fair values are disclosed
Long-term debt ⁴	1,100,849	—	—	1,100,849


1.	Derivative financial instruments consist of forward foreign exchange contracts and interest rate swaps. See Note 4 .


2.	Money market funds are part of our cash and cash equivalents. See Note 5 .


3.	Short-term investments consist of deposits with an original maturity longer than three months. See note 5 .


4.	Long-term debt relates to Eurobonds. See Note 14 .

There were no transfers between levels during the years ended December 31, 2016 and December 31, 2015 .

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

In 2016 , we had no significant fair value measurements on a non-recurring basis. We did no t recognize any impairment charges for goodwill and other intangible assets during 2016 . See Notes 10 and 11 for more information. For fair value measurements in relation to the acquisition of HMI, we refer to Note 2 .

4 . Financial Risk Management

We are exposed to certain financial risks such as market risk (including foreign currency risk and interest rate risk), credit risk, liquidity risk and capital risk. Our 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 costs are mainly denominated in euros, to a certain extent in US dollars, Taiwanese 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 the use of foreign exchange contracts.

ASML ANNUAL REPORT 2016 F-20

As of December 31, 2016 , accumulated OCI includes EUR 10.4 million ( 2015 : gain EUR 2.0 million and 2014 : gain EUR 16.3 million ) (net of taxes: 2016 : EUR 9.3 million ; 2015 : EUR 1.8 million ; 2014 : EUR 14.5 million ) representing the total anticipated gain to be released to cost of sales, which will offset the EUR equivalent of foreign currency denominated forecasted purchase transactions. All amounts are expected to be released over the next 12 months . As of December 31, 2016 , accumulated OCI includes EUR 0.2 million ( 2015 and 2014 : no amount), representing the total anticipated gain to be released to sales. The effectiveness of all contracts for which we apply hedge accounting is monitored on a quarterly basis throughout the life of the hedges. During 2014 , 2015 and 2016 , no ineffective hedge relationships were recognized.

As of December 31, 2016 an amount of EUR 2.8 million gain ( 2015 : EUR 0.7 million loss) was recognized in accumulated OCI representing the effective portion of hedges on net investments.

Interest Rate Risk Management

As part of our hedging policy, we use interest rate swaps to hedge changes in fair value of our Eurobonds due to changes in market interest rates, thereby offsetting the variability of future interest receipts on part of our cash and cash equivalents. During 2016 , these hedges were highly effective in hedging the fair value exposure to interest rate movements. The changes in fair value of the Eurobonds were included in the Consolidated Statements of Operations in the same period 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 2016 , these hedges were highly effective in hedging the cash flow exposure to interest rate movements.

Financial Instruments



As of December 31	2015			2016
(in thousands)	Notional amount EUR	Fair Value EUR		Notional amount EUR	Fair Value EUR

Forward foreign exchange contracts	898,227	(2,675	)	1,311,599	(63,517	)
Interest rate swaps	1,013,053	115,618		3,263,053	83,676

The following table summarizes our derivative financial instruments per category:



As of December 31	2015		2016
(in thousands)	Assets EUR	Liabilities EUR	Assets EUR	Liabilities EUR

Interest rate swaps — cash flow hedges	—	2,716	—	1,703
Interest rate swaps — fair value hedges	118,334	—	120,025	34,646
Forward foreign exchange contracts — cash flow hedges	2,932	1,288	10,746	359
Forward foreign exchange contracts — net investment hedge	—	738	2,831	—
Forward foreign exchange contracts — no hedge accounting	12,537	16,118	457	77,192
Total	133,803	20,860	134,059	113,900

Less non-current portion:
Interest rate swaps — cash flow hedges	—	1,878	—	567
Interest rate swaps — fair value hedges	81,777	—	89,516	37,496
Total non-current portion	81,777	1,878	89,516	38,063

Total current portion	52,026	18,982	44,543	75,837

ASML ANNUAL REPORT 2016 F-21

The fair value part of a hedging derivative financial instrument 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 asset or liability. The current portion of derivative financial instruments is included in other current assets and current accrued and other liabilities in the Consolidated Balance Sheets. The non-current portion of derivative financial instruments is included in other non-current assets and non-current accrued and other liabilities in the Consolidated Balance Sheets.

For further information regarding our derivative financial instruments, see Note 3 .

Foreign Exchange Contracts

The notional principal amounts of the outstanding forward foreign exchange contracts in the main currencies US dollar, Japanese yen and Taiwanese dollar at December 31, 2016 are USD 965.0 million , JPY 1.5 billion and TWD 14.6 billion ( 2015 : USD 517.5 million , JPY 34.7 billion and TWD 4.3 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 OCI on forward foreign exchange contracts as of December 31, 2016 will be recognized in the Consolidated Statements of Operations in the period during which the hedged forecasted transactions affect the Consolidated Statements of Operations.

In 2016 , we recognized a net amount of EUR 2.4 million loss ( 2015 : EUR 22.0 million gain ; 2014 : EUR 6.7 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 a net amount of EUR 81.2 million loss in the Consolidated Statements of Operations resulting from derivative financial instruments measured at fair value through profit or loss ( 2015 : EUR 129.9 million loss ; 2014 : EUR 119.3 million loss ) , which is almost fully offset by the revaluation of the hedged monetary items.

Interest Rate Swaps

The notional principal amount of the outstanding interest rate swap contracts as of December 31, 2016 was EUR 3,263.1 million ( 2015 : EUR 1,013.1 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. We invest our cash and cash equivalents and short-term investments in short-term deposits with financial institutions that have good credit ratings and in money market funds that invest in highly-rated short-term debt securities of financial institutions and governments. To mitigate the risk that our counterparties in hedging transactions are unable to meet their obligations, we enter into transactions with a limited number of major financial institutions that have good credit ratings and closely monitor their creditworthiness. Concentration risk is mitigated by limiting the exposure to each of the individual counterparties.

Our customers consist of IC manufacturers located throughout the world. We perform ongoing credit evaluations of our customers’ financial condition. We mitigate credit risk through additional measures, including the use of down payments, letters of credit, and contractual ownership retention provisions. Retention of ownership enables us to recover the systems in the event a customer defaults on payment.

Capital Risk Management

We manage our capital availability risk by maintaining a conservative financial policy that focuses on liquidity and financial stability throughout industry cycles. This is pursued by maintaining a capital structure that supports a solid investment grade credit rating.

5 . Cash and Cash Equivalents and Short-term Investments

Cash and cash equivalents at December 31, 2016 include deposits with financial institutions that have good credit ratings of EUR 100.0 million ( 2015 : EUR 1,423.0 million ) , investments in money market funds that invest in debt securities of financial institutions that have good credit ratings and governments of EUR 2,152.0 million ( 2015 : EUR 659.3 million ) and interest-bearing bank accounts of EUR 654.9 million ( 2015 : EUR 376.4 million ). Our cash and cash equivalents are predominantly denominated in euros and partly in US dollars and Taiwanese dollars.

Cash and cash equivalents have insignificant interest rate risk and remaining maturities of three months or less at the date of acquisition. Except for an amount of EUR 5.4 million ( 2015 : EUR 5.3 million ), 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.

ASML ANNUAL REPORT 2016 F-22

Short-term investments consist of the following:



As of December 31, 2016
(in thousands)	Cost basis	Unrealized Gains	Unrealized Losses	Recorded Basis

Deposits	1,150,000	—	—	1,150,000
Total	1,150,000	—	—	1,150,000

As of December 31, 2015
(in thousands)	Cost basis	Unrealized Gains	Unrealized Losses	Recorded Basis

Deposits	950,000	—	—	950,000
Total	950,000	—	—	950,000

6 . Accounts Receivable

Accounts receivable consist of the following:



As of December 31	2015		2016
(in thousands)	EUR		EUR

Accounts receivable, gross	809,299		702,368
Allowance for doubtful receivables	(5,603	)	(2,162	)
Accounts receivable, net	803,696		700,206

The decrease in accounts receivable as of December 31, 2016 compared to December 31, 2015 was mainly caused by relatively high payments received from customers prior to year-end 2016.

The carrying amount of the accounts receivable approximates the fair value. We perform ongoing credit evaluations on our customers’ financial condition. We periodically review whether an allowance for credit losses is needed by considering factors such as historical payment experience, credit quality, aging of the accounts receivable 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	2015		2016
(in thousands)	EUR		EUR

Balance at beginning of year	(2,070	)	(5,603	)
Addition for the year ¹	(3,870	)	(3,161	)
Effect of changes in exchange rates	(131	)	(3	)
Utilization of the provision	468		6,605
Balance at end of year	(5,603	)	(2,162	)


1.	The addition for the year is recorded in cost of sales.

7 . Finance Receivables

Finance receivables consist of receivables in relation to sales-type leases and non-current accounts receivable. The following table lists the components of the finance receivables as of December 31, 2016 and 2015 :



As of December 31	2015		2016
(in thousands)	EUR		EUR
Finance receivables, gross	411,654		569,723
Unearned interest	(7,095	)	(5,107	)
Finance receivables, net	404,559		564,616
Current portion of finance receivables, gross	285,966		450,688
Current portion of unearned interest	(5,443	)	(3,304	)
Non-current portion of finance receivables, net	124,036		117,232

ASML ANNUAL REPORT 2016 F-23

The increase in finance receivables as of December 31, 2016 compared to December 31, 2015 was caused by an increased number and more high-end sales-type leases compared to prior year and an increase in non-current accounts receivable. At December 31, 2016 , finance receivables due for payment in each of the next 5 years and thereafter are as follows:



(in thousands)	EUR

2017	450,688
2018	111,582
2019	—
2020	7,453
2021	—
Thereafter	—
Finance receivables, gross	569,723

We perform ongoing credit evaluations on our customers’ financial condition. We periodically review whether an allowance for credit losses is needed by considering factors such as historical payment experience, credit quality, the aging of the finance receivables balances, and current economic conditions that may affect a customer’s ability to pay. In 2016 , 2015 and 2014 we did no t record any expected credit losses from finance receivables. As of December 31, 2016 , the finance receivables were neither past due nor impaired.

8 . Inventories

Inventories consist of the following:



As of December 31	2015		2016
(in thousands)	EUR		EUR

Raw materials	588,277		674,733
Work-in-process	1,370,934		1,415,452
Finished products	1,029,535		1,073,404

Inventories, gross	2,988,746		3,163,589
Allowance for obsolescence and/or lower market value	(415,016	)	(382,711	)
Inventories, net	2,573,730		2,780,878

The increase in inventory in 2016 compared to 2015 is mainly caused by the acquisition of HMI.

A summary of activity in the allowance for obsolescence and/or lower market value is as follows:



Year ended December 31	2015		2016
(in thousands)	EUR		EUR

Balance at beginning of year	(311,382	)	(415,016	)
Addition for the year	(211,801	)	(73,035	)
Effect of changes in exchange rates	(10,451	)	(5,300	)
Utilization of the provision	118,618		110,640
Balance at end of year	(415,016	)	(382,711	)

In 2016 , the addition for the year is recorded in cost of sales EUR 69.2 million and in R&D costs EUR 3.8 million ( 2015 : cost of sales EUR 206.7 million and R&D costs EUR 5.1 million , 2014 : cost of sales EUR 146.3 million and R&D costs EUR 16.5 million ). The 2016 addition for the year mainly relates to inventory items which became obsolete due to technological developments and design changes.

Utilization of the provision mainly relates to the scrapping of obsolete inventories.

ASML ANNUAL REPORT 2016 F-24

9 . Other Assets

Other current assets consist of the following:



As of December 31	2015	2016
(in thousands)	EUR	EUR

Advance payments to Carl Zeiss SMT	75,059	71,908
Prepaid expenses	186,709	192,024
Operations to be invoiced	79,803	101,292
Derivative financial instruments	52,026	44,543
VAT	61,332	61,565
Other assets	33,895	89,139
Other current assets	488,824	560,471

Carl Zeiss SMT is our single supplier of main optical systems (lenses, mirrors, illuminators, collectors and other critical optical components) and, from time to time, receives non-interest bearing advance payments from us that support Carl Zeiss SMT's work-in-process, thereby securing lens and optical module deliveries to us. Amounts owed under these advance payments are settled through future lens or EUV optical component deliveries.

Prepaid expenses mainly include prepaid income taxes on intercompany profit not realized by the ASML group of EUR 74.3 million as of December 31, 2016 ( 2015 : EUR 61.3 million ).

Derivative financial instruments consist of forward foreign exchange contracts and the current part of the aggregate fair value of interest rate swaps, which decreased in value as a result of reduced time-to-maturity, see Note 4 .

Other assets mainly increased as a result of an increase in the subsidies receivable from EUR 7.3 million as of December 31, 2015 to EUR 34.4 million as of December 31, 2016 .

Other non-current assets consist of the following:



As of December 31	2015	2016
(in thousands)	EUR	EUR

Advance payments to Carl Zeiss SMT	305,642	305,714
Derivative financial instruments	81,777	89,516
Compensation plan assets ¹	31,393	38,031
Prepaid expenses	6,876	151,397
Subordinated loan granted to lessor in respect of Veldhoven headquarters ²	5,445	5,445
Other assets	19,749	22,202
Other non-current assets	450,882	612,305


1.	For further details on compensation plan assets see Note 17 .


2.	For further details on the loan granted to lessor in respect of Veldhoven headquarters see Note 12 .

Derivative financial instruments consist of the non-current part of the fair value of interest rate swaps, which increased in value as a result of a decrease in market interest rates, see Note 4 .

Prepaid expenses mainly include prepaid income taxes on intercompany profit not realized by the ASML group of EUR 144.1 million as of December 31, 2016 ( 2015 : EUR 0.0 million ). The increase in prepaid income taxes in 2016 is mainly explained by a so-called bi-lateral advance pricing agreement between the US and Dutch tax authorities on an inter group transfer of intellectual property rights.

10 . Goodwill

Changes in goodwill are summarized as follows:




Year ended December 31	2015	2016
(in thousands)	EUR	EUR

Cost
Balance at beginning of year	2,357,536	2,624,552
Acquisition through business combinations	—	2,115,130
Effect of changes in exchange rates	267,016	134,212
Balance at end of year	2,624,552	4,873,894

ASML ANNUAL REPORT 2016 F-25

For more information with respect to business combinations, see Note 2 .

Goodwill is tested for impairment annually at the start of the fourth quarter and whenever events or changes in circumstances indicate that the carrying amount of the goodwill may not be recoverable.

Goodwill mainly results from the acquisitions of Cymer and HMI. Within ASML we have identified two RUs, which are RU ASML and RU CLS.

As of December 31, 2016 the goodwill allocated to RU ASML amounts to EUR 4,348.0 million ( 2015 : EUR 2,124.4 million ) and for RU CLS this amounts to EUR 525.9 million ( 2015 : EUR 500.2 million ).

For 2016 and 2015 , the fair value calculations of the RUs were performed by discounting the future cash flows generated from the continuing use of the RUs. Cash flows beyond the forecasted period of five years have been extrapolated using a 0 percent growth rate.

The pre-tax WACC used to determine the expected discounted future cash flows is 10.2 percent for RU ASML and 12.4 percent for RU CLS.

Based on the recoverability testing during the annual goodwill impairment test, we believe that the fair values of the RUs significantly exceed their carrying amounts, and therefore goodwill was no t impaired as of December 31, 2016 .

11 . Other Intangible Assets

As of December 31, 2016 other intangible assets consist of finite-lived other intangible assets. Brands, developed technology, customer relationships and other were mainly obtained from the acquisitions of HMI (2016), Cymer (2013) and Brion (2007).

Finite-lived other intangible assets consist of the following:




(in thousands)	Brands EUR	Intellectual property EUR		Developed technology EUR	Customer relationships EUR	Other EUR	Total EUR
Cost
Balance at January 1, 2015	14,175	61,860		505,676	182,703	2,231	766,645
Additions	—	1,108		—	—	—	1,108
Effect of changes in exchange rates	1,610	—		51,853	19,755	—	73,218
Balance at December 31, 2015	15,785	62,968		557,529	202,458	2,231	840,971
Acquisitions through business combinations	23,601	—		541,663	40,798	573	606,635
Additions	—	250		—	—	14,646	14,896
Transfer from indefinite-lived other intangible assets	—	—		139,426	—	—	139,426
Disposals	—	(1,866	)	—	—	—	(1,866	)
Effect of changes in exchange rates	809	—		26,063	9,929	4	36,805
Balance at December 31, 2016	40,195	61,352		1,264,681	253,185	17,454	1,636,867

Accumulated amortization
Balance at January 1, 2015	1,125	52,812		102,081	23,983	2,231	182,232
Amortization	774	3,145		36,465	10,790	—	51,174
Effect of changes in exchange rates	143	—		6,723	1,955	—	8,821
Balance at December 31, 2015	2,042	55,957		145,269	36,728	2,231	242,227
Amortization	978	3,124		46,709	11,164	1,539	63,514
Disposals	—	(1,226	)	—	—	—	(1,226	)
Effect of changes in exchange rates	153	—		7,184	2,090	1	9,428
Balance at December 31, 2016	3,173	57,855		199,162	49,982	3,771	313,943

Carrying amount
December 31, 2015	13,743	7,011		412,260	165,730	—	598,744
December 31, 2016	37,022	3,497		1,065,519	203,203	13,683	1,322,924

The weighted-average amortization period for the total finite-lived other intangible assets acquired, as a result of the acquisition of HMI, is 15.1 years .

ASML ANNUAL REPORT 2016 F-26

The weighted-average amortization period for the finite lived other intangible assets acquired, as a result of the acquisition of HMI, by major intangible asset class is as follows:



(in years)	Brands	Developed technology	Customer relationships

Weighted-average amortization period	20.0	15.0	15.0

Acquired finite-lived other intangible assets are amortized on a straight-line basis not taking into account any residual value.

For more information with respect to business combinations, see Note 2 .

As of September 1, 2016, we commenced amortization of our in-process R&D relating to the Cymer acquisition in 2013 and transferred the full amount to developed technology. We determined the amortization period to be 12 years .

During 2016 , we recorded amortization charges of EUR 63.5 million ( 2015 : EUR 51.2 million ; 2014 : EUR 43.9 million ) which were recorded in cost of sales for EUR 59.5 million ( 2015 : EUR 49.1 million ; 2014 : EUR 41.9 million ), in R&D costs for EUR 2.5 million ( 2015 : EUR 2.1 million and 2014 : EUR 2.0 million ) and in SG&A costs for EUR 1.5 million ( 2015 : EUR 0.0 million and 2014 : EUR 0.0 million ).

Indefinite-lived other intangible assets consist of the following:




(in thousands)	In-process R&D EUR

Carrying amount as of January 1, 2015	139,426
Additions	—
Carrying amount as of December 31, 2015	139,426
Additions	—
Transfer to finite-lived other intangible assets	(139,426	)
Carrying amount as of December 31, 2016	—

As of December 31, 2016 , there are no indefinite-lived other intangible assets ( 2015 : EUR 139.4 million , which were allocated to RU ASML).

During 2016 , 2015 and 2014 , we did no t record any impairment charges for other intangible assets.

As of December 31, 2016 , the estimated amortization expenses for other intangible assets, for the next five years and thereafter, are as follows:




(in thousands)	EUR
2017	108,015
2018	106,827
2019	106,343
2020	105,706
2021	104,752
Thereafter	791,281
Amortization expenses	1,322,924

ASML ANNUAL REPORT 2016 F-27

12 . Property, Plant and Equipment

Property, plant and equipment consist of the following:




(in thousands)	Land and buildings EUR		Machinery and equipment EUR		Leasehold improvements EUR		Furniture, fixtures and other equipment EUR		Total EUR
Cost
Balance at January 1, 2015	1,269,488		799,709		231,810		303,090		2,604,097
Additions	154,505		246,332		12,438		46,352		459,627
Disposals	(1,346	)	(117,250	)	(451	)	(3,920	)	(122,967	)
Effect of changes in exchange rates	27,438		35,153		1,748		2,962		67,301
Balance at December 31, 2015	1,450,085		963,944		245,545		348,484		3,008,058
Acquisitions through business combinations	23,851		26,041		1,263		913		52,068
Additions	75,283		203,801		6,745		30,356		316,185
Disposals	(3,226	)	(82,268	)	(906	)	(26,551	)	(112,951	)
Effect of changes in exchange rates	10,537		21,617		1,556		5,808		39,518
Balance at December 31, 2016	1,556,530		1,133,135		254,203		359,010		3,302,878

Accumulated depreciation and impairment
Balance at January 1, 2015	296,099		426,832		192,243		241,400		1,156,574
Depreciation	75,918		123,269		16,078		27,784		243,049
Impairment charges	—		2,287		—		—		2,287
Disposals	(115	)	(44,189	)	(439	)	(3,902	)	(48,645	)
Effect of changes in exchange rates	10,459		21,202		605		1,849		34,115
Balance at December 31, 2015	382,361		529,401		208,487		267,131		1,387,380
Depreciation	88,427		155,660		15,685		31,041		290,813
Impairment charges	1,712		655		169		930		3,466
Disposals	(2,482	)	(55,630	)	(307	)	(26,492	)	(84,911	)
Effect of changes in exchange rates	4,547		12,783		738		825		18,893
Balance at December 31, 2016	474,565		642,869		224,772		273,435		1,615,641

Carrying amount
December 31, 2015	1,067,724		434,543		37,058		81,353		1,620,678
December 31, 2016	1,081,965		490,266		29,431		85,575		1,687,237

Property, plant and equipment include amounts recorded as a result of the acquisition of HMI. For more information with respect to business combinations, see Note 2 .

As of December 31, 2016 , the carrying amount includes assets under construction for land and buildings of EUR 32.7 million ( 2015 : EUR 64.7 million ), machinery and equipment of EUR 30.0 million ( 2015 : EUR 47.3 million ), leasehold improvements of EUR 1.7 million ( 2015 : EUR 7.8 million ) and furniture, fixtures and other equipment of EUR 6.2 million ( 2015 : EUR 14.9 million ).

As of December 31, 2016 , the carrying amount of land amounts to EUR 96.3 million ( 2015 : EUR 88.0 million ).

As of December 31, 2016 , the carrying amount of machinery and equipment includes an amount of EUR 17.0 million with respect to evaluation and operating lease systems ( 2015 : EUR 23.5 million ).

The majority of the additions in 2016 in property, plant and equipment relates to operating leases to customers, prototypes, evaluation and training systems and the expansion and upgrades of facilities.

The majority of additions in 2016 in machinery and equipment relates to operating leases to customers, prototypes, evaluation and training systems which are similar to those that ASML sells in its ordinary course of business. These systems are capitalized under property, plant and equipment because these are held for own use, for operating lease and for evaluation purposes. These are recorded at cost and depreciated over their expected useful life taking into consideration their residual value. From the time that these assets are no longer held for own use but intended for sale in the ordinary course of business, they are reclassified from property, plant and equipment to inventory at their carrying value.

An amount of EUR 21.6 million ( 2015 : EUR 91.0 million ) of the additions in property, plant and equipment relates to non-cash transfers from inventory. 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.

ASML ANNUAL REPORT 2016 F-28

An amount of EUR 22.8 million ( 2015 : EUR 72.7 million ) of the disposal of property, plant and equipment 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). 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.

During 2016 , we recorded depreciation charges of EUR 290.8 million ( 2015 : EUR 243.0 million ; 2014 : EUR 209.5 million ) of which we recorded EUR 187.9 million ( 2015 : EUR 191.7 million ; 2014 : EUR 153.9 million ) in cost of sales, EUR 76.8 million ( 2015 : EUR 19.7 million ; 2014 : EUR 36.3 million ) in R&D costs and EUR 26.1 million ( 2015 : EUR 31.6 million ; 2014 : EUR 19.3 million ) in SG&A costs.

Variable Interest Entity

The carrying amount of land and buildings includes an amount of EUR 26.6 million ( 2015 : EUR 28.1 million ) relating to our headquarters in Veldhoven, the Netherlands, which is ultimately owned by Koppelenweg I B.V., a "VIE".

As of 2003 , we are leasing the Veldhoven headquarters for a period of 15 years from an entity ("lessor") that was incorporated by the VIE Shareholders. The lessor’s shareholders’ equity amounts to EUR 1.9 million and has not changed since 2003.

The VIE Shareholders each granted a loan of EUR 11.6 million and a fourth bank granted a loan of EUR 12.3 million ( EUR 47.1 million in total) to the parent of the lessor. ASML provided the parent of the lessor with a subordinated loan of EUR 5.4 million and has a purchase option that is exercisable either at the end of the lease in 2018 , at a price of EUR 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 EUR 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 an interest, and may absorb losses, and the equity holders have an 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.

13 . Accrued and Other Liabilities

Accrued and other liabilities consist of the following:




As of December 31	2015	2016
(in thousands)	EUR	EUR

Deferred revenue	1,737,391	1,703,049
Costs to be paid	224,597	197,549
Down payments from customers	606,804	363,237
Personnel related items	341,554	401,790
Derivative financial instruments	20,860	113,900
Standard warranty reserve	18,803	36,463
Other	30,953	35,754
Accrued and other liabilities	2,980,962	2,851,742
Less: non-current portion of accrued and other liabilities ^1,2	414,369	615,730
Current portion of accrued and other liabilities	2,566,593	2,236,012


1.	As of December 31, 2015 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 and deferred revenue with respect to services.


2.	As of December 31, 2016 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 and deferred revenue for pending services and EUV systems and upgrades.

The decrease in accrued and other liabilities mainly relates to a decrease in down payments from customers which is partly offset by an increase in derivative financial instruments.

ASML ANNUAL REPORT 2016 F-29

Deferred revenue as of December 31, 2016 mainly consists of deferred revenue for system shipments and credits regarding free or discounted products or services as part of volume purchase agreements amounting to EUR 1,349.8 million ( 2015 : EUR 1,402.6 million ) and extended and enhanced (optic) warranty contracts amounting to EUR 312.1 million ( 2015 : EUR 303.3 million ). Both include deferred revenue with respect to our EUV systems, NXE:3300B and NXE:3350B.

Costs to be paid as of December 31, 2016 include anticipated losses on constructive obligations to upgrade EUV sources in the field of EUR 88.8 million ( 2015 : EUR 92.7 million ). In addition, costs to be paid include accrued costs for unbilled services provided by suppliers including contracted labor, outsourced services and consultancy.

Down payments from customers relate to amounts received from customers for systems that will be shipped in future periods. The decrease compared to 2015 is mainly due to EUV-related down payments which were recognized in net system sales in 2016.

Personnel related items mainly consist of accrued profit sharing, accrued management bonuses, accrued vacation days, accrued pension premiums, accrued wage tax and accrued vacation allowance. The increase in accrued personnel related items as of December 31, 2016 compared to December 31, 2015 is mainly the result of the increase in our number of FTEs.

Derivative financial instruments consist of the fair value of foreign currency contracts and the aggregate fair value of interest rate swaps which includes accrued interest that increased in value as a result of newly entered hedges for the eurobonds issued July 2016 and November 2016 and the strengthening of the US dollar, see Note 4 .

Changes in standard warranty reserve for the years 2016 and 2015 are as follows:



Year ended December 31	2015		2016
(in thousands)	EUR		EUR

Balance at beginning of year	41,508		18,803
Acquisitions through business combinations	—		1,717
A dditions for the year	23,067		51,148
Utilization of the reserve	(37,006	)	(32,539	)
Release of the reserve	(11,837	)	(4,218	)
Effect of exchange rates	3,071		1,552
Balance at end of year	18,803		36,463

The increase in the standard warranty reserve is mainly explained by more high-end technology systems (including 4 EUV systems as of December 31, 2016, where there was 1 EUV system included as of December 31, 2015) in their standard warranty period. For more information with respect to business combinations, see Note 2 .

14 . Long-term Debt

Long-term debt consists of the following:




As of December 31	2015	2016
(in thousands)	EUR	EUR

EUR 600 million 5.75 percent senior notes due 2017, carrying amount	254,339	243,292
EUR 500 million 0.625 percent senior notes due 2022, carrying amount	—	489,497
EUR 750 million 3.375 percent senior notes due 2023, carrying amount	828,876	842,284
EUR 1,000 million 1.375 percent senior notes due 2026, carrying amount	—	956,326
EUR 750 million 1.625 percent senior notes due 2027, carrying amount	—	746,239
Loan headquarter building ¹	28,078	26,648
Other	18,392	15,179
Long-term debt	1,129,685	3,319,465
Less: current portion of long-term debt	4,211	247,672
Non-current portion of long-term debt	1,125,474	3,071,793


1.	This loan relates to our VIE, see Note 12 .

ASML ANNUAL REPORT 2016 F-30

Our obligations to make principal repayments under our Eurobonds and other borrowing arrangements excluding interest expense as of December 31, 2016 , for the next five years and thereafter, are as follows:




(in thousands)	EUR
2017	242,360
2018	27,997
2019	1,762
2020	1,762
2021	1,762
Thereafter	3,002,180
Long-term debt	3,277,823
Less: current portion of long-term debt	242,360
Non-current portion of long-term debt	3,035,463

Eurobonds

The following table summarizes the carrying amount of our outstanding Eurobonds, including the fair value of interest rate swaps used to hedge the change in the fair value of the Eurobonds:




As of December 31	2015	2016
(in thousands)	EUR	EUR
Amortized cost amount	979,620	3,212,524
Fair value interest rate swaps ¹	103,595	65,114
Carrying amount	1,083,215	3,277,638


1.	The fair value of the interest rate swaps excludes accrued interest.

In June 2007 , we completed an offering of our EUR 600 million 5.75 percent senior 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, 2017 . In September 2013, we repurchased a nominal amount of EUR 361.8 million of these notes in a tender offer for a cash amount of EUR 423.0 million including accrued interest.

In September 2013 , we completed an offering of our EUR 750 million 3.375 percent senior notes due 2023 , with interest payable annually on September 19. 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 September 19, 2023 .

In July 2016 , we completed an offering of our EUR 1,000 million 1.375 percent senior notes due 2026 , with interest payable annually on July 7. 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 July 7, 2026 .

The Eurobonds serve as hedged items in fair value hedge relationships in which we hedge the variability of changes in the fair value of our Eurobonds 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, other non-current assets, current accrued and other liabilities and non-current accrued and or liabilities) and the carrying amount of the Eurobonds is adjusted for these fair value changes only. Following the repurchase of part of our EUR 600 million 5.75 percent senior notes due 2017 , the corresponding part of the interest rate swaps was simultaneously terminated in 2013.

ASML ANNUAL REPORT 2016 F-31

The following table summarizes the estimated fair value of our Eurobonds:



As of December 31	2015	2016
(in thousands)	EUR	EUR
Principal amount	988,153	3,238,153
Carrying amount	1,083,215	3,277,638
Fair value ¹	1,100,849	3,386,213


1.	Source: Bloomberg Finance LP.

The fair value of our Eurobonds is estimated based on quoted market prices as of December 31, 2016 . Due to changes in market interest rates and credit spreads since the issue of our Eurobonds which carry a fixed coupon interest rate, the fair value deviates from the principal amount.

15 . Lines of Credit

16 . Commitments, Contingencies and Guarantees

We have various contractual obligations, some of which are required to be recorded as liabilities in our 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 Consolidated Balance Sheets but are required to be disclosed.

Our contractual obligations as of December 31, 2016 can be summarized as follows:



Payments due by period	Total	1 year	2 year	3 year	4 year	5 year	After 5 years
(in thousands)	EUR	EUR	EUR	EUR	EUR	EUR	EUR

Long-Term Debt Obligations, including interest expense ¹	3,757,498	306,215	83,752	56,718	56,762	56,246	3,197,805
Operating Lease Obligations	103,568	35,486	23,613	18,616	13,577	7,050	5,226
Purchase Obligations	2,202,595	1,923,647	233,021	9,481	7,901	7,417	21,128
Zeiss High-NA Funding Commitment	748,000	129,000	219,500	179,500	113,000	69,000	38,000
Total Contractual Obligations ²	6,811,661	2,394,348	559,886	264,315	191,240	139,713	3,262,159


1.	See Note 14 to our Financial Statements for the amounts excluding interest expense.


2.	We have excluded unrecognized tax benefits for an amount of EUR 136.4 million as the amounts that will be settled in cash are not known and the timing of any payments is uncertain.

Long-term debt obligations mainly relate to interest payments and principal amounts of our Eurobonds. See Note 14 .

ASML ANNUAL REPORT 2016 F-32

We have a non-committed guarantee facility of EUR 15.0 million under which guarantees in the ordinary course of business can be provided to third parties.

17 . Employee Benefits

We have a performance related bonus plan for our senior management. Under this plan, the bonus amounts depend on actual performance against corporate and personal targets. Within ASML (excluding Cymer), the bonus for members of senior management can range between 0.0 percent and 75.0 percent of their annual salaries. Within Cymer, bonuses can range between 0.0 percent and 150.0 percent of their annual salary. The performance targets are set for a whole year. The bonuses over 2016 are accrued for in the Consolidated Balance Sheets as of December 31, 2016 and are expected to be paid in the first quarter of 2017 .

Our bonus expenses for the BoM, former BoM and senior management were as follows:



Year ended December 31	2014	2015	2016
(in thousands)	EUR	EUR	EUR

Board of Management ¹	3,495	3,405	3,545
Other senior management	45,462	44,562	48,473
Bonus expenses	48,957	47,967	52,018


1.	Bonus expenses in relation to the STI cash bonus for our BoM and former BoM. Former BoM is only applicable in 2014.

Profit-sharing Plan

We have a profit-sharing plan covering all European and US non-sales employees who are not members of the BoM or senior management. Under the plan, eligible employees receive an annual profit-sharing, based on a percentage of net income relative to total net sales ranging from 0.0 to 20.0 percent of their annual salary. The profit sharing for the years 2016 , 2015 and 2014 was 16.0 percent or EUR 93.3 million , 18.0 percent or EUR 95.1 million and 16.0 percent or EUR 71.3 million , respectively. Our profit is also one of the criteria for the variable pay programs for employees in Asia. Expenses in relation to these plans amount to EUR 33.8 million for 2016 , EUR 32.0 million for 2015 and EUR 25.9 million for 2014 .

Share-based Compensation

In the past we have adopted various share and option plans for our employees. Starting January 1, 2014 the Employee Umbrella Share Plan has become effective, covering all grants made as of that date for our employees. The AGM approves each year the maximum number of shares that can be used by ASML to execute share-based incentives. Within this limit, the SB determines the maximum number of shares that is granted to the BoM in line with the Remuneration Policy and the BoM determines the total maximum of shares that can be granted in that year for eligible employees in line with existing policies. Our current share-based compensation plans do not provide for 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 BoM) was EUR 47.7 million in 2016 , EUR 59.1 million in 2015 and EUR 63.4 million in 2014 . The tax benefit recognized related to the recognized share-based compensation costs amounted to EUR 10.0 million in 2016 , EUR 13.8 million in 2015 and EUR 14.9 million in 2014 .

Total compensation costs to be recognized in future periods amount to EUR 83.2 million as of December 31, 2016 ( 2015 : EUR 65.4 million ; 2014 : EUR 69.8 million ). The weighted average period over which these costs are expected to be recognized is calculated at 1.9 years ( 2015 : 1.7 years ; 2014 : 1.6 years ).

Employee Umbrella Share Plan

The Employee Umbrella Share Plan, effective as of January 1, 2014 covers all employees. Within this plan, we distinguish between performance and incentive shares. Within the incentive category, prior to October 3, 2016 employees could choose, at inception, to convert the shares into options. As of October 3, 2016 this option no longer exists. All grants under the Employee Umbrella Share Plan typically have a three -year vesting period.

Share Plans

Our current share plans typically include a three -year service period and some plans have vesting conditions which are based on performance. The fair value of shares is determined on the closing trading price of our shares listed at Euronext Amsterdam on the grant date.

ASML ANNUAL REPORT 2016 F-33

Details with respect to shares granted and vested during the year are set out in the following table:



	EUR-denominated			USD-denominated
Year ended December 31	2014	2015	2016	2014	2015	2016

Total fair value at vesting date of shares vested during the year (in thousands)	56,214	52,002	25,517	76,605	47,722	31,317
Weighted average fair value of shares granted	65.71	88.83	87.21	84.62	102.42	96.00

A summary of the status of conditionally outstanding shares as of December 31, 2016 , and changes during the year ended December 31, 2016 , is presented below:



	EUR-denominated			USD-denominated
	Number of shares		Weighted average fair value at grant date (EUR)	Number of shares		Weighted average fair value at grant date (USD)
Conditional shares outstanding at January 1, 2016	804,508		71.05	803,046		92.46
Granted	396,237		87.21	563,806		96.00
Vested	(294,110	)	68.09	(329,345	)	88.72
Forfeited	(22,431	)	69.21	(82,899	)	92.74
Conditional shares outstanding at December 31, 2016	884,204		79.33	954,608		95.81

Option Plans

Our current option plans typically vest over a three year service period with any unexercised stock options expiring ten years after the grant date. Options granted have fixed exercise prices equal to the closing price of our shares listed at Euronext Amsterdam on grant date. The fair value of stock options is determined using a Black-Scholes option valuation model.

The Black-Scholes option valuation of our stock options granted during the year is based on the following assumptions:



Year ended December 31	2014	2015	2016

Weighted average share price (in EUR)	65.0	88.1	88.3
Volatility (in percentage)	23.5	28.7	27.2
Expected life (in years)	5.6	5.6	5.7
Risk free interest rate	0.5	—	—
Expected dividend yield (in EUR)	2.25	2.52	2.94
Forfeiture rate ¹	—	—	—


1.	For the years ending December 31, 2016 , 2015 and 2014 , 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.

Details with respect to stock options are set out in the following table:



	EUR-denominated			USD-denominated
Year ended December 31	2014	2015	2016	2014	2015	2016

Weighted average fair value of stock options granted	13.94	21.69	20.34	18.57	23.56	22.69
Weighted average share price at the exercise date of stock options	71.69	91.30	98.08	93.19	103.88	100.68
Aggregate intrinsic value of stock options exercised (in thousands)	12,098	12,880	11,540	9,497	6,202	4,134
Weighted average remaining contractual term of currently exercisable options	2.94	3.24	3.69	3.79	4.74	4.71
Aggregate intrinsic value of exercisable stock options (in thousands)	39,020	24,336	22,340	17,942	8,518	8,879
Aggregate intrinsic value of outstanding stock options (in thousands)	40,428	24,611	22,680	19,171	8,709	8,945

ASML ANNUAL REPORT 2016 F-34

The number and weighted average exercise prices of stock options as of December 31, 2016 , and changes during the year then ended are presented below:



	EUR-denominated			USD-denominated
	Number of options		Weighted average exercise price per ordinary share (EUR)	Number of options		Weighted average exercise price per ordinary share (USD)
Outstanding, January 1, 2016	455,680		28.97	237,005		53.21
Granted	20,561		92.13	14,859		93.80
Exercised	(149,801	)	21.04	(79,767	)	48.85
Forfeited	(2,639	)	33.21	(6,500	)	72.76
Expired	—		—	—		—
Outstanding, December 31, 2016	323,801		36.61	165,597		58.18
Exercisable, December 31, 2016	313,226		35.33	162,417		57.53

Details with respect to the stock options outstanding are set out in the following table:



EUR-denominated			USD-denominated
Range of exercise prices (EUR)	Number of outstanding options at December 31, 2016	Weighted average remaining contractual life of outstanding options (years)	Range of exercise prices (USD)	Number of outstanding options at December 31, 2016	Weighted average remaining contractual life of outstanding options (years)
0 - 10	—	—	0 - 10	—	—
10 - 15	105,826	1.69	10 - 15	—	—
15 - 20	44,040	1.30	15 - 20	3,911	1.80
20 - 25	50,093	1.70	20 - 25	39,685	1.75
25 - 40	11,543	4.76	25 - 40	40,461	2.04
40 - 50	16,250	5.80	40 - 50	959	4.62
50 - 60	10,670	6.92	50 - 60	5,173	5.69
60 - 70	23,545	6.92	60 - 70	801	6.06
70 - 80	20,579	8.33	70 - 80	1,787	6.30
80 - 90	20,765	8.86	80 - 90	20,229	7.75
90 - 100	13,109	8.27	90 - 100	41,955	8.02
100 - 110	7,381	9.56	100 - 110	10,636	8.32
Total	323,801	3.84	Total	165,597	4.77

Employee Purchase Plan

Every quarter, we offer our worldwide payroll employees the opportunity to buy our shares or our stock options (up to and including October 2, 2016; thereafter employees can only purchase shares) against fair value using their net salary. The BoM is excluded from participation in this plan. The fair value for shares is based on the closing price of our shares listed at Euronext Amsterdam on 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 their annual gross base salary. When employees retain the shares and/or stock options for a minimum of 12 months , we will pay out a 20.0 percent cash bonus on the initial participation amount.

Deferred Compensation Plans

In July 2002, we adopted a non-qualified deferred compensation plan for our US 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 us 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 2016 , 2015 and 2014 . Cymer has a similar non-qualified deferred compensation plan for a selected group of management level employees in the US in which the employee may elect to defer receipt of current compensation in order to provide retirement and other benefits on behalf of such employee backed by Cymer owned life insurance policies.

As of December 31, 2016 , our liability under deferred compensation plans was EUR 40.6 million ( 2015 : EUR 33.1 million ) .

ASML ANNUAL REPORT 2016 F-35

Pension Plans

We maintain various pension plans covering substantially all of our employees. There are 7,033 eligible employees in the Netherlands. These employees participate in a multi-employer union plan (PME) determined in accordance with the collective bargaining agreements effective for the industry in which we operate. This collective bargaining agreement has no expiration date. This multi-employer union plan, accounted for as a defined-contribution plan, covers approximately 1,300 companies and approximately 148,000 contributing members. Our contribution to the multi-employer union plan was 7.6 percent of the total contribution to the plan as per the Annual Report for the year ended December 31, 2015 . The plan monitors its risks on a global basis, not by participating 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. As of January 1, 2015 new pension legislation has been enacted. This legislation results in among others, an increase of legally required coverage levels. The coverage percentage is calculated by dividing the funds capital by the total sum of pension liabilities and is based on actual market interest rates. The coverage ratio as per December 31, 2016 of 91.8 percent ( December 31, 2015 : 97.7 percent ) is calculated giving consideration to the new pension legislation and is below the legally required level. We have however no obligation whatsoever to pay off any deficits the pension fund may incur, nor have we any claim to any potential surpluses.

Every company participating in the PME contributes a premium calculated as a percentage of its total pensionable salaries, with each company subject to the same contribution rate. Although the premium can fluctuate yearly based on the coverage ratio of the multi-employer union plan, for the 5 -year period 2015-2019 the contribution percentage has been fixed at 23.6 percent (2014 : 24.1 percent ) . The pension rights of each employee are based upon the employee’s average salary during employment.

Our net periodic pension cost for this multi-employer union plan for any period is the amount of the required employer contribution for that period.

We also participate in several other defined contribution pension plans (outside the Netherlands), with our expenses for these plans equaling the employer contributions made in the relevant period.

Our pension and retirement expenses for all employees for the years ended December 31 , 2016 , 2015 and 2014 were:



Year ended December 31	2014	2015	2016
(in thousands)	EUR	EUR	EUR

Pension plan based on multi-employer union plan	46,542	50,808	54,915
Pension plans based on defined contribution	24,774	28,909	30,762
Pension and retirement expenses	71,316	79,717	85,677

18 . 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’s 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 the losses incurred or damages assessed against them as a result of that infringement.

We accrue for legal costs related to litigation and legal proceedings in our Consolidated Statements of Operations at the time when the related legal services are actually provided to ASML.

In 2016 , EUR 8.4 million estimated losses were recorded as a charge to our Consolidated Statements of Operations ( 2015 : EUR 0.1 million and 2014 : EUR 12.9 million ).

ASML ANNUAL REPORT 2016 F-36

19 . Income Taxes

The components of the provision for income taxes are as follows:



Year ended December 31	2014		2015		2016
(in thousands)	EUR		EUR		EUR

Current tax	(130,425	)	(116,094	)	(157,834	)
Deferred tax	53,430		(45,352	)	(61,650	)
Provision for income taxes	(76,995	)	(161,446	)	(219,484	)

The Dutch statutory tax rate was 25.0 percent in 2016 , 2015 and 2014 . Tax amounts in other jurisdictions are calculated at the rates prevailing in the relevant jurisdictions.

The reconciliation of the provision for income taxes is as follows:



Year ended December 31	2014				2015				2016
(in thousands)	EUR		% ¹		EUR		% ¹		EUR		% ¹

Income before income taxes	1,273,635		100.0	%	1,548,620		100.0	%	1,691,378		100.0	%
Income tax provision based on ASML’s domestic rate	(318,409	)	25.0	%	(387,155	)	25.0	%	(422,845	)	25.0	%
Effects of tax rates in foreign jurisdictions	(1,580	)	0.1	%	5,370		(0.3	)%	(2,665	)	0.2	%
Adjustments in respect of tax exempt income	23,899		(1.9	)%	31,276		(2.0	)%	31,307		(1.9	)%
Adjustments in respect of tax incentives	159,728		(12.5	)%	205,555		(13.3	)%	178,294		(10.5	)%
Adjustments in respect of prior years’ current taxes	(6,474	)	0.5	%	(13,559	)	0.9	%	(4,719	)	0.3	%
Adjustments in respect of prior years’ deferred taxes	1,325		(0.1	)%	6,001		(0.4	)%	(6,604	)	0.4	%
Movements in the liability for unrecognized tax benefits	(9,669	)	0.8	%	(10,600	)	0.7	%	3,995		(0.2	)%
Tax effects in respect of acquisition related items	77,909		(6.1	)%	—		—	%	8,792		(0.5	)%
Other credits and non tax deductible items	(3,724	)	0.3	%	1,666		(0.1	)%	(5,039	)	0.3	%
Provision for income taxes	(76,995	)	6.0	%	(161,446	)	10.4	%	(219,484	)	13.0	%


1.	As a percentage of income before income taxes.

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. It reflects the provision for income taxes that would have been applicable assuming that all of our income is taxable against the Dutch statutory tax rate and there were no permanent differences between taxable base and financial results and no Dutch tax incentives were applied.

Effects of tax rates in foreign jurisdictions

A portion of our results is realized in countries other than the Netherlands where different tax rates are applicable.

ASML ANNUAL REPORT 2016 F-37

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 Dutch Innovation Box and the Dutch research and development deduction or RDA. The Innovation box is a facility under Dutch corporate tax law pursuant to which qualified income associated with R&D is subject to an effective tax rate of 5% . The RDA is a tax incentive providing for an additional tax deduction for qualified (non-labor) cost incurred for R&D activities performed in the Netherlands. As of 2016, the RDA is converted from a corporate income tax credit into a wage tax credit reducing R&D costs. See Note 22.

Adjustments in respect of prior years’ current taxes

The movements in the adjustments in respect of prior years' current taxes for the years 2014 , 2015 and 2016 are considered to be limited.

Adjustments in respect of prior years’ deferred taxes

The movements in the adjustments in respect of prior years' deferred taxes for the years 2014 , 2015 and 2016 are considered to be limited.

Movements in the liability for unrecognized tax benefits

In 2016, similar to prior years 2015 and 2014, the effective tax rate was impacted by limited movements in the liability for unrecognized tax benefits , including effects due to foreign exchange rate differences.

Tax effects in respect of acquisition related items

In 2014 the tax rate was favorably impacted by settling agreements entered into by ASML Netherlands B.V. and Cymer LLC. The agreements settled in 2014, were originally entered into by ASML Netherlands B.V. and Cymer LLC prior to our acquisition of Cymer in May 2013. The settlement amount was taxed at different tax rates. In 2016, the tax effects mainly relate to the acquisition of HMI.

Other credits and non tax deductible items

Other credits and non tax deductible items reflect the impact on statutory rates of permanent non tax deductible items such as non-deductible interest expense, and non-deductible meals and entertainment expenses, as well as the impact of (the reversal of) various tax credits on our provision for income taxes.

Income taxes recognized directly in shareholders’ equity

Income taxes recognized directly in shareholders’ equity (including OCI) are as follows:



Income tax recognized in shareholders’ equity	2014		2015		2016
(in thousands)	EUR		EUR		EUR
Current tax
OCI (financial instruments)	2,977		(1,363	)	1,201
Tax benefit from share-based payments	(3,972	)	(3,660	)	(882	)
Total income tax recognized in shareholders’ equity	(995	)	(5,023	)	319

Liability for unrecognized tax benefits and deferred taxes

The liability for unrecognized tax benefits and total deferred tax position recorded on the Consolidated Balance Sheets are as follows:



As of December 31	2015		2016
(in thousands)	EUR		EUR
Liability for unrecognized tax benefits	(96,458	)	(136,434	)
Deferred tax position	(518	)	(225,463	)
Deferred and other tax assets (liabilities)	(96,976	)	(361,897	)

Liability for unrecognized tax benefits

We have operations in multiple jurisdictions, where we are subject to the application of complex tax laws. Application of these complex tax laws may lead to uncertainties on tax positions. We aim to resolve these uncertainties in discussions with the tax authorities. We reserve for uncertain tax positions, which are unsolved, as liability for unrecognized tax benefits in line with the requirements of ASC 740 , which requires us to estimate the potential outcome of any uncertain tax position when disputed by the tax authorities. Our estimate for the potential outcome of any uncertain tax position is highly judgmental. We conclude 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 Financial Statements.

ASML ANNUAL REPORT 2016 F-38

Consistent with the requirements of ASC 740 , as of December 31, 2016 , the liability for unrecognized tax benefits amounts to EUR 136.4 million ( 2015 : EUR 96.5 million ) which is classified as non-current deferred and other tax liabilities. If recognized, these tax benefits would affect our effective tax rate for approximately the equal amounts.

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 of December 31, 2016 amounted to EUR 30.9 million ( 2015 : EUR 25.0 million ). Accrued interest and penalties recorded in the Consolidated Statement of Operations of 2016 amounted to a tax charge of EUR 5.8 million ( 2015 : EUR 0.2 million ; 2014 : EUR 1.7 million ).

A reconciliation of the beginning and ending balance of the liability for unrecognized tax benefits is as follows:



As of December 31	2015		2016
(in thousands)	EUR		EUR

Balance, January 1	(83,738	)	(96,458	)
Gross increases – tax positions in prior period	(8,145	)	(3,415	)
Gross decreases – tax positions in prior period	1,987		1,943
Gross increases – tax positions in current period	(10,690	)	(10,614	)
Acquisitions through business combinations	—		(42,398	)
Lapse of statute of limitations	6,248		16,081
Effect of changes in exchange rates	(2,120	)	(1,573	)
Total liability for unrecognized tax benefits	(96,458	)	(136,434	)

We conclude our allowances for tax contingencies to be appropriate. Based on the information currently available, we estimate that the liability for unrecognized tax benefits will decrease by EUR 12.4 million within the next 12 months , mainly as a result of expiration of statute of limitations.

We are subject to tax audits in certain of our major tax jurisdictions, for example for years from and including 2009 onwards in Korea. In the course of such audits, local tax authorities may challenge the positions taken by us.

ASML ANNUAL REPORT 2016 F-39

Deferred taxes

The composition of total deferred tax assets and liabilities reconciled to the classification in the Consolidated Balance Sheets is as follows:



Deferred taxes	January 1, 2016		Acquisitions through business combinations		Consolidated Statements of Operations		Effect of changes in exchange rates		December 31, 2016
(in thousands)	EUR		EUR		EUR		EUR		EUR
Deferred tax assets:
Capitalized R&D expenditures	12,625		—		(3,524	)	361		9,462
R&D credits	16,406		—		(15,819	)	(454	)	133
Inventories	75,527		—		1,395		3,708		80,630
Deferred revenue	35,420		—		10,623		1,385		47,428
Accrued and other liabilities	47,226		—		9,424		2,603		59,253
Installation and warranty reserve	11,042		—		3,914		785		15,741
Tax effect carry-forward losses	20,893		—		(19,461	)	1,261		2,693
Property, plant and equipment	7,171		—		3,424		388		10,983
Restructuring and impairment	1,861		—		(1,166	)	(16	)	679
Alternative minimum tax credits ¹	6,130		—		(1,276	)	288		5,142
Share-based payments	12,514		—		842		636		13,992
Other temporary differences	24,460		2,000		(1,419	)	(50	)	24,991
Total deferred tax assets ²	271,275		2,000		(13,043	)	10,895		271,127

Deferred tax liabilities:
Intangible fixed assets	(225,450	)	(144,541	)	(52,370	)	(10,082	)	(432,443	)
Property, plant and equipment	(40,286	)	—		(2,160	)	(2,232	)	(44,678	)
Borrowing costs	(1,913	)	—		151		—		(1,762	)
Other temporary differences	(4,144	)	(15,451	)	1,777		111		(17,707	)
Total deferred tax liabilities	(271,793	)	(159,992	)	(52,602	)	(12,203	)	(496,590	)

Net deferred tax assets (liabilities)	(518	)	(157,992	)	(65,645	)	(1,308	)	(225,463	)

Classified as:
Deferred tax assets – current ³	133,131								—
Deferred tax assets – non-current ³	29,012								34,940
Deferred tax liabilities – current ³	(2,379	)							—
Deferred tax liabilities – non-current ³	(160,282	)							(260,403	)
Net deferred tax assets (liabilities)	(518	)							(225,463	)


1.	Alternative minimum tax credits relate to prepaid US taxes which are credited against future taxable profits after the carry-forward losses and other available tax attributes are used. These alternative minimum tax credits never expire.


2.	Valuation allowances recognized in relation to deferred tax assets as of December 31, 2016 amounted to EUR 42.4 million ( 2015 : EUR 29.9 million ).


3.	As of January 1, 2016, ASML early adopted the amendment to ASC 740 “Income taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”, which requires that deferred tax liabilities and assets are classified as non-current in the consolidated balance sheets. The comparative figures have not been adjusted to reflect this change in accounting policy.

ASML ANNUAL REPORT 2016 F-40



Deferred taxes	January 1, 2015		Consolidated Statements of Operations		Effect of changes in exchange rates		December 31, 2015
(in thousands)	EUR		EUR		EUR		EUR
Deferred tax assets:
Capitalized R&D expenditures	14,593		(3,626	)	1,658		12,625
R&D credits	43,361		(31,589	)	4,634		16,406
Inventories	63,012		8,160		4,355		75,527
Deferred revenue	21,249		12,115		2,056		35,420
Accrued and other liabilities	47,350		(5,391	)	5,267		47,226
Installation and warranty reserve	13,670		(4,319	)	1,691		11,042
Tax effect carry-forward losses	39,106		(20,215	)	2,002		20,893
Property, plant and equipment	6,295		360		516		7,171
Restructuring and impairment	2,283		(680	)	258		1,861
Alternative minimum tax credits ¹	5,505		—		625		6,130
Share-based payments	9,365		2,129		1,020		12,514
Other temporary differences	26,398		(7,511	)	5,573		24,460
Total deferred tax assets ²	292,187		(50,567	)	29,655		271,275

Deferred tax liabilities:
Intangible fixed assets	(219,141	)	18,586		(24,895	)	(225,450	)
Property, plant and equipment	(29,435	)	(8,273	)	(2,578	)	(40,286	)
Borrowing costs	(1,887	)	(26	)	—		(1,913	)
Other temporary differences	(9,009	)	5,528		(663	)	(4,144	)
Total deferred tax liabilities	(259,472	)	15,815		(28,136	)	(271,793	)

Net deferred tax assets (liabilities)	32,715		(34,752	)	1,519		(518	)

Classified as:
Deferred tax assets – current	159,460						133,131
Deferred tax assets – non-current	28,760						29,012
Deferred tax liabilities – current	(1,928	)					(2,379	)
Deferred tax liabilities – non-current	(153,577	)					(160,282	)
Net deferred tax assets (liabilities)	32,715						(518	)


1.	Alternative minimum tax credits relate to prepaid US taxes which are credited against future taxable profits after the carry-forward losses are used.


2.	Valuation allowances recognized in relation to deferred tax assets as of December 31, 2015 amounted to EUR 29.9 million ( 2014 : EUR 25.4 million )

Tax effect carry-forward losses

Deferred tax assets from carry-forward losses recognized as per December 31, 2016 result predominantly from net operating loss carry-forwards incurred relating to NID stock in Belgium.

NID stock in Belgium can generally be offset against future profits realized in the 7 years following the year in which the NID stock occurs. The total amount of NID stock is EUR 6.5 million ( 2015 : EUR 32.0 million ) taxable base and EUR 2.2 million ( 2015 : EUR 10.9 million ) tax effect.

Qualifying net operating losses, under US federal tax laws incurred by US group companies can in general be offset against future profits realized in 20 years following the year in which the losses are incurred. As of December 31, 2015 we fully utilized the amount of losses carried forward under US federal tax laws . The total amount of losses carried forward under US state tax laws as of December 31, 2016 , is EUR 0.0 million ( 2015 : EUR 90.4 million ) tax basis or EUR 0.0 million ( 2015 : EUR 4.3 million ) tax effect.

20 . Segment Disclosure

ASML has one reportable segment, for the development, production, marketing, sale and servicing of advanced semiconductor equipment systems exclusively consisting of lithography related systems. Its operating results are regularly reviewed by the CODM in order to make decisions about resource allocation and assess performance.

Management reporting includes net system sales figures of new and used systems and includes sales by technology.

ASML ANNUAL REPORT 2016 F-41

Net system sales for new and used systems were as follows:



Year ended December 31	2014	2015	2016
(in thousands)	EUR	EUR	EUR

New systems	4,127,433	4,109,439	4,499,315
Used systems	115,357	127,744	71,803
Net system sales	4,242,790	4,237,183	4,571,118

Net system sales per technology were as follows:



Year ended December 31	Net system sales in units	Net system sales in EUR thousands
2016
EUV	4	324,854
ArFi	70	3,518,718
ArF	6	116,876
KrF	57	532,661
i-line	20	78,009
Total	157	4,571,118

2015
EUV	1	70,473
ArFi	67	3,238,452
ArF	9	107,522
KrF	74	747,740
i-line	18	72,996
Total	169	4,237,183

2014
EUV	5	299,845
ArFi	76	3,477,718
ArF	3	32,611
KrF	38	381,436
i-line	14	51,180
Total	136	4,242,790

The increase in net system sales of EUR 333.9 million , or 7.9 percent , to EUR 4,571.1 million in 2016 from EUR 4,237.2 million in 2015 ( 2014 : EUR 4,242.8 million ) is mainly due to an increase in the number of EUV and ArFi systems sold.

For geographical reporting, total net sales are attributed to the geographic location in which the customers’ facilities are located. Long-lived assets are attributed to the geographic location in which these assets are located .

ASML ANNUAL REPORT 2016 F-42

Total net sales and long-lived assets (consisting of property, plant and equipment) by geographic region were as follows:



Year ended December 31	Total net sales	Long-lived assets
(in thousands)	EUR	EUR
2016
Japan	404,259	4,277
Korea	1,579,907	17,354
Singapore	245,785	844
Taiwan	2,084,702	125,456
China	779,547	3,156
Rest of Asia	19,758	2,757
Netherlands	1,512	1,201,437
EMEA	551,330	4,093
United States	1,127,952	327,863
Total	6,794,752	1,687,237

2015
Japan	668,381	3,209
Korea	1,971,650	11,626
Singapore	121,390	422
Taiwan	1,551,512	60,029
China	541,899	1,390
Rest of Asia	2,077	2,095
Netherlands	3,521	1,229,800
EMEA	211,038	1,313
United States	1,215,907	310,794
Total	6,287,375	1,620,678

2014
Japan	477,110	3,695
Korea	1,624,059	16,684
Singapore	132,593	879
Taiwan	1,124,883	60,241
China	403,371	1,766
Rest of Asia	2,205	2,041
Netherlands	1,334	1,124,632
EMEA	196,332	1,322
United States	1,894,390	236,263
Total	5,856,277	1,447,523

In 2016 , net sales to the largest customer accounted for EUR 1,646.2 million , or 24.2 percent , of total net sales ( 2015 : EUR 1,633.6 million , or 26.0 percent , of total net sales ; 2014 : EUR 1,532.1 million , or 26.2 percent , of total net sales). Our three largest customers (based on total net sales) accounted for EUR 655.3 million , or 51.8 percent , of accounts receivable and finance receivables at December 31, 2016 , compared with EUR 704.1 million , or 58.3 percent , at December 31, 2015 .

Substantially all of our sales were export sales in 2016 , 2015 and 2014 .

21 . Selected Operating Expenses and Additional Information

Personnel expenses for all payroll employees were:



Year ended December 31	2014	2015	2016
(in thousands)	EUR	EUR	EUR
Wages and salaries	985,883	1,165,433	1,279,550
Social security expenses	81,721	92,910	103,847
Pension and retirement expenses	71,316	79,717	85,677
Share-based payments	63,380	59,070	47,701
Personnel expenses	1,202,300	1,397,130	1,516,775

The average number of payroll employees in FTEs during 2016 , 2015 and 2014 was 12,852 , 11,824 and 10,942 , respectively.

ASML ANNUAL REPORT 2016 F-43

The average number of payroll employees in FTEs in our operations in the Netherlands during 2016 , 2015 and 2014 was 6,567 , 6,113 and 5,589 , respectively. Both increase s in 2016 compared to 2015 and in 2015 compared to 2014 in payroll employees (in FTEs) were in line with our net sales growth.

The total number of payroll and temporary employees in FTEs per sector was:



As of December 31	2014	2015	2016
Customer Support	3,289	3,607	4,210
SG&A	1,240	1,380	1,561
Manufacturing & Logistics	3,846	3,833	4,443
R&D	5,697	5,861	6,433
Total FTEs	14,072	14,681	16,647
Less: Temporary employees (in FTEs)	2,754	2,513	2,656
Payroll employees (in FTEs)	11,318	12,168	13,991

22 . Research and Development Costs

R&D costs (net of credits and excluding contributions under the NRE Funding Agreements from Participating Customers in the CCIP) increased by EUR 37.7 million , or 3.5 percent , to EUR 1,105.8 million in 2016 from EUR 1,068.1 million in 2015 . R&D costs for both 2016 and 2015 were primarily focused on programs supporting EUV, DUV immersion, and Holistic Lithography. In 2016, R&D activities mainly related to:


•	EUV - Further improving productivity, and supporting the design and industrialization of our NXE:3400B system including pellicle development.


•	DUV immersion - Focused on development of our next generation immersion platform, the NXT:2000i, as well as maturing the product introduction in the field of our NXT:1980 system.


•	Holistic Lithography - Further development of YieldStar, process window control and enlargement solutions.

R&D costs (net of credits and excluding contributions under the NRE Funding Agreements from Participating Customers in the CCIP) decreased by EUR 6.0 million , or 0.6 percent , to EUR 1,068.1 million in 2015 , from EUR 1,074.1 million in 2014 . R&D costs for both 2015 and 2014 were primarily focused on programs supporting EUV, DUV immersion, and Holistic Lithography. In 2015 , R&D activities mainly related to:


•	EUV - Further improving availability and productivity, and supporting the design of our NXE:3400B system;


•	DUV immersion - Focused on the final stages of development relating to our NXT:1980 systems, of which we shipped the first systems in 2015, as well as development of future DUV platforms; and


•	Holistic Lithography - Further development of Yieldstar and process window control solutions.

Due to changes in tax regulations in the Netherlands effectuated in 2016, the R&D programs formerly defined as corporate income tax benefits (RDA), are now defined as wage tax benefits and therefore included as a credit in the R&D costs.

23 . Interest and Other, Net

Interest and other income of EUR 71.7 million ( 2015 : EUR 10.9 million and 2014 : EUR 14.5 million ) relates to interest income on deposits, short-term investments, money market funds, bank accounts and on finance receivables. In addition, in 2016 we recognized EUR 55.2 million on foreign currency revaluations on transactions and balances relating to the HMI acquisition in Interest and other, net.

Interest and other costs of EUR 38.0 million ( 2015 : EUR 27.4 million and 2014 : EUR 23.1 million ) mainly consist of net interest expense on our Eurobonds and related interest rate swaps, hedges, interest on lease obligations and amortized financing costs .

Interest on cash pools is reported on a gross basis in both interest income and interest expense. From an economic and legal perspective, the interest on cash pools of EUR 0.9 million ( 2015 : EUR 1.5 million and 2014 : EUR 3.2 million ) recorded in interest income nets off against the same amount recorded in interest expense.

ASML ANNUAL REPORT 2016 F-44

24 . Vulnerability Due to Certain Concentrations

Carl Zeiss SMT is our single supplier, and we are their single customer, of optical components for lithography systems. Carl Zeiss SMT is capable of developing and producing these items only in limited numbers and only through the use of manufacturing and testing facilities in Oberkochen and Wetzlar, Germany. ASML has agreed with Zeiss to acquire a 24.9% minority stake in Carl Zeiss SMT, for EUR 1 billion in cash. The closing of this transaction is expected in the second quarter of 2017 and is conditional on, among other things, customary merger control approvals. In addition, ASML agreed to support Carl Zeiss SMT's R&D costs, capital expenditures and other supply chain investments, in respect of High-NA, in an amount of EUR 760 million over 6 years . At the end of 2016 an amount of EUR 12.0 million was paid, resulting in a remaining commitment as of December 31, 2016 of EUR 748.0 million .

25 . Shareholders’ Equity

Share Capital

ASML’s authorized share capital amounts to EUR 126.0 million and is divided into:


•	700,000,000 Cumulative Preference Shares with a nominal value of EUR 0.09 each;


•	699,999,000 Ordinary Shares with a nominal value of EUR 0.09 each; and


•	9,000 Ordinary Shares B with a nominal value of EUR 0.01 each.

As of December 31, 2016 , 439,199,514 ordinary shares with a nominal value of EUR 0.09 each were issued and fully paid up; this includes 9,258,282 treasury shares. No ordinary shares B and no cumulative preference shares have been issued.

Shares Issued as a Result of the Acquisition of HMI

ASML and HMI completed the merger pursuant to which ASML acquired HMI on November 22, 2016 . As part of the transaction, HEC and certain HMI officers have also agreed to (re)invest in ASML part of the proceeds to be received by them from selling their HMI shares in the transaction, underscoring their belief in the strategic rationale for the transaction and their commitment to the combined businesses going forward. Accordingly, ASML has issued a total number of 5,866,001 ordinary shares for an aggregate amount of EUR 580.6 million .

Our BoM has the power to issue ordinary shares and cumulative preference shares insofar as the BoM has been authorized to do so by the General Meeting of Shareholders. The BoM requires approval of the SB for such an issue. The authorization by the General Meeting of Shareholders 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 BoM to issue shares, the General Meeting of Shareholders shall have the power to issue shares upon the proposal of the BoM, provided that the SB has approved such proposal.

Shares Issued as a Result of the Acquisition of Cymer

ASML and Cymer completed the merger pursuant to which ASML acquired Cymer on May 30, 2013 . As a result of the merger, each share of Cymer common stock outstanding immediately prior to the completion of the merger was converted into the right to receive USD 20.00 in cash plus 1.1502 ASML ordinary shares. As of December 31, 2016 , we have issued 36,474,035 ordinary shares for an aggregate amount of EUR 2,347.3 million in relation to the acquisition of Cymer.

Shares Issued in Relation to Share-based Compensation

We have adopted various share and option plans for our employees. Whenever ordinary shares have to be delivered pursuant to these plans, we typically deliver treasury shares that we purchase in share buy-back programs for this purpose. Because these treasury shares were no longer available in the course of 2014 , we issued new ordinary shares from time to time to meet our delivery obligations under the plans. In 2016 , we issued no new ordinary shares in relation to our ESOPs. The aggregate fair value of the new ordinary shares issued is EUR 0.0 million in 2016 ( 2015 : EUR 36.9 million ; 2014 : EUR 51.3 million ) . Fair value is determined on the closing price of our ordinary shares at Amsterdam Euronext at the date of respective issuance.

ASML ANNUAL REPORT 2016 F-45

Ordinary Shares

An ordinary share entitles the holder thereof to cast nine votes in the General Meeting of Shareholders. 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 55164-0506, 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 Euroclear Nederland or through the DTC cannot hold fractional shares. At our 2016 AGM, the BoM was authorized from April 29, 2016 through October 29, 2017, subject to the approval of the SB, to issue shares and/or rights thereto representing up to a maximum of 5.0 percent of our issued share capital at April 29, 2016, plus an additional 5.0 percent of our issued share capital at April 29, 2016 that may be issued in connection with mergers, acquisitions and/or (strategic) alliances. At our 2017 AGM, our shareholders will be asked to extend this authority through October 26, 2018.

Holders of ASML’s ordinary shares have a preemptive right, in proportion to the aggregate nominal amount of the ordinary shares held by them. This preemptive right may be restricted or excluded. Holders of ordinary shares do not have preemptive right with respect 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, the BoM has the power subject to approval of the SB, to restrict or exclude the preemptive rights of holders of ordinary shares. At our 2016 AGM, our shareholders authorized the BoM through October 29, 2017, subject to approval of the SB, to restrict or exclude preemptive rights of holders of ordinary shares up to a maximum of 10 percent of our issued share capital. At our 2017 AGM, our shareholders will be asked to extend this authority through October 26, 2018.

Ordinary Shares B

The articles of association provide for 9,000 ordinary shares B with a nominal value of EUR 0.01 . Each ordinary share B entitles the holder thereof to cast one vote at the General Meeting of Shareholders. Holders of fractional shares had the opportunity, until July 31, 2013, to convert fractional shares into ordinary shares B to obtain voting rights with respect to those fractional shares. No ordinary shares B have been issued.

Cumulative Preference Shares

In 1998, we granted the Preference Share Option to the Foundation. This option was amended and extended in 2003 and 2007. 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.

The nominal value of the cumulative preference shares amounts to EUR 0.09 and the number of cumulative preference shares included in the authorized share capital is 700,000,000 . A cumulative preference share entitles the holder thereof to cast nine votes 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, ASML’s interests, ASML’s business or the interests of ASML’s stakeholders are at stake. This may be the case if a public bid for ASML’s 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 ASML. The same may apply if one shareholder, or more shareholders acting in concert, hold a substantial percentage of ASML’s 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 ASML’s interests, ASML’s business or ASML’s 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 would be 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.

ASML ANNUAL REPORT 2016 F-46

Cancellation and repayment of the issued cumulative preference shares by ASML requires the authorization by the General Meeting of Shareholders of a proposal to do so by the BoM approved by the SB. If the Preference Share Option is exercised and as a result cumulative preference shares are issued, ASML, at the request of the Foundation, will initiate the repurchase or cancellation of all cumulative preference shares held by the Foundation. In that case ASML is 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 does not request ASML 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 members from the Dutch business and academic communities. The members of the Board of Directors of the Foundation are: Mr. H. Bodt, Mr. M.W. den Boogert, Mr. J.M. de Jong and Mr. A.H. Lundqvist.

Dividend Policy

For 2016 , a proposal to declare a dividend of EUR 1.20 per ordinary share of EUR 0.09 nominal value will be submitted to the 2017 AGM.

26 . 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 and other relevant factors.

The following table provides a summary of shares repurchased by ASML in 2016 :




Period	Total number of shares purchased	Average price paid per Share (EUR)	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 (EUR thousands)

January 21 - 31, 2016	268,537	82.08	268,537	1,477,957
February 1 - 29, 2016	1,306,921	78.12	1,575,458	1,375,859
March 1 - 31, 2016	1,045,133	86.51	2,620,591	1,285,449
April 1 - 30, 2016	1,138,127	87.95	3,758,718	1,185,356
May 1 - 31, 2016	278,182	82.15	4,036,900	1,162,504
June 1 - 30, 2016	560,410	85.57	4,597,310	1,114,552
July 1 - 31, 2016	166,068	87.63	4,763,378	1,100,000
August 1 - 31, 2016	—	—	4,763,378	1,100,000
September 1 - 30, 2016	—	—	4,763,378	1,100,000
October 1 - 31, 2016	—	—	4,763,378	1,100,000
November 1 - 30, 2016	—	—	4,763,378	1,100,000
December 1 - 31, 2016	—	—	4,763,378	1,100,000
Total	4,763,378	83.97

ASML ANNUAL REPORT 2016 F-47

27 . Customer Co-Investment Program

On July 9, 2012, we announced our CCIP 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 EUR 1.38 billion of our R&D projects from 2013 through 2017. This program created risk sharing with some of our largest customers while the results of our development programs will be available to every semiconductor manufacturer with no restrictions.

Development 450mm silicon wafer technology

As previously disclosed, in November 2013, ASML decided to pause the development of 450mm lithography systems until customer demand and the timing related to such demand is clear. We have agreed with Intel that the 450mm NRE funding will be applied to other lithography projects, including generic developments applicable to both 300mm and 450mm. We believe that our 450mm development activities can be restarted if and when the industry demands the introduction of 450mm.

In addition to the EUV and 450mm funding commitments, the Participating Customers have invested in 96,566,077 of our ordinary shares, the proceeds of which, totaling EUR 3.85 billion , were returned to the holders of ordinary shares (excluding the Participating Customers) through a synthetic share buyback executed in November 2012.

Description of the program

Intel is the largest participant in the program, with an aggregate funding commitment of EUR 829 million - an aggregate amount of EUR 553 million for the development of 450mm lithography technology (which, as a result of the pause of that program, has been applied to EUV technology development) and an aggregate amount of EUR 276 million for the development of EUV technology - and an investment in 62,977,877 of our ordinary shares for an aggregate subscription price of EUR 2,513 million .

In addition to Intel, TSMC acquired 20,992,625 of our ordinary shares for an aggregate subscription price of EUR 838 million and made a EUR 276 million funding commitment relating to the development of 450mm lithography equipment and EUV technology, and Samsung acquired 12,595,575 of our ordinary shares for an aggregate subscription price of EUR 503 million and made a EUR 276 million funding commitment relating to the development of EUV technology. Shares were acquired by Dutch foundations (Stichtingen) established for each participant. On June 12, 2015, TSMC reported to the AFM that its interest in ASML had decreased below the three percent notification threshold. In its 2015 annual report, TSMC announced that it had sold its entire stake. Additionally, in its Q3 2016 report, Samsung announced that it had sold one-half of its holdings.

In connection with the investment by the Participating Customers in ASML, each of the Participating Customers, and the respective Stichtingen, entered into a shareholder’s agreement with ASML. The shareholder’s agreements contain provisions restricting the voting rights of the Participating Customers, such that the Participating Customers are not generally permitted to vote their shares except in certain extraordinary circumstances, a standstill arrangement and restrictions on the sale of shares in order to preserve an orderly sell down of Participating Customer’s shares.

28 . Related Party Transactions

On July 9, 2012, we announced our CCIP 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 EUR 829.0 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 (calculated giving effect to our synthetic share buyback in November 2012). Due to the equity investment, Intel is considered a related party of ASML as of July 9, 2012.

The total net sales and the net outstanding liability to Intel (and its affiliates) were as follows:



Year ended December 31	2014	2015	2016
(in thousands)	EUR	EUR	EUR
Total net sales to Intel	1,007,603	618,069	1,401,983
Net outstanding liability to Intel	386,824	700,156	379,774

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 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 by or owing to any director or officer of ASML or any associate thereof.

29 . Subsequent Events

Subsequent events were evaluated up to February 7, 2017 , which is the date the Financial Statements included in this Annual Report were approved. There are no events to report.

ASML ANNUAL REPORT 2016 F-48

Veldhoven, the Netherlands

February 7, 2017

/s/ Peter T.F.M. Wennink

Peter T.F.M. Wennink

President, CEO and member of the Board of Management

/s/ Wolfgang U. Nickl

Wolfgang U. Nickl

Executive Vice President, CFO and member of the Board of Management

ASML ANNUAL REPORT 2016 F-49

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 sheet of ASML Holding N.V. and subsidiaries as of December 31, 2016, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the year ended December 31, 2016. We also have audited ASML Holding N.V.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)”. ASML Holding N.V.’s management is responsible for these consolidated 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 consolidated 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 audits 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 consolidated 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 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that 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, 2016, and the results of its operations and its cash flows for the year ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, ASML Holding N.V. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)”.

ASML Holding N.V. acquired Hermes Microvision, Inc. including subsidiaries (“HMI”) in November 2016, and management excluded from its assessment of the effectiveness of ASML Holding N.V.’s internal control over financial reporting as of December 31, 2016, HMI’s internal control over financial reporting associated with 2.6% of consolidated total assets (excluding any purchase price accounting effect) and 0.4% of consolidated revenues included in the consolidated financial statements of ASML Holding N.V. and subsidiaries as of and for the year ended December 31, 2016. Our audit of internal control over financial reporting of ASML Holding N.V. also excluded an evaluation of the internal control over financial reporting of HMI.

/s/ KPMG Accountants N.V.

Rotterdam, the Netherlands

February 7, 2017

ASML ANNUAL REPORT 2016 F-50

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 sheet of ASML Holding N.V. and subsidiaries (collectively, the “Company”) as of December 31, 2015, and the related consolidated statements of operations, statements of shareholders’ equity and statements of comprehensive income, and statements of cash flows for each of the years in the two-year period ended December 31, 2015. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit 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 misstatements. Our audit 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. We believe that our audit provides a reasonable basis for our opinion.

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 its subsidiaries as of December 31, 2015, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte Accountants B.V.

Eindhoven, The Netherlands

February 4, 2016

ASML ANNUAL REPORT 2016 F-51

Definitions

ASML ANNUAL REPORT 2016 D-1




Name		Description

AC		Audit Committee of ASML

AFM		Autoriteit Financiële Markten; Authority for the Financial Markets of the Netherlands

AGM		Annual General Meeting of Shareholders

AMD		Advanced Micro Devices, Inc.

Annual Report		Annual Report on Form 20-F

ARCNL		Advanced Research Center for Nanolithography

ArF		Argon Fluoride

ArFi		Argon Fluoride Immersion

ASC		Accounting Standards Codification

ASML		ASML Holding N.V. and its subsidiaries

ASP		Average Selling Price

ASU		Accounting Standards Update

BA		Bachelor of Arts

BEPS		Base Erosion and Profit Shifting

BESP		Best Estimate of Selling Price

BoM		Board of Management

Brion		Brion Technologies, Inc.

Business Principles		Business principles of ASML

Canon		Canon Kabushiki Kaisha

Canon Cross-License Agreement		ASML and Canon signed a global patent cross-license agreement related to the field of semiconductor lithography

Carl Zeiss SMT		Carl Zeiss SMT GmbH

CCIP		Customer Co-Investment Program

CD		Critical Dimension

CEO		Chief Executive Officer

CFO		Chief Financial Officer

CLS		Cymer Light Sources

CMO		Chief Marketing Officer

Code		Dutch Corporate Governance Code

Code of Conduct		Code of ethics and conduct

Company		ASML Holding N.V.

CO ₂		Carbon Dioxide

CODM		Chief Operating Decision Maker

COO		Chief Operations Officer

CPO		Chief Program Officer

CRMC		Capital Research & Management Company

Cross-License Transition Period		The period between January 1, 2010 and December 31, 2014

CTO		Chief Technology Officer

Cymer		Cymer Inc., Cymer LLC and its subsidiaries

CZ SMT Investment Agreement		Carl Zeiss SMT Investment Agreement

CZ SMT Partnership Agreement		Carl Zeiss SMT Partnership and Joint Venture Agreement

ASML ANNUAL REPORT 2016 D-2




Name		Description

DC		Disclosure Committee

Deloitte		Deloitte Accountants B.V.

DRAM		Dynamic Random Access Memory (often called performance memory)

DTC		Depository Trust Company

Dutch Central Bank		The Dutch Central Bank (De Nederlandsche Bank), which is the supervisor of all pension companies in the Netherlands

DUV		Deep Ultra Violet

EEA		European Economic Area

EMEA		Europe, the Middle East and Africa

EPS		Earnings per share

ESOP		Employee Stock and Stock Option Plans

EURIBOR		Euro Interbank Offered Rate

Eurobonds		Our EUR 600 million 5.75 percent senior notes due 2017 (issued 2007), our EUR 750 million 3.375 percent senior notes due 2023 (issued 2013), our EUR 500 million 0.625 percent senior notes due 2022 (issued 2016), EUR 1,000 million 1.375 percent senior notes due 2026 (issued 2016) and our EUR 750 million 1.625 percent senior notes due 2027 (issued 2016)

Euroclear Nederland		Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V.

Euronext Amsterdam		Euronext Amsterdam N.V.

EU		European Union

EUV		Extreme Ultraviolet

Exchange Act		US Securities Exchange Act of 1934

FASB		Financial Accounting Standards Board

FAT		Factory Acceptance Test

FIRPTA		Foreign Investment in Real Property Tax Act

FMSA		Financial Markets Supervision Act (Wet op het financieel toezicht (Wft))

Foundation		Stichting Preferente Aandelen ASML

Foundry		Contract Manufacturers of Logic Chips

FTEs		Full-time equivalents

HEC		Hermes-Epitek Corporation

High-NA		High Numerical Aperture

HMI		Hermes Microvision, Inc.

Holistic Lithography		Adjusting the patterning process steps as a whole, in order to support optimization of the entire chip making process

IASB		International Accounting Standards Board

IC		Integrated Circuit

i-line		Lithography system with a mercury lamp as light source

IDM		Integrated Device Manufacturer

IFRS		International Financial Reporting Standards

imec		Interuniversitair Micro-Elektronica Centrum

Intel		Intel Corporation

Intel NRE Funding Agreements		The Intel Funding Agreements related to the development of 450mm and EUV lithography equipment

Intel Stichting		Stichting Administratiekantoor MAKTSJAB

Internet of Things		The internetworking of physical devices, vehicles, buildings and other items—embedded with electronics, software, sensors, actuators, and network connectivity that enable these objects to collect and exchange data

ASML ANNUAL REPORT 2016 D-3




Name		Description

IPR		Intellectual Property Rights

IRS		Internal Revenue Service

KPMG		KPMG Accountants N.V.

KrF		Krypton Fluoride

LIBOR		London Interbank Offered Rate

Logic		Integrated Device Manufacturers and Foundries

MBA		Master of Business Administration

Memory		NAND-Flash Memory and DRAM Memory chip makers

mm		Millimeter (one thousandth of a meter)

MPS		Mature Products and Services

MPT		Multiple Patterning Technology

NA		Numerical Aperture

NAND		A binary operator composite of 'NOT AND' (often called storage memory)

NASDAQ		NASDAQ Stock Market LLC

New York Transfer Agent		J.P. Morgan Chase Bank, N.A.

NID		Notional Interest Deduction

Nikon		Nikon Corporation

Nikon Cross-License Agreement		The patent Cross-License agreement between Nikon and ASML related to lithography equipment used to manufacture semiconductor devices

nm		Nanometer (one billionth of a meter)

Non-Resident Holder		A holder of ordinary shares who is not, or is not deemed to be, a resident of the Netherlands for Dutch tax purposes

NPV		Net Present Value

NRE		Non Recurring Engineering

NRE Funding Agreements		The Intel NRE Funding Agreements, the Samsung NRE Funding Agreement and the TSMC NRE Funding Agreements

NXE		NXE platform; a new platform utilizing the concepts of the TWINSCAN platform with complete new technologies in three areas: light source, lens system, and vacuum body

NXT		TWINSCAN NXT systems; an improved version of the TWINSCAN systems, introducing new stages and stage position control technology, which enables improved imaging and overlay

OCI		Other Comprehensive Income

OECD		Organization for Economic Co-operation and Development

Pattern Fidelity		Measuring how good a structure is printed and etched compared to the structure on the reticle

Participating Customers		The participants in the Customer Co-Investment Program: Intel, TSMC, and Samsung

Partnership		Carl Zeiss SMT Holding GmbH & Co. KG

Patent Selection		As included in the Nikon Cross-License Agreement, a selection of a limited number of the other party's patents, where the license for such patents expired in 2009, which is subject to a permanent covenant not to sue in respect of patent infringement claims

PFC		Pattern Fidelity control

PFIC		Passive Foreign Investment Company

PME		Bedrijfstakpensioenfonds Metalektro

Preference Share Option		An option to acquire cumulative preference shares in our capital

R&D		Research and Development

RC		Remuneration Committee of ASML

RDA		Research and Development Deduction ("Research and Development Aftrek")

ASML ANNUAL REPORT 2016 D-4




Name		Description


Remuneration Policy		Remuneration Policy applicable to the Board of Management of ASML Holding N.V.

Reticle		Mask

RU		Reporting Unit

RU ASML		Reporting Unit ASML (which is ASML excluding RU CLS)

RU CLS		Reporting Unit Cymer Light Sources

Samsung		Samsung Electronics Corporation

Samsung NRE Funding Agreement		The Samsung Funding Agreement related to the development of 300mm/450mm and EUV lithography equipment

Samsung Stichting		Stichting Administratiekantoor Samsung

Sarbanes-Oxley Act		The Sarbanes-Oxley Act of 2002

SB		Supervisory Board of ASML

SEC		The United States Securities and Exchange Commission

SG&A		Selling, General and Administrative

STI		Short-Term Incentive

TPE		Third-Party Evidence

Transfer Agent Agreement		Agreement about transfer, registrar and dividend disbursement

TSMC		Taiwan Semiconductor Manufacturing Company Ltd.

TSMC NRE Funding Agreements		The TSMC Funding Agreements related to the development of 450mm and EUV lithography equipment

TSMC Stichting		Stichting Administratiekantoor TSMC

US		United States

US GAAP		Generally Accepted Accounting Principles in the United States of America

UvA		University of Amsterdam

VAT		Value-added tax

VIE		Variable interest entity

VIE Shareholders		Syndicate of three banks formed solely for the purpose of leasing the headquarter in Veldhoven

VLSI Research		An independent industry research firm that surveyed customers representing 95.0 percent of the world’s total semiconductor market

VSOE		Vendor-Specific Objective Evidence

WACC		Weighted Average Cost of Capital

Wavelength		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

Website		www.asml.com

Works Council		Works Council of ASML Netherlands B.V.

YieldStar		Advanced wafer metrology system

Zeiss		Carl Zeiss AG

ASML ANNUAL REPORT 2016 D-5

ASML ANNUAL REPORT 2016

Exhibit Index

ASML ANNUAL REPORT 2016 E-1

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 SEC on February 8, 2013)
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) ¹
4.2		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) ¹
4.3		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, 2014) ¹
4.7		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) ¹
4.8		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 SEC on July 5, 2007 (file No. 333-144356))
4.9		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 SEC on October 13, 2009 (file No. 333-162439))
4.10		ASML Board of Management Umbrella Share Plan (Incorporated by reference to the Registrant's Registration Statement on Form S-8 filed with the SEC on April 14, 2015 (file No. 333-203390))
4.11		450mm NRE Funding Agreement between ASML Holding N.V. and Intel Corporation, dated July 9, 2012 (Incorporated by reference to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2012) ¹
4.12		EUV NRE Funding Agreement between ASML Holding N.V. and Intel Corporation, dated July 9, 2012 (Incorporated by reference to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2012) ¹
4.13		Shareholder Agreement between ASML Holding N.V., Intel Holdings B.V., Intel Corporation and Stichting Administratiekantoor MAKTSJAB dated September 12, 2012 (Incorporated by reference to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2012)
4.14		Share Swap Agreement between ASML Holding N.V. and Hermes Microvision, Inc., dated June 16, 2016 ²
4.15		Investment Agreement among ASML Holding N.V., Zeiss, Carl Zeiss SMT, Carl Zeiss SMT Holding GmbH & Co. KG and Carl Zeiss SMT Holding Management GmbH, dated November 2, 2016 ²
8.1		List of Main Subsidiaries ²
12.1		Certification of CEO and CFO Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 ²
13.1		Certification of CEO and CFO Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 ²
15.1		Consent of Independent Registered Public Accounting Firm ²
15.2		Consent of Independent Registered Public Accounting Firm ²
15.3		Letter dated February 7, 2017 from Deloitte Accountants B.V. ²
101.INS		XBRL Instance Document ²
101.SCH		XBRL Taxonomy Extension Schema Document ²
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document ²
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document ²
101.LAB		XBRL Taxonomy Extension Label Linkbase Document ²
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document ²


1.	Certain information omitted pursuant to a request for confidential treatment filed separately with the SEC.


2.	Filed at the SEC herewith.

ASML ANNUAL REPORT 2016 E-2

ASML ANNUAL REPORT 2016 E-3

ASML ANNUAL REPORT 2016 E-4

ASML ANNUAL REPORT 2016 E-5

Exhibit 4.14




SHARE SWAP AGREEMENT


	between

			ASML Holding N.V.

	and

			Hermes Microvision, Inc.

	Dated	16 June 2016

Contents

Clause Page

1 DEFINITIONS AND INTERPRETATION 6

2 SHARE SWAP 6

2.1 Consideration 6

2.2 Options 6

2.3 Acquisition entity 7

2.4 Articles of Incorporation 7

2.5 Fractional Share 8

2.6 Dissenting shareholders 8

3 COMPLETION CONDITIONS 9

4 SATISFACTION OF COMPLETION CONDITIONS 9

4.1 General 11

4.2 Merger Clearance Filings 11

4.3 HMI shareholder approval 13

4.4 Taiwan Regulatory Approvals 13

4.5 CFIUS Filings and CFIUS Approval 15

4.6 Cooperation to complete the Transaction 16

4.7 Satisfaction and waiver of Completion Conditions 16

5 ADJUSTMENT OF CONSIDERATION AND TERMINATION 17

5.1 General 17

5.2 Non-satisfaction of Completion Condition 17

5.3 Adjustment to Consideration 17

5.4 Long Stop Date 18

5.5 Claim for Losses 18

5.6 Survival 18

6 PRE-COMPLETION COVENANTS 18

6.1 Operation of HMI Group prior to Completion 18

6.2 SARs and Options 21

6.3 HMI Board determination 21

6.4 Non-solicitation regarding HMI 21

6.5 Option to launch ASML Tender Offer 22

6.6 Access to information 23

6.7 Arrangements with key management team members 23

6.8 ASML employee consultation 24

7 COMPLETION 24

7.1 Completion Date and time 24

7.2 Payment 24

7.3 Right of withholding 25

7.4 Certificates 25

7.5 Effect of Completion 26

7.6 Breach of Completion obligations 26

8 POST-COMPLETION ITEMS 26

8.1 Post-Completion organisation plan 26

8.2 D&O insurance and indemnity 26

9 WARRANTIES 27

9.1 ASML Warranties 27

9.2 HMI Warranties 28

9.3 Expiry of warranties 28

10 CONFIDENTIALITY 28

10.1 Announcements 28

10.2 Confidentiality undertaking 29

11 MISCELLANEOUS 30

11.1 Further assurances 30

11.2 Entire agreement 30

11.3 Assignment 31

11.4 Invalidity 31

11.5 Counterparts 31

11.6 Waiver 31

11.7 Amendment 31

11.8 Third party rights 31

11.9 No rescission 31

11.10 Method of payment 32

11.11 Costs 32

11.12 Interest 32

11.13 Notices 32

12 GOVERNING LAW AND DISPUTE RESOLUTION 34

12.1 Governing law 34

12.2 Dispute resolution 34

Schedules

Schedule 1 Definitions and interpretation

Schedule 2 Merger Clearance Filings

Schedule 3 Taiwan Regulatory Approvals

Schedule 4 ASML Warranties

Schedule 5 HMI Warranties

Schedule 6 Post-Completion organisation plan

Schedule 7 Funding of payment for Dissenting Shares

Schedule 8 Announcement

SHARE SWAP AGREEMENT

THIS AGREEMENT IS DATED 16 JUNE 2016 AND MADE BETWEEN:


(1)	ASML Holding N.V. , a public limited liability company incorporated under the laws of the Netherlands, with corporate seat in Veldhoven, the Netherlands and registered address at De Run 6501, 5504 DR Veldhoven, the Netherlands (" ASML ");

and


(2)	Hermes Microvision, Inc. , a public company limited by shares incorporated under the laws of Taiwan, with corporate seat in Hsinchu City, Taiwan and registered address at 7F, No.18, Puding Road, East Dist., Hsinchu City, Republic of China (" HMI ");

(ASML and HMI each a " Party " and jointly the " Parties "),

BACKGROUND:

(A)

ASML intends to implement a 100% share swap pursuant to Article 29 of the ROC Business Mergers and Acquisitions Act (the " M&A Act ") with HMI, whereby ASML or its designated wholly owned Subsidiary will acquire 100% of the issued and outstanding capital shares of HMI (the " Shares ") for such consideration as further described in this Agreement and on the terms and subject to the conditions set forth in this Agreement and the Shares will be delisted from the TPEx (the " Transaction ");


(B)	The Supervisory Board of 1ASML has approved ASML's entry into this Agreement;

(C)

Each of the HMI Audit Committee and the HMI Board has determined that it is in the best interests of HMI and its shareholders, and declared it advisable, to enter into this Agreement, and the HMI Board has approved the execution, delivery and performance by HMI of this Agreement and the consummation of the transactions contemplated by this Agreement, subject to the approval of the shareholders of HMI; and


(D)	Prior to the execution of this Agreement, certain shareholders of HMI have entered into (i) irrevocable undertakings to vote in favor of the Transaction (the " Irrevocable Undertakings ") and (ii) investment agreements to subscribe to shares in ASML (the " Investment Agreements " and the transactions contemplated therein, the " Private Placements ").

THE PARTIES AGREE AS FOLLOWS:


1	DEFINITIONS AND INTERPRETATION

The definitions and provisions of Schedule 1 ( Definitions and Interpretation ) apply throughout this Agreement.


2	SHARE SWAP


2.1	Consideration

2.1.1

Subject and pursuant to the terms of this Agreement, each Share issued and outstanding immediately prior to the Completion Date (other than Shares to be cancelled in accordance with Clause 2.1.2 and any Dissenting Shares) shall, upon the Completion Date, be transferred to and in the name of ASML or its designated wholly owned Subsidiary and against such transfer to ASML or such designated wholly owned Subsidiary thereafter represent the right to receive NTD 1410 per Share (one thousand four hundred and ten New Taiwan Dollars per Share) in cash, without interest, and subject to deduction for any required withholding Tax (the " Consideration ").


2.1.2	Each Share held in the treasury of HMI immediately prior to the Completion Date shall automatically be cancelled, and shall cease to exist, and no consideration shall be delivered in exchange therefor.

2.1.3

Each of the global depositary shares issued by The Bank of New York Mellon (the " GDS Agent ") and listed on the Luxembourg Stock Exchange (the " Luxembourg GDSs ") shall be cancelled pursuant to Completion through payment by the GDS Agent to the holders of the Luxembourg GDSs of an amount per Luxembourg GDS equal to the Consideration. The GDS Agent shall receive through the Payment Fund an aggregate amount equal to the number of Shares held by the GDS Agent multiplied by the Consideration.


2.2	Options


2.2.1	Upon Completion, each Vested Company Option shall terminate and be cancelled, and the holder of such Vested Company Option shall be entitled to receive from HMI, promptly following the Completion Date, a cash payment (subject to all applicable deductions and withholding) equal to the product of

(1) the number of Shares that were issuable upon exercise of such Vested Company Option immediately prior to Completion multiplied by (2) the excess, if any, of (x) the Consideration over (y) the per-share exercise price for the Shares that would have been payable upon exercise of such Vested Company Option immediately prior to Completion (with the understanding that, for purposes of this clause, if there are different exercise prices for different Vested Company Options held by the same holder, separate calculations shall be made for each exercise price).

2.2.2

At Completion, each Unvested Company Option shall be assumed by ASML and shall be converted into a corresponding entitlement under an ASML share plan appropriate for the holder of such Unvested Company Option. Each such entitlement shall be subject to terms and conditions that are at least equivalent to the terms and conditions governing the Unvested Company Option immediately prior to the Completion Date.


2.2.3	The Deferred Cash Bonus Units issued under the Deferred Cash Bonus Plan shall have been cancelled, and the plan terminated, prior to the Completion Date.


2.3	Acquisition entity


2.3.1	ASML may designate a (to be incorporated) wholly-owned Subsidiary to be the purchasing entity (the " Purchaser ") of the Shares in the Share Swap by giving Notice to HMI, provided such Notice is given within fourteen (14) days of the Signing Date.


2.3.2	If ASML designates a wholly-owned Subsidiary to be the Purchaser in accordance with Clause 2.3.1:

the Purchaser will be admitted to this Agreement as a new and additional party, provided that (a) ASML remains a direct party to this Agreement and (b) ASML shall be fully liable for all actions and/or inactions of the Purchaser as if ASML were the Purchaser; and

the Parties will cooperate to take such corporate action as may be reasonably required as a result of such designation.


2.4	Articles of Incorporation


2.4.1	If ASML designates a wholly-owned Subsidiary incorporated in Taiwan to be the Purchaser in accordance with Clause 2.3.1, ASML shall cause such Subsidiary to amend the authorised capital amount and, to the extent required, the business scope in its articles of incorporation to facilitate the Transaction.


2.4.2	HMI's articles of incorporation in effect as of the Signing Date shall be the articles of incorporation of HMI on the Completion Date.


2.5	Fractional Share

Since the Consideration to be paid in the Transaction will be in cash, the Parties agree that this Agreement does not provide the procedure for dealing with fractional shares to be issued to the shareholders of HMI.


2.6	Dissenting shareholders


2.6.1	Shares issued and outstanding immediately prior to the Completion Date that are held by any holder who has, either prior to or during the EGM, objected in writing, or objected orally (which objection has been recorded by HMI), to the Transaction, and

waived its voting right and which is entitled to demand and properly demands HMI to buy back Shares of such holder at the fair market price (the " Appraisal ") pursuant to and in compliance with the M&A Act and the Company Act (such Shares, " Dissenting Shares " and the holder of Dissenting Shares, a " Dissenting Shareholder "), shall not have the right to receive any portion of the Consideration, unless and until such Dissenting Shareholder shall have failed to perfect, or, to the extent permitted by applicable Law, until such holder shall have effectively withdrawn or lost, such holder's right to Appraisal under applicable Law. Dissenting Shares shall be treated in accordance with the M&A Act and the Company Act.


2.6.2	Immediately after the EGM, HMI shall promptly notify ASML of any demands for Appraisal of any Shares, attempted withdrawals of such notices or demands and any other instruments received by HMI relating to rights to Appraisal, and ASML shall have the right to participate in all negotiations and proceedings with respect to such demands.

2.6.3

Prior to the Completion Date, HMI shall not, without the prior written consent of ASML (which consent shall not be unreasonably withheld or delayed), make any payment with respect to, settle or offer to settle, or approve any withdrawal of any such demands; provided, however, that HMI shall have the right to make any payment with respect to, settle or offer to settle, or approve any withdrawal of any such demands, in each case at a per Share price up to but not more than the Consideration.


2.6.4	In case HMI will have to make any payments to Dissenting Shareholders, the Parties agree that the provisions of Schedule 7 ( Funding of payment for Dissenting Shares ) shall apply.

2.6.5

The consummation of the Transaction shall take place on the Completion Date irrespective of whether (i) HMI and any Dissenting Shareholder have reached an agreement on the buy-back of the Dissenting Shares, (ii) there is any on-going legal proceeding between HMI and any Dissenting Shareholder related to buy-back of Dissenting Shares, and (iii) HMI has yet to buy back any and all Dissenting Shares.


3	COMPLETION CONDITIONS

Completion is conditional upon satisfaction or waiver of the following Completion Conditions:


3.1	All obligatory notifications and filings with the Competition Authorities in connection with the Transaction as listed in Schedule 2 ( Merger Clearance Filings ) (the " Merger Clearance Filings ") shall have been made and each such Competition Authority, to the extent required before Completion, shall have:


(a)	given the approvals, consents or clearances required under relevant applicable Law for the completion of the Transaction;


(b)	rendered a decision that no approval, consent or clearance is required under relevant applicable Law for the completion of the Transaction;


(c)	failed to render a decision within the applicable waiting period under relevant applicable Law and such failure is considered under such Law to be a grant of all requisite consents or clearances under such Law; or


(d)	referred the Transaction or any part thereof to another Competition Authority in accordance with relevant applicable Law and one of the requirements listed in items (a) through (c) above has been fulfilled in respect of such other Competition Authority.


3.2	HMI shall have convened an extraordinary shareholders meeting at which a resolution will have been duly passed by the holders representing at least two-thirds of the Shares to approve the Transaction.


3.3	All notifications, filings and applications with the Governmental Authorities as set out in Schedule 3 ( Taiwan Regulatory Approvals ) (the " Taiwan Regulatory Approvals ") shall have been made in the form as required by Law and each such Governmental Authority, to the extent required by Law before Completion, shall have:


(a)	given the approvals, consents or clearances required under applicable Law for the completion of the Transaction;


(b)	rendered a decision that no approval, consent or clearance is required under applicable Law for the completion of the Transaction; or


(c)	failed to render a decision within the applicable waiting period under applicable Law and such failure is considered under such Law to be a grant of all requisite approvals, consents or clearances under such Law.


3.4	Either:

(a)

the Committee on Foreign Investment in the United States ("CFIUS") shall have provided notice to the Parties that CFIUS has determined that (i) the Transaction is not a covered transaction and not subject to review under Section 721 of the Defense Production Action of 1950, as amended (" Section 721 ") or (ii) there are no unresolved national security concerns with respect to the Transaction, and that action under Section 721 is concluded with respect to the Transaction; or


(b)	following an investigation, the President of the United States shall have announced a decision not to take any action to suspend or prohibit consummation of the Transaction under Section 721 or the applicable time period for the President to take such action shall have expired;

(the " CFIUS Approval ").


3.5	There shall not have been any material breach by HMI of any of its obligations, covenants and undertakings set out in Clause 6.

3.6

None of the ASML Warranties shall have been found to be, or no event occurring or matter arising which renders any of the ASML Warranties to be, untrue or inaccurate in any material respect (except for such ASML Warranties that contain an express materiality qualification, which shall not be untrue or inaccurate in all respects) on and as at the Signing Date and as at Completion, unless expressly made as of a specified date, then only as of such specified date.

3.7

None of the HMI Warranties set out in Paragraph 7 (Intellectual Property) of Schedule 5 ( HMI Warranties ) shall have been found, or no event occurring or matter arising which renders any of the HMI Warranties set out in Paragraph 7 (Intellectual Property) of Schedule 5 ( HMI Warranties ) to be, untrue or inaccurate to the extent that it has or will have a Material Adverse Effect on the HMI Group, and none of all other HMI Warranties shall have been found to be, or no event occurring or matter arising which renders any such other HMI Warranties being, untrue or inaccurate in any material respect (except for such that contain an express materiality qualification, which shall not be untrue or inaccurate in all respects), on and as at the Signing Date and as at Completion, unless expressly made as of a specified date, then only as of such specified date.


3.8	No event or circumstance shall have occurred between the date of this Agreement and Completion which has or will have a Material Adverse Effect on the HMI Group.


3.9	No event or circumstance shall have occurred between the date of this Agreement and Completion which has or will have a Material Adverse Effect on the ASML Group.


3.10	No restraining Governmental Order or permanent injunction or other Governmental Order preventing Completion (other than one issued by or at the request of a Competition Authority which shall be complied with pursuant to Clause 4.2.5) shall be in effect immediately prior to Completion.


4	SATISFACTION OF COMPLETION CONDITIONS


4.1	General


4.1.1	Save as otherwise provided in this Clause 3, the Parties shall each use their reasonable best efforts to ensure satisfaction of and compliance with all of the Completion Conditions as soon as reasonably possible.


4.1.2	Each Party shall, and shall procure that each member of its group will, refrain from carrying out any action (including making or agreeing to make any acquisition or

investment) or omitting anything that could, directly or indirectly, cause delay, hinder, impede or prejudice satisfaction of the Completion Conditions.


4.1.3	HMI and ASML shall promptly:


(a)	co-operate with and provide all necessary information and assistance reasonably required by any Governmental Authority in connection with the Completion Conditions upon being requested to do so by the other Party; and


(b)	inform the other Party of any communication received from, or given by it to, any Governmental Authority with respect to any of the Completion Conditions.


4.2	Merger Clearance Filings


4.2.1	HMI and ASML shall cooperate with each other to:

(a)

as soon as practicable, and in any event within 15 (fifteen) Business Days after the Signing Date, prepare and file with the Competition Authorities the Merger Clearance Filings, or, in relation to those Merger Clearance Filings where the filing is subject to the approval of the relevant Competition Authority, a draft of the relevant Merger Clearance Filing and as soon as practicable thereafter, the Merger Clearance Filing, necessary to satisfy the Completion Condition set out in Clause 3.1; and


(b)	supply as promptly as practicable any additional information and documentation that may be requested by any Competition Authority in connection with the Merger Clearance Filings.


4.2.2	HMI shall use its reasonable best efforts to procure that ASML will receive all information and documentation available within the HMI Group in respect of the HMI Business that is reasonably necessary to make or supplement any Merger Clearance Filings and shall use its reasonable best efforts to ensure that all such information and documentation is true and accurate.

4.2.3

Each of ASML and HMI shall (i) provide the other Party and/or its legal counsel with drafts of all written filings and other communications intended to be submitted to any Competition Authority in respect of any Merger Clearance Filings, (ii) give the other Party and/or its legal counsel a reasonable opportunity to comment on such filings and communications, (iii) not submit such filings or communications without the prior written approval of the other Party, such approval not to be unreasonably withheld or delayed, and (iv) provide the other Party and/or its legal counsel with final copies of all such filings and communications. To the extent deemed reasonably appropriate under the circumstances or if required by applicable Law, each of ASML and HMI and/or their legal counsel shall also have the right to participate in all meetings and discussions with any Competition Authority in connection with a Merger Clearance

Filing. Each of ASML and HMI shall redact business secrets and other confidential information in respect of any other Party's group to the extent reasonably identified by such other Party or its legal counsel and to the extent relevant to the Merger Clearance Filings such unredacted information is shared on a confidential counsel-to-counsel basis only. To the extent the applicable merger control regimes provide for such possibility, each Party and/or its legal counsel shall have the right to make confidentiality claims with respect to any of the approvals, consents or clearances as referred to in Clause 3.1.

4.2.4

ASML shall bear all filing fees, expenses and other similar costs in relation to the Merger Clearance Filings (excluding fees of the advisors of HMI and all internal overhead costs incurred by HMI or any of its Affiliates in relation to any such filings). All costs, penalties and fines resulting from not (timely or correctly) filing a Merger Clearance Filing, shall be borne by the Party legally obligated to file such a Merger Clearance Filing, except to the extent that failure to make such (timely or correct) filing is the manifest result of the other Party not (timely) providing sufficient or accurate data to the Party legally obligated to file such Merger Clearance Filing.

4.2.5

For purposes of satisfying the Completion Condition set out in Clause 3.1, each of ASML and HMI shall, and shall respectively cause the ASML Group and the HMI Group to take, or cause to be taken, all actions that are reasonably necessary to obtain clearance for the Transaction from the Competition Authorities pursuant to any Merger Clearance Filings, provided that (i) the Parties shall not be required to agree to perform or accept any disposition of assets or businesses of the ASML Group and the HMI Group respectively which would cause a material impact on the ASML Group, the HMI Group or the ASML Group and the HMI Group taken together and (ii) if any other action would cause a Material Adverse Effect on the ASML Group, the HMI Group or the ASML Group and the HMI Group taken together, no Party shall undertake such action without the prior written consent of the other Party.


4.3	HMI shareholder approval


4.3.1	On or prior to the Signing Date, the HMI Board has resolved to convene an extraordinary shareholders meeting at which the shareholders of HMI shall vote on the proposal to approve the Transaction (the " EGM ").


4.3.2	Unless otherwise agreed by the Parties, HMI shall convene and hold the EGM no later than 17 August 2016. HMI shall provide to ASML for approval (such approval not to be unreasonably or untimely withheld) drafts of the notice, agenda and other materials to be made available by HMI to HMI shareholders for the EGM.

4.3.3

HMI shall use reasonable best efforts to procure that the number of Shares represented by shareholders present at the EGM in person or by proxies (including by electronic voting) will meet the applicable quorum requirements for resolution on the approval for the Transaction and that the Transaction will be approved by the EGM, by undertaking such actions as set out in a communications plan jointly agreed between the Parties.


4.4	Taiwan Regulatory Approvals

4.4.1

HMI and ASML shall jointly prepare the relevant notices, filings and applications to the relevant Governmental Authorities as referred to in Schedule 3 ( Taiwan Regulatory Approvals ) (the " Taiwan Regulatory Filings "). Each of such notices, filings and applications shall be filed by the Party required by Law to file the same (the " Filing Party ") as soon as possible after the EGM, provided the shareholders of HMI have approved the Transaction at such EGM. The Party not acting as the Filing Party shall have the right to approve any notices, filings and applications prior to such filing, which approval shall not be unreasonably withheld or delayed.

4.4.2

Each Filing Party shall provide the other Party and its legal counsel with drafts of all written filings and other communications intended to be submitted to any Governmental Authority in respect of any Taiwan Regulatory Filings, give the other Party and its legal counsel a reasonable opportunity to comment on such filings and communications, not submit such filings or communications without the prior written approval of the other Party, such approval not to be unreasonably withheld or delayed, and provide the other Party and its legal counsel with final copies of all such filings and communications. The other Party and its legal counsel shall also have the right to participate in all meetings and discussions with any Governmental Authority in connection with a Taiwan Regulatory Filing. To the extent applicable Law provides for such possibility, each Party and its legal counsel shall have the right to make confidentiality claims with respect to any of the approvals, consents or clearances as referred to in Clause 3.3, to the extent relating to business secrets and other confidential information.

4.4.3

Each Party shall make available to the other Party all information and documentation available that is reasonably necessary to make or supplement any notices, filings or applications in connection with the satisfaction of the Completion Condition set out in Clause 3.3 and shall use its reasonable best efforts to ensure that all such information and documentation is true and accurate. Notwithstanding the foregoing, each Filing Party shall be solely responsible for making all notices, filings and applications it is required to make by Law to obtain the Taiwan Regulatory Approvals.

4.4.4

The Filing Party shall bear all filing fees in relation to the filings in connection with the Taiwan Regulatory Approvals (except that all filing fees in relation to the delisting and cancellation of HMI's status as a public company shall be borne by HMI). All costs, penalties and fines resulting from not (timely or correctly) filing, shall be borne by the Filing Party, except to the extent that failure to make such (timely or correct) filing is the result of the other Party not (timely) providing sufficient or accurate data to the Filing Party.


4.4.5	ASML shall use reasonable best efforts to provide all financial documentation in relation to the ASML Group as required by the relevant Governmental Authorities in connection with the Taiwan Regulatory Filings, including any audited financials as may be required. ASML shall bear the costs and expenses of producing such (audited) financial documentation in relation to the ASML Group.


4.4.6	HMI shall use reasonable best efforts to provide all financial documentation in relation to the HMI Group as required by the relevant Governmental Authorities in connection with the Taiwan Regulatory Filings, including such audited financials as may be required. HMI shall bear the costs and expenses of producing such (audited) financial documentation in relation to the HMI Group.


4.4.7	The Audit Committee of HMI has obtained a fairness opinion on the Transaction prior to the date of this Agreement and HMI will submit such fairness opinion to such Governmental Authorities if and as may be required in connection with the Taiwan Regulatory Filings.

4.4.8

ASML shall cause its Representatives to consult with the CBC and develop and agree upon a remittance timeline pursuant to which ASML shall be permitted to exchange foreign currency into an amount of NTD sufficient to pay such part of the Payment Fund as the CBC requires to be paid in NTD. As soon as reasonably practicable after obtaining shareholder approval at the EGM and obtaining approval from the Investment Commission, ASML shall or shall cause its Affiliates to start with the exchange of foreign currency into NTD in accordance with the remittance timeline agreed with the CBC. HMI shall provide all reasonable cooperation to ASML to facilitate such consultation with the CBC and the development of the remittance timeline.


4.5	CFIUS Filings and CFIUS Approval


4.5.1	As soon as practicable following the execution of this Agreement, the Parties shall use their reasonable best efforts to submit a draft joint voluntary notice (the " Draft CFIUS Filing ") to CFIUS pursuant to 31 C.F.R. § 800.401(f) with regard to the Transaction.


4.5.2	As soon as practicable after the Parties submit the Draft CFIUS Filing to CFIUS, the Parties shall use their reasonable best efforts to submit a joint voluntary notice (the " CFIUS Filing ") to CFIUS pursuant to 31 C.F.R. Part 800 with regard to the Transaction.


4.5.3	The Parties shall keep each other apprised of communications with, and requests for additional information from, CFIUS with respect to the Transaction.

4.5.4

ASML shall be responsible for, and shall take the lead in, any communication with any member agency of CFIUS in connection with the Draft CFIUS Filing and the CFIUS Filing, including prior to submission of the Draft CFIUS Filing; provided that HMI, in consultation with ASML, may respond to CFIUS and any of its member agencies in connection with requests from CFIUS for additional information from HMI in connection with the Draft CFIUS Filing or CFIUS Filing.


4.5.5	The Parties shall use their reasonable best efforts to obtain CFIUS Approval as promptly as practicable; provided, further, that HMI shall use its best efforts to

cooperate with ASML in pursuing any reasonable course of action that ASML, in good faith, believes to be optimal for purposes of obtaining CFIUS Approval.

4.5.6

ASML shall be willing to enter into such reasonable assurances or agreements requested or required by CFIUS or the President of the United States to obtain CFIUS Approval, provided however that ASML shall not be required to accept any mitigation that limits its ability to own, control and operate the HMI Business, limits its ability to integrate the HMI Business into the ASML Group at any point in the future, or that otherwise has a material adverse impact on the HMI Business.

4.5.7

If any Party receives any request from CFIUS for supplemental information with respect to the Draft CFIUS Filing or CFIUS Filing, the requested Party shall provide any such requested information (i) to CFIUS within three (3) Business Days of such request (unless an extension is approved in writing by CFIUS), and (ii) for requests made to HMI, HMI shall, to the extent possible, also provide a draft response to ASML for ASML's review and comment in advance of HMI’s response to CFIUS.


4.6	Cooperation to complete the Transaction

Subject to Clause 4.2.5, in the event that any administrative or judicial action or proceeding is instituted (or threatened to be instituted) by a Governmental Authority or any other Person challenging (any part of) the Transaction prior to Completion, each Party shall cooperate in all respects with the other Party and use its commercially reasonable efforts to defend, contest and resist any such action or proceeding and to have vacated, lifted, reversed or overturned any Governmental Order, whether temporary, preliminary or permanent, that is in effect and that reasonably prohibits, prevents or restricts the consummation of the Transaction.


4.7	Satisfaction and waiver of Completion Conditions


4.7.1	Each of ASML and HMI, as the case may be, shall inform the other Party in writing within two (2) Business Days of becoming aware of (i) the satisfaction of any Completion Condition, or (ii) any circumstance that has resulted, or will result, in a failure to satisfy any Completion Condition, and shall provide due evidence of such satisfaction or failure to satisfy.


4.7.2	The Completion Conditions set out in Clauses 3.1, 3.2, 3.3, 3.4 and 3.10 may be waived only by written agreement between each of the Parties.


4.7.3	The Completion Conditions set out in Clauses 3.5, 3.7 and 3.8 may be waived only by ASML in writing to HMI.


4.7.4	The Completion Conditions set out in Clauses 3.6 and 3.9 may be waived only by HMI in writing to ASML.


5	ADJUSTMENT OF CONSIDERATION AND TERMINATION


5.1	General

This Agreement terminates immediately by the Parties' mutual written consent, by notice given by the Non-Defaulting Party in accordance with Clause 7.6 or by notice given by a Party to the other Party in accordance with this Clause 5.


5.2	Non-satisfaction of Completion Condition

5.2.1

Subject to Clause 5.2, if a Party (the " Non-Breaching Party ") has informed the other Party (the " Breaching Party ") in accordance with Clause 4.7.1 that a Completion Condition has not or will not be satisfied and includes in such Notice that such non-satisfaction is due to a material breach by the Breaching Party of any of its obligations, covenants and undertakings set out in this Agreement, such Breaching Party shall upon receipt of such Notice use reasonable best efforts, and the Non-Breaching Party shall reasonably cooperate with the Breaching Party, to satisfy the Completion Condition. If upon expiry of a period of 30 calendar days after the Notice from the Non-Breaching Party to the Breaching Party the relevant Completion Condition is not reasonably likely to be satisfied, the Non-Breaching Party may, at its sole discretion, in addition to and without prejudice to all other rights or remedies available under this Agreement or by Law, terminate this Agreement by Notice to the Breaching Party, provided the Non-Breaching Party may not give such termination Notice if it is in material breach of any of its obligations, covenants and undertakings set out in this Agreement.

5.2.2

If the Completion Condition set out in Clause 3.2 has not been satisfied, this Agreement may only be terminated upon the expiry of six (6) weeks of the date of the EGM and within such six (6) weeks period no ASML Tender Offer having been launched. During such six (6) weeks period, ASML may at its sole discretion decide to launch an ASML Tender Offer in accordance with Clause 6.5. If an ASML Tender Offer is launched, this Agreement will continue to be in force and effect until the completion or termination of such ASML Tender Offer.


5.3	Adjustment to Consideration

5.3.1

If ASML has informed HMI in accordance with Clause 4.7.1 that the Completion Condition set out in Clause 3.8 has not or will not be satisfied prior to the Completion Date, or a Governmental Authority prescribes that an adjustment to the Consideration shall be made, or an adjustment to the Consideration is necessary in order to obtain the relevant approvals from such Governmental Authority, then ASML and HMI may engage in good faith discussions to appropriately adjust the Consideration.


5.3.2	If Parties agree to an adjustment of the Consideration after the EGM in accordance with Clause 5.3.1, such adjustment may be approved by the Supervisory Board of ASML and the Audit Committee and Board of HMI without requiring the approval by HMI's shareholders.


5.3.3	If Parties do not agree to an adjustment of the Consideration after having engaged in good faith discussions, each Party shall have the rights and remedies available under this Agreement and by Law, including, where applicable, termination of this Agreement.


5.4	Long Stop Date

If any Completion Condition is not satisfied or waived ultimately by 31 March 2017 (the " Long Stop Date ") or such later date as may be agreed between the Parties, each of the Parties may, at its sole discretion, in addition to and without prejudice to all other rights and remedies available under this Agreement and by Law, terminate this Agreement by notice to the other Party, provided that a Party may not give such termination notice if it is in material breach of its obligations, covenants and undertakings set out in this Agreement.


5.5	Claim for Losses

If termination of this Agreement in accordance with this Clause 5 is due to a material breach by a Party of its obligations, covenants and undertakings under this Agreement, such Party shall, upon termination of this Agreement by the other Party not in default, be liable to a claim by such other Party for Losses suffered by such other Party (including any of its Affiliates).


5.6	Survival

Clauses 1, 5, 10, 11 and 12 shall survive termination of this Agreement.


6	PRE-COMPLETION COVENANTS


6.1	Operation of HMI Group prior to Completion


6.1.1	HMI shall use its reasonable best efforts to procure that between Signing and Completion the relevant HMI Group Companies:


(a)	carry on their business activities (including capital spending and R&D spending) as a going concern in the ordinary course, substantially consistent with past practice; and


(b)	preserve their present business organisations, lines of business and their relationships with customers, suppliers and other third parties with which they have material business relations, in each case, substantially consistent with past practice.


6.1.2	HMI shall procure that between Signing and Completion the relevant HMI Group Companies, except as expressly contemplated by this Agreement or as required by applicable Law, do not, without the prior written consent of ASML:


(a)	make any changes to the share capital, business organisation, group structure and constituent documents of the HMI Group Companies other than pursuant to exercise of any Vested Company Option, buy-back of the Dissenting Shares or otherwise obligated by this Agreement;


(b)	except as have been approved in HMI's budgets for 2016 as included in the Disclosed Information, enter into any agreement or incur any commitment involving any capital expenditure in excess of EUR five million (5,000,000 euro) in aggregate;


(c)	except for borrowings incurred pursuant to Clause 2.6.4, incur any additional borrowings or incur any other material indebtedness other than in the ordinary course of business;


(d)	provide any loan to any Third Party or grant any guarantees or indemnities for the benefit of any Third Party, in each case other than in the ordinary course of business;


(e)	lock cash in deposits or any other investments which are reasonably expected to mature beyond the Completion Date and which cannot be cancelled without payment of additional costs (except for any minimal administrative charges and/or forfeit of accrued interest) or otherwise take such actions which will cause cash in the HMI Group not to be available for use upon Completion;


(f)	take any action to materially increase in any manner the compensation (wages, salary, bonuses or any other form of compensation) of any employee, except in the ordinary course of business substantially consistent with past practice;


(g)	issue new options, warrants, SARs or similar equity or equity-linked rights or cause the partial or complete acceleration of vesting of any outstanding options or SARs other than pursuant to the terms of the ESOP or the SAR Plans as disclosed in the Data Room;


(h)	enter into any employment arrangements with any employee or other Person that provide for severance or other benefits upon a (direct or indirect) change of control of any HMI Group Company other than for the purpose of performing the obligations under Clause 2.2;


(i)	make or declare any dividends or distributions to any HMI shareholder, or pay any dividend or distribution to any HMI shareholder, except for the dividend of NTD1.1 billion (1.1 billion NT dollars) approved at HMI's 2016 annual general meeting of shareholders held on 8 June 2016;


(j)	enter into any material agreement with any Related Person or any agreement that is not at arm's length;


(k)	permit material changes to inventory levels maintained by the HMI Group Companies, other than in the ordinary course of business substantially consistent with past practice;


(l)	permit material changes to payment terms agreed with suppliers and customers of the HMI Group Companies, other than in the ordinary course of business substantially consistent with past practice;


(m)	take any action to make any significant change in its method of accounting or audit practices, except as required by a change in Law, IFRS or GAAP;


(n)	transfer, assign, divest, license, encumber or otherwise dispose of any material Intellectual Property, or abandon, or permit to lapse of any such material Intellectual Property; or


(o)	enter into, or enter into any discussions in relation to, any alliance, joint venture, consortium, partnership or similar agreement with a Third Party including for the avoidance of doubt suppliers, customers and technology partners, but excluding ordinary course cooperation at an operational level that is not material to the HMI Business and not material in the context of the Transaction.


6.1.3	The Parties agree and acknowledge that:


(a)	in applying and enforcing this Clause 6.1, the Parties shall act vis-à-vis each other in accordance with the principles of reasonableness and fairness giving due consideration to all relevant circumstances; and


(b)	if circumstances require immediate action from a Party or any member of its group and such Party is not reasonably able to timely request the consent of the other Party or await a response from the other Party to such request, no such consent shall be required provided that the Party shall inform the other Party of any such situation as soon as reasonably practicable thereafter.


6.2	SARs and Options

Promptly following the execution of this Agreement, HMI shall adopt such resolutions and take all necessary actions, including using its reasonable best efforts to obtain any required consents from all holders of Vested Company Options and Unvested Company Options, that are necessary to effect the transactions described in Clause 2.2. ASML and its counsel shall be given a reasonable opportunity to review and comment on any such actions prior to the execution thereof and HMI shall give

reasonable and good faith consideration to all reasonable comments of ASML and its counsel.


6.3	HMI Board determination


6.3.1	HMI confirms that the HMI Board has resolved to:


(a)	unanimously approve the Transaction and the terms and conditions of this Agreement; and


(b)	convene the EGM to approve the Transaction and this Agreement.


6.3.2	HMI agrees that the HMI Board may not revoke or alter its unanimous approval of the Transaction.


6.4	Non-solicitation regarding HMI

6.4.1

As of the Signing Date up to and including the Completion Date or, if shareholder approval is not obtained at the EGM and the Completion Condition set out in Clause 3.2 has consequently not been satisfied, up to and including the expiry of six (6) weeks after the EGM, HMI shall not, and shall ensure that each member of the HMI Group and each of their respective Representatives, including the members of the HMI Board, shall not, directly or indirectly, accept, agree to, solicit, encourage, facilitate, induce, participate in negotiations, cooperate or initiate discussions with respect to, furnish any confidential information to any Person with respect to itself or any of them in connection with, or approve or enter into any agreement, letter of intent, term sheet or similar understanding relating to, any HMI Alternative Transaction.


6.4.2	An " HMI Alternative Transaction " means, with respect to HMI and/or any member of the HMI Group, any transaction, proposal, offer, inquiry, indication of interest or other understanding with any Third Party relating to:


(a)	any acquisition, lease, license, purchase, assignment or other transfer, directly or indirectly, in a single transaction or a series of related transactions, of any material part of the undertaking, business or assets of the HMI Group taken as a whole;


(b)	any convertible debt, equity, equity-linked or other securities, including any acquisition or purchase whether by subscription for new securities or of existing securities, and in each case including any or all of the Shares; or


(c)	any merger, consolidation, share exchange, share swap, tender or exchange offer (including a self-tender offer), business combination, sale of all or material part of the assets, reorganisation, amalgamation, scheme of arrangement, spin-off, material business transfer or other similar non-ordinary course corporate transactions involving HMI.


6.4.3	If a Third Party has communicated an HMI Alternative Proposal to HMI in writing, HMI shall notify ASML promptly (and in any event within twenty-four (24) hours from receipt by HMI) thereof. ASML and HMI shall discuss in good faith to agree on the appropriate response to such Third Party.


6.5	Option to launch ASML Tender Offer

6.5.1

In the event that (a) shareholder approval has not been obtained at the EGM and the Completion Condition set out in Clause 3.2 has consequently not been satisfied or (b) at any time prior to the EGM an HMI Alternative Transaction is announced, ASML may, in its sole judgment and discretion, decide to launch a tender offer for all Shares for a price per share equal to the Consideration within a period of six (6) weeks as of the date of the EGM or the date such HMI Alternative Transaction described above is announced, as applicable (such tender offer, an " ASML Tender Offer "). The ASML Tender Offer shall be subject to a minimum acceptance threshold which shall not be higher than the percentage of Shares held by the shareholders who have entered into Irrevocable Undertakings (which at the date of this Agreement is approximately 48.59%). The ASML Tender Offer shall furthermore be subject to obtaining the required consents and approvals from the relevant Governmental Authorities and the condition that no Material Adverse Effect on the HMI Group has or will occur.


6.5.2	This Agreement shall not apply to any tender offer which ASML may decide to launch after the expiry of the period of six (6) weeks as of the date of the EGM or the date that an HMI Alternative Transaction is announced as described in Clause 6.5.1, as applicable.


6.5.3	ASML shall immediately inform HMI if it decides to launch an ASML Tender Offer in accordance with Clause 6.5.1. If ASML decides to launch an ASML Tender Offer, the HMI Board will support and unanimously recommend to the shareholders to tender their Shares in the ASML Tender Offer.


6.5.4	In the event any ASML Tender Offer successfully closes, HMI shall

(i) subject to the fiduciaries duties of the HMI board of directors, and provided that Clause 8.2 shall apply from and after the closing of such ASML Tender Offer and survive any termination of this Agreement, support any subsequent transactions or restructuring measures as may be necessary or appropriate to achieve ownership by ASML of all the issued and outstanding shares in the share capital of HMI at the same per share price equal to the Consideration and subsequent delisting of HMI from the TPEx and (ii ) do any and all acts that are reasonably requested by ASML to convene a shareholders meeting of HMI for a re-election of the entire board of directors of HMI.


6.6	Access to information

Subject to the terms of the Confidentiality Agreements and applicable Law, during the period from the Signing Date to the earlier of the Completion Date and the date on which this Agreement is terminated, HMI shall furnish, or cause to be furnished, to ASML such financial, tax and operating data and other information with respect to its entities and their respective offices, facilities, assets, properties, employees, businesses, and operations and shall provide, or cause to be provided, access to properties and management, as ASML may from time to time reasonably request for purposes of any preparations in connection with the HMI Group becoming wholly owned after Completion or to verify compliance with the terms and conditions set forth in this Agreement. Notwithstanding the foregoing, HMI or its Affiliates shall not be required to disclose information where such disclosure would jeopardise attorney-client privilege or other immunity or protection from disclosure or contravene any Law or any binding agreement entered into prior to the Signing Date.


6.7	Arrangements with key management team members

HMI will use reasonable efforts to make its key management team members available to discuss and negotiate mutually acceptable retention agreements with ASML.


6.8	ASML employee consultation

Prior to Completion, ASML shall fulfil its obligation to provide information to the works council of ASML Nederland B.V. with respect to the Transaction in accordance with the agreement concluded between ASML, ASML Nederland B.V. and the works council of ASML Nederland B.V. on 21 August 2014.


7	COMPLETION


7.1	Completion Date and time

Completion shall take place at 10:00a.m. Taiwan time, as soon as practicable but in no event later than five (5) Business Days following (i) the satisfaction or, to the extent permitted by applicable Law, waiver of the Completion Conditions (other than those Completion Conditions that by their terms are to be satisfied at Completion, but subject to the satisfaction or, to the extent permitted by applicable Law, waiver of those Completion Conditions at Completion) and (ii) completion of the remittance timeline agreed with the CBC for the foreign exchange transactions necessary to convert euro or other foreign currency into NTD for payment of the Payment Fund, unless another date is agreed to in writing by ASML and HMI.


7.2	Payment


7.2.1	At or prior to the Completion Date, ASML shall deliver or cause to be delivered to HMI's stock agent, or, at ASML's sole discretion, to another stock agent designated

by ASML (the " Stock Agent "), in trust for the benefit of the shareholders of HMI, cash in an amount sufficient to pay the aggregate Consideration (the " Payment Fund "). The Payment Fund shall not be used for any purpose other than to pay the Consideration per Share to the shareholders of HMI in accordance with this Agreement. ASML shall pay all charges and expenses, including those of the Stock Agent, incurred in connection with the payment of the Consideration.

7.2.2

As soon as reasonably practicable on or after the Completion Date, ASML shall cause the Stock Agent to pay the Consideration to each holder of record of Shares represented by book-entry that, immediately prior to the Completion Date, represented outstanding Shares that were converted into the right to receive the Consideration. After paying the Consideration pursuant to this Clause 7.2.2, the Stock Agent shall apply with the Taiwan Depository & Clearing Corporation to transfer the Shares to the name of ASML or, if ASML has designated a wholly-owned Subsidiary in accordance with Clause 2.3.1, the Purchaser. The Consideration shall be paid to the Person whose name is registered as the holder of the Shares.

7.2.3

Any portion of the Payment Fund (and any interest or other income earned thereon) that remains undistributed to the holders of Shares (other than Dissenting Shares) one year after the Completion Date shall be delivered to ASML or the Purchaser upon demand, and any holders of Shares (other than Dissenting Shares) who have not received the Consideration for any Share held by them immediately prior to the Completion Date, shall after the expiry of one year after the Completion Date look only to ASML, as general creditor, for payment of the Consideration with respect to such Shares, without interest. In the event that the Payment Fund is insufficient to make the payments contemplated by this Agreement, ASML shall, or shall cause its designated Subsidiary to, promptly deposit additional funds with the Stock Agent in an amount which is equal to the deficiency in the amount required to make such payment. The Payment Fund will not be used for any purpose not expressly provided for in this Agreement.


7.3	Right of withholding

ASML or its designated Subsidiary shall be entitled to deduct and withhold from the Consideration otherwise payable to any holder of the Shares pursuant to this Agreement such amounts as may be required to be deducted and withheld pursuant to applicable Law. To the extent that amounts are so withheld and paid over to the appropriate Tax Authority by ASML (through the Stock Agent), such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction and withholding was made. The Stock Agent shall make available, upon request by any seller of Shares, all receipts of payment of the foregoing amounts withheld and treated as having been paid to such seller.


7.4	Certificates


7.4.1	At Completion, ASML shall deliver a certificate to HMI signed by an authorised officer of ASML and dated as of the Completion Date, confirming that each of the Completion Conditions set out in Clause 3.6 and 3.9 has been satisfied (unless such Completion Condition has been waived by HMI).


7.4.2	At Completion, HMI shall deliver a certificate to ASML signed by an authorised officer or HMI and dated as of the Completion Date, confirming that each of the Completion Conditions set out in Clauses 3.5, 3.7 and 3.8 have been satisfied (except for those Completion Conditions which may have been waived by ASML).


7.5	Effect of Completion


7.5.1	The Transaction shall have the effects set forth in this Agreement and in the relevant provisions of applicable Law.


7.5.2	Upon Completion, the directors of HMI shall be discharged and replaced by the following Persons for a new term of office: Peter Wennink, Wolfgang Nickl, Christophe Fouquet and Jack Jau. The responsibility of the HMI board after Completion shall include the following, among others:


(a)	appointing the management team;


(b)	approving the business plan of HMI;


(c)	approving remuneration packages of the key employees;


(d)	approving the annual budget of HMI.


7.5.3	Upon Completion, a person designated by ASML will be appointed as supervisor of HMI.


7.6	Breach of Completion obligations

If a Party breaches any obligation under this Clause 7 (such Party, the " Defaulting Party " and the other Party, the " Non-Defaulting Party "), the Non-Defaulting Party may choose not to proceed with Completion and set a new date for Completion, subject to the TPEx approving such new date as the delisting date. If on the new date set for Completion in accordance with this Clause 7.6, the Defaulting Party breaches any of its obligations under this Clause 7, the Non-Defaulting Party shall, without prejudice to any other rights and remedies available to it, be entitled by written notice served on the Defaulting Party to terminate this Agreement.


8	POST-COMPLETION ITEMS


8.1	Post-Completion organisation plan

Schedule 6 ( Post-Completion organisation plan ) contains a number of post-Completion matters relating to the HMI Group.


8.2	D&O insurance and indemnity

8.2.1

Subject to Completion and Clause 8.2.2, and to the extent permitted by Law, ASML shall cause the HMI Group Companies to indemnify, defend and hold harmless each person who is now, or has been at any time prior to the Signing Date or who becomes prior to the Completion Date, an officer, supervisor or director of any of the HMI Group Companies (the " D&O Indemnified Parties ") against any and all Liabilities incurred by the D&O Indemnified Party as a result of any threatened or actual claim, action, suit, proceeding or investigation (the " Action "), brought by any party other than any HMI Group Company or any ASML Group Company in connection with the fact that he or she has acted as an officer, supervisor or director of any of the HMI Group Companies at any time prior to Completion. This indemnity shall lapse after a period of six (6) years from the Completion Date.

8.2.2

The D&O Indemnified Party will not be indemnified under the indemnity set out in Clause 8.2.1 with respect to Actions that relate to the gaining in fact of personal profits, advantages or remuneration to which the D&O Indemnified Party was not legally entitled, or if the D&O Indemnified Party shall have been adjudged to be liable for fraud, wilful misconduct, gross negligence or intentional recklessness in respect of the Action for which the D&O Indemnified Party is seeking indemnification. The indemnity set out in Clause 8.2.1 shall have no force and effect if and for as long as any Liability is recoverable under any insurance policy, including but not limited to the current directors' and officers' liability insurance policies maintained by the HMI Group.

8.2.3

ASML shall cause the HMI Group to obtain a "tail" policy, with a claims period of six (6) years from the Completion Date, on the current directors' and officers' liability insurance policies maintained by the HMI Group covering acts or omissions occurring at or prior to the Completion Date with respect to those persons who are currently (and any additional persons who prior to the Completion Date become) covered by such directors' and officers' liability insurance policy on terms and scope with respect to such coverage, and in amount, not less favorable to such individuals than those of such policy in effect on the date of this Agreement. If ASML for any reason fails to cause the HMI Group to obtain such "tail" policy as of the Completion Date, then ASML shall cause the HMI Group to maintain for six (6) years from the Completion Date such current directors' and officers' liability insurance policies maintained by the HMI Group (provided, that the HMI Group may substitute therefor policies, issued by an insurer carrier with the same or better credit rating as the current insurance carrier, of at least the same coverage with respect to matters occurring prior to the Completion Date containing terms and conditions that are not less favorable in the aggregate, including a "tail" policy).


9	WARRANTIES


9.1	ASML Warranties

9.1.1

ASML represents and warrants to HMI that the statements set out in Schedule 4 ( ASML Warranties ) (the " ASML Warranties ") are true and accurate in all material respects (except for such ASML Warranties that contain an express materiality qualification, which shall be true and accurate in all respects) as at the Signing Date and as at Completion, unless expressly made as of a specified date, then only as of such specified date.


9.2	HMI Warranties

9.2.1

HMI represents and warrants to ASML that the statements set out in Schedule 5 ( HMI Warranties) (the " HMI Warranties ") are true and accurate in all material respects (except for such HMI Warranties that contain an express materiality qualification, which shall be true and accurate in all respects) as at the Signing Date and as at Completion, unless expressly made as of a specified date, then only as of such specified date.

9.2.2

The HMI Warranties are limited by the HMI Disclosed Information. HMI shall not be liable for any HMI Warranties being untrue or inaccurate in respect of any facts, matters or other information set out in the HMI Disclosed Information. In case of any facts, matters or other information arising or discovered after the Signing Date which are reasonably expected to be important for a prospective purchaser of the Shares to know, HMI shall promptly disclose such facts, matters or other information to ASML. The HMI Disclosed Information will be deemed to be updated to include such facts, matters or other information disclosed to ASML by HMI, except that the HMI Disclosed Information shall not be deemed updated in respect of the HMI Warranty set out in Paragraph 17 of Schedule 5 ( HMI Warranties ). Any disclosure by HMI after the Signing Date will not affect ASML's right to terminate this Agreement in accordance with its terms in case such disclosure relates to facts, matters or other information which constitute or will constitute (i) a material breach of the HMI Warranty set out in Paragraph 17 of Schedule 5 ( HMI Warranties ) or (ii) a Material Adverse Effect on the HMI Group.


9.3	Expiry of warranties

Each of the ASML Warranties and the HMI Warranties will expire immediately after Completion and each of ASML and HMI shall no longer be liable for any breaches of any ASML Warranties and HMI Warranties respectively.


10	CONFIDENTIALITY


10.1	Announcements


10.1.1	No public announcement, circular or other public communication in connection with the existence or the subject matter of this Agreement or the Transaction shall be made or issued by or on behalf of any Party or its respective Affiliates, without the

prior written approval of ASML (in case of any public announcements, circulars or other public communications by HMI or its Affiliates) or HMI (in case of any public announcement, circular or other public communication by ASML or its Affiliates), which approval shall not be unreasonably or untimely withheld to the extent the communication is required pursuant to applicable Law, or the rules of any officially recognised exchange on which the securities of a Party or any of its Affiliates are listed, or a binding decision of a court or another Governmental Authority.


10.1.2	Immediately after Signing, the Parties shall jointly announce that they have reached agreement on the Transaction by way of a press release in the form as included in Schedule 8 ( Announcement ) (the " Announcement "). In addition, HMI shall make such disclosure through the website designated by the TPEx in the form required by the TPEx.


10.1.3	ASML and HMI shall agree on the contents and the timing of any separate or joint press release or disclosure to be issued other than the Announcement, including any press release or disclosure in respect of Completion.


10.2	Confidentiality undertaking


10.2.1	Each of the Confidentiality Agreements shall continue to have force and effect up to Completion in accordance with its terms and upon Completion shall terminate and no longer have any force or effect.

10.2.2

Without prejudice to the terms and conditions of the Confidentiality Agreements and subject to Clause 10.1 and Clause 10.2.3, each of the Parties shall, and shall procure its Affiliates to, treat as strictly confidential and not disclose any information contained in or received or obtained as a result of entering into this Agreement or any agreement entered into in connection with this Transaction which relates to:


(a)	the provisions of this Agreement or any agreement entered into in connection with this Transaction;


(b)	the negotiations relating to this Agreement or any such other agreement; or


(c)	ASML, HMI or the business activities carried on by them or any of their respective Affiliates,

(the " Confidential Information ").

All Confidential Information shall be used by the Parties solely for the purpose of evaluating, negotiating and consummating the Transaction and for no other purpose or reason whatsoever.


10.2.3	Nothing in this Clause 10 prevents any Confidential Information of a Party or any of its Affiliates from being disclosed by the other Party or any of its Affiliates (the " Disclosing Party "):


(a)	in accordance with this Agreement;


(b)	with the written approval of the other Party which, in the case of any public announcement, shall not be unreasonably withheld or delayed;

(c)

to the extent required by Law or any competent regulatory body, provided, however, that the Disclosing Party shall promptly notify the other Party, where practicable and lawful to do so, before disclosure occurs and cooperate with the other Party regarding the timing and content of such disclosure or any action which the other Party may reasonably elect to take to challenge the validity of such requirement;


(d)	to the extent that the information is in or comes into the public domain other than as a result of a breach of any undertaking or duty of confidentiality by the Disclosing Party; or


(e)	to either Party's professional advisers, auditors or bankers on a need to know basis. However, before any disclosure to any such persons, the Disclosing Party shall procure that such persons are made aware of the terms of this Clause 10 and shall use its best endeavours to procure that such persons adhere to such terms.


11	MISCELLANEOUS


11.1	Further assurances

Each Party shall at its own costs and expenses from time to time execute and procure to be executed such documents and perform and procure to be performed such acts and things as may be reasonably required by each of them to effect the Transaction and to give the Parties the full benefit of this Agreement.


11.2	Entire agreement

This Agreement together with Confidentiality Agreements contains the entire agreement between the Parties relating to the subject matter of this Agreement, to the exclusion of any terms implied by Law which may be excluded by contract, and supersedes any previous written or oral agreement between ASML and HMI in relation to the matters dealt with in this Agreement.


11.3	Assignment

No Party may, without the prior written consent of the other Party, assign, transfer or encumber (in each case either in its entirety or in part) any of its rights and obligations under this Agreement, provided that ASML may transfer its right to acquire the Shares to a wholly owned Subsidiary in accordance with Clause 2.3.1.


11.4	Invalidity

If any provision in this Agreement is held to be or becomes illegal, invalid, not binding or unenforceable (in each case either in its entirety or in part), the Parties shall remain

bound to the remaining part. The Parties shall use reasonable efforts to agree a replacement provision that is legal, valid, binding and enforceable to achieve so far as possible the intended effect of the illegal, invalid, not binding or unenforceable part.


11.5	Counterparts

This Agreement may be signed in one or more counterparts, each of which shall constitute an original signature page to this Agreement. This Agreement may be executed by facsimile signature or electronically scanned signature and such signatures shall constitute an original for all purposes.


11.6	Waiver

This Agreement may not be amended, nor any obligation waived, except in writing and signed by all Parties hereto. Any failure to enforce any provision of this Agreement shall not constitute a waiver thereof or of any other provision.


11.7	Amendment

No amendment of this Agreement shall be effective unless such amendment is in writing and signed by or on behalf of each Party.


11.8	Third party rights

This Agreement contains no stipulations for the benefit of a third party which may be invoked by a third party against any Party .


11.9	No rescission

To the extent permitted by Law, each Party waives its right to rescind this Agreement, in whole or in part.


11.10	Method of payment


11.10.1	Wherever in this Agreement it is provided that HMI provide or procure a payment to ASML, HMI shall arrange that this payment will be made by HMI for itself and on behalf of the relevant member of HMI Group to ASML for itself and on behalf of the relevant member of ASML Group.


11.10.2	Wherever in this Agreement it is provided that ASML provide or procure a payment to HMI, ASML shall arrange that this payment will be made by ASML for itself and on behalf of the relevant member of ASML Group to HMI for itself and on behalf of the relevant member of HMI Group.


11.10.3	Any payments must be effected by crediting for same day value the account specified by HMI or ASML, as the case may be, on behalf of the Party entitled to the payment (reasonably in advance and in sufficient detail to enable payment by telegraphic or other electronic means to be effected) on or before the due date for payment.


11.11	Costs

Unless this Agreement provides otherwise, all costs which a Party has incurred or must incur in preparing, concluding or performing this Agreement are for its own account.


11.12	Interest

If any Party defaults in the payment when due of any amount payable under this Agreement, the liability of that Party will be increased to include interest on the amount from the date when the payment is due until the date of actual payment (as well after as before judgment) at the Interest Rate.


11.13	Notices


11.13.1	Any notice, request, consent, claim, demand and other communication between the Parties in connection with this Agreement (a " Notice ") shall be in writing and shall be given and shall be deemed to have been duly given if written in the English language and:


(a)	delivered personally (Notice deemed given upon receipt);


(b)	delivered by registered post (Notice deemed given upon confirmation of receipt); or


(c)	sent by an internationally recognised overnight courier service such as Federal Express (Notice deemed given upon receipt),

in each case with a copy by email, which copy shall not constitute a Notice.


11.13.2	All Notices shall be sent at the address set out below, or to such other Person or address as notified to the other Party from time to time.


(a)	If to ASML:


Address:	ASML Holding N.V. De Run 6501 5504 DR Veldhoven

The Netherlands


Attention:	Chief Legal Officer


E-mail:	robert.roelofs@asml.com


With a copy to:	De Brauw Blackstone Westbroek N.V. Claude Debussylaan 80 1082 MD Amsterdam The Netherlands


Telephone:	(+31) 20 577 1958


Email:	michael.schouten@debrauw.com


Attn:	Michael Schouten


(b)	If to HMI:


Address:	Hermes Microvision, Inc.

7F, No.18, Puding Road, East Dist.,

Hsinchu City 300, Taiwan (R.O.C.)


Attention:	Chief Financial Officer


E-mail:	leo.shen@hermes-microvision.com


With a copy to:	Jones Day 8F, 2 Tun Hua S. Rd., Sec. 2 Taipei 106, Taiwan, the Republic of China


Telephone:	+886-2-7712-3201


Email:	jhuang@jonesday.com


Attn:	Jack J.T. Huang


12	GOVERNING LAW AND DISPUTE RESOLUTION


12.1	Governing law

This Agreement (including Clause 12.2) and the documents to be entered into pursuant to it, save as expressly otherwise provided therein, shall be governed by and construed in accordance with the Laws of the Republic of China (Taiwan).


12.2	Dispute resolution

12.2.1

Any dispute arising out of, or in connection with, this Agreement or other agreements and arrangements connected to or resulting from this Agreement, shall be submitted to the Chief Executive Officer of ASML and the Chairman of HMI to be settled and resolved by them within fifteen (15) Business Days of the matter being referred to them, following and upon the written request of either of the Parties.


12.2.2	If the dispute cannot be resolved in accordance with Clause 12.2.1, then, at the election of any party to the dispute, the dispute shall be finally and exclusively settled by arbitration administered by the Singapore International Arbitration Centre in

accordance with its arbitration rules in force when the request for arbitration is submitted and taking into account the following:


(a)	the arbitral tribunal shall be composed of three (3) arbitrators, each of them to be nominated, confirmed and appointed in accordance with the applicable arbitration rules;


(b)	the place of the arbitration will be Singapore, Republic of Singapore;


(c)	any hearings shall take place in Taipei, the Republic of China (Taiwan), but the arbitral tribunal may conduct meetings and may deliberate at any location it considers appropriate;


(d)	the proceedings shall be conducted in the English language, and English shall be the language of the arbitration;


(e)	the arbitral tribunal shall decide and make its arbitral award or awards in accordance with the applicable rules of law, and. shall not assume the powers of an amiable compositeur or decide ex aequo et bono ;


(f)	an arbitration pursuant to this Clause 12.2 shall not be consolidated with any other arbitration, except for another arbitration pursuant to this Clause 12.2; and

(g)

any dispute and the existence and content of any arbitral proceedings under this Clause 12.2 must be kept strictly confidential by the Parties, the members of the arbitral tribunal and the Singapore International Arbitration Centre, and no publication of any arbitral award, any other decision of the arbitral tribunal or any materials produced or exchanged in the course of such arbitral proceedings is permitted, except (i) to the extent that disclosure or publication is required to fulfil a legal duty, protect a legal right, or enforce or challenge an arbitral award in legal proceedings before a court or other judicial authority; (ii) with the written consent of the Parties; (iii) where required for the preparation or presentation of a claim or defence in arbitral proceedings under this Clause 12.2; (iv) by order of the arbitral tribunal at the request of a Party; or (v) to the extent required pursuant to the law or the rules of any officially recognised stock exchange on which the securities of a Party are listed.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

AGREED AND SIGNED AS OF THE DATE FIRST WRITTEN ABOVE BY:



ASML Holding N.V.



/s/ Peter Wennink		/s/ Wolfgang Nick
Name: Peter Wennink		Name: Wolfgang Nick
Title: Chief Executive Officer		Title: Chief Financial Officer

Hermes Microvision, Inc.



/s/ 金榮許
Name: Chin-Yung Shu
Title: Chairman

Signature page to Share Swap Agreement


Schedule 1	Definitions and interpretation


1	Definitions

Capitalised terms, including those used in the introduction and preamble of this Agreement, have the following meaning:

" Accounts Date " means 31 December 2015;

" 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;

" Agreement " means this share swap agreement including the Schedules;

" Announcement " has the meaning set out in Clause 10.1.2;

" Appraisal " has the meaning set out in Clause 2.6.1;

" ASML " has the meaning set out in the preamble of this Agreement;

" ASML Group " or " ASML Group Companies " means ASML and its Subsidiaries, excluding, from and after Completion, the HMI Group and " ASML Group Company " means any one of them or the relevant one of them, as the context requires;

" ASML Tender Offer " has the meaning set out in Clause 6.5.1;

" ASML Warranties " has the meaning set out in Clause 9.1.1, and " ASML Warranty " means any one of them or the relevant one of them, as the context requires;

" Business Day " means a day, which is not a Saturday, a Sunday, a public holiday or any other day on which banks are required or authorised by Law to be closed in Taiwan or the Netherlands;

" CBC " means the Central Bank of the Republic of China (Taiwan);

" CFIUS " has the meaning set out in Clause 3.4(a);

" CFIUS Approval " has the meaning set out in Clause 3.4;

" CFIUS Filing " has the meaning set out in Clause 4.5.2;

" Completion " means, subject to the satisfactory performance and completion of all actions set out in Clause 7, the completion of the Transaction, including the acquisition of the Shares by ASML or its designated Subsidiary;

" Competition Authorities " means the competition authorities in the countries as set out in Schedule 2 ( Merger Clearance Filings ), and " Competition Authority " means any one of them or the relevant one of them, as the context requires;

" Completion Conditions " means the conditions set out in Clause 3, and " Completion Condition " means any one of them or the relevant one of them, as the context requires;

" Completion Date " means, subject to the satisfactory performance and completion of all actions set out in Clause 7, the date on which Completion commences;

" Confidential Information " has the meaning set out in Clause 10.2.2;

" Confidentiality Agreements " means (i) the Confidentiality Agreement between ASML, HMI and Hermes-Epitek Corporation dated 29 April 2016 and (ii) the Mutual Non-disclosure Agreement between ASML and Hermes-Epitek Corporation dated 21 January 2016;

" Consideration " has the meaning set out in Clause 2.1.1;

" Consolidated Financial Statements " means the audited consolidated financial statements of the HMI Group for the twelve (12) month period ended on the Accounts Date, and the quarterly unaudited consolidated financial statements of the HMI Group for the period ended on 31 March 2016, in each case including consolidated balance sheet, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and notes thereto as made public by HMI;

" Data Room " means the virtual data room hosted by Intralinks containing the documents and information relating to the HMI Group;

" Defaulting Party " has the meaning set out in Clause 7.2;

" Deferred Cash Bonus Plan " means the employee incentive plan of HMI USA, dated 2005;

" Deferred Cash Bonus Unit " means (i) the right to acquire one or more shares in HMI USA and sell such shares to an Affiliate of HEC and/or (ii) a share in HMI USA acquired pursuant to the Deferred Cash Bonus Plan and legally owned by an employee of HMI USA;

" Disclosing Party " has the meaning set out in Clause 10.2.3;

" Dissenting Shareholder " has the meaning set out in Clause 2.6.1;

" Dissenting Shares " has the meaning set out in Clause 2.6.1;

" Draft CFIUS Filing " has the meaning set out in Clause 4.5.1 and is together with " CFIUS Filing " defined as " CFIUS Filings ";

" E-Beam and Inspection Solutions " means electron beam systems (including parts, materials, designs and software used therewith or integrated therein) used in connection with, and processes and methods for, substrate inspection in the semiconductor industry, including the eScan, eP and eXplore series of the HMI Group;

" EGM " has the meaning set out in Clause 4.3.1;

" Encumbrance " means any claim, charge, pledge, mortgage, lien, option, equity, power of sale, hypothecation, retention of title, right of pre-emption, right of first refusal or other third party rights or security interest of any kind or an agreement to create any of the foregoing;

" ESOP " means the HMI — 2015, 1st Employee Stock Option Issuance and Subscription Plan;

" EUR " means the official currency of the Netherlands as at the Signing Date, it being understood, however, that if such currency is no longer the official currency of the Netherlands at the date on which an amount becomes due and payable under or otherwise in connection with this agreement, " EUR " will be deemed to refer to its equivalent in the official currency of the Netherlands at such date;

" Event " means any transaction, act, omission or event of whatsoever nature and includes any change in the residence of any person for the purposes of any Taxation, and references to an Event effected prior to the Completion Date, includes (i) references to a transaction completed after the Completion Date in pursuance of a legally binding obligation or an arrangement, in either case whether or not conditional, incurred or entered into prior to the Completion Date, and (ii) any Event that is deemed to have occurred for Tax purposes;

" Filing Party " has the meaning set out in Clause 4.4.1;

" GDS Agent " has the meaning set out in Clause 2.1.3;

" Governmental Authority " means, to the extent it has jurisdiction in respect of the relevant matter stated in this Agreement, any judicial, legislative, executive, regulatory or competition authority or any other governmental authority, of any jurisdiction, including of the European Union;

" Governmental Order " means any final and non-appealable order, writ, judgment, injunction, decree, declaration, stipulation, determination or award entered by or with any Governmental Authority;

" HMI " has the meaning set out in the preamble of this Agreement;

" HMI Alternative Transaction " has the meaning set out in Clause 6.4.2;

" HMI Board " means the board of directors of HMI;

" HMI Business " means the entire worldwide substrate inspection business as conducted as at the Signing Date by the HMI Group Companies, including all processes currently employed or under development and products currently manufactured, sold or under development therein, including E-Beam and Inspection Solutions;

" HMI Disclosed Information " means the documents and information relating to the HMI Group disclosed in the Data Room;

" HMI Group " or " HMI Group Companies " means HMI and its Subsidiaries from time to time, and " HMI Group Company " means any one of them or the relevant one of them, as the context requires;

" HMI Intellectual Property " means Intellectual Property which at or immediately prior to the Signing Date and/or the Completion Date is used or to be used in relation to the HMI Business, including the Intellectual Property listed in a schedule included in the HMI Disclosed Information and all other Intellectual Property owned by any HMI Group Company;

" HMI USA " means Hermes Microvision Inc. (USA);

" HMI Warranties " has the meaning set out in Clause 9.2, and " HMI Warranty " means any one of them or the relevant one of them, as the context requires;

" Irrevocable Undertakings " has the meaning set out in recital (D);

" Intellectual Property " means trademarks, service marks, trade names, domain names, logos, patents, inventions, design rights, copyrights, semi-conductor topography rights, database rights, Know-how and all other similar rights in any part of the world including, where such rights are obtained or enhanced by registration, any registration of such rights and applications and rights to apply for such registrations;

" Investment Agreement " has the meaning set out in recital (D);

" Know - how " means confidential and proprietary industrial and commercial information and techniques in any form including drawings, formulas, test results, reports, project reports and testing procedures, instruction and training manuals, tables of operating conditions, market forecasts, lists and particulars of customers and suppliers;

" Knowledge " means:

(a) with respect to HMI, the actual knowledge of (i) Jack Ying Chia Jau, (ii) Yi-Hsiang Wang, (iii) Chung-Shih Pan, (iv) Zhong-Wei Chen, (v) Leo Hsiao-Lien Shen, (vi) Kuo Shih (Kevin) Liu and (vii) Wei Ming Ren, after reasonable inquiry of his or her immediate subordinate;

(b) with respect to ASML, the actual knowledge of Wolfgang Nickl and Robert Roelofs, after reasonable inquiry of his or her immediate subordinate;

" Law " means any applicable statute, law, treaty, ordinance, order, rule, directive, regulation, code, executive order, injunction, judgement, decree or other requirement of any Governmental Authority;

" Liabilities " means all liabilities, duties and obligations of every description, whether deriving from contract, common law, Law or otherwise, whether known or unknown, present or future, actual or contingent, ascertained or unascertained, disputed or undisputed and whether owed or incurred severally or jointly or as principal or surety, and " Liability " means any one of them or the relevant one of them, as the context requires;

" Long Stop Date " has the meaning set out in Clause 5;

" Losses " means all damage, losses, Liabilities, claims, charges, payments, fines, demands and related reasonable costs and expenses (including reasonable legal costs and reasonable experts' and consultants' fees) as determined pursuant to and in accordance with the Laws of the Republic of China (Taiwan);

" Luxembourg GDSs " has the meaning set out in Clause 2.1.3;

" M&A Act " has the meaning set out in recital (A);

" Material Adverse Effect " means any change, effect, event, occurrence, state of facts or development that is either alone or in any combination that exist at the date of determination of the occurrence of a Material Adverse Effect, materially adverse to the HMI Business or the business of the ASML Group, as the case may be, or the cash flow, results of operations, financial condition, assets or reputation, of the HMI Group or the ASML Group, as the case may be, and in each case taken as a whole, provided that in no event shall any of the following be taken into account in determining whether there has been such a Material Adverse Effect:

(a) any change in Law or accounting standards or interpretations or enforcement thereof after the date of this Agreement;

(b) any change in economic, business or political conditions or industry-wide or financial market conditions generally (including those affecting the securities markets or changes in interest rates or exchange rates), except to the extent if such change has a materially disproportionate effect on the relevant group of companies, taken as a whole, in comparison to other companies in the same industry;

(d) any major natural disasters;

(e) any action required to be taken in connection with this Agreement or the failure to take any action that is expressly prohibited by this Agreement;

(f) with respect to HMI Group only, the buy-back of any Dissenting Shares;

(g) any change directly attributable to the public announcement of the Transaction or this Agreement; and

provided, further, that with respect to "reputation", only to the extent and only after (i) indictment of a senior management for fraud or any other felony offenses involving dishonesty or (ii) initiation of any charge or proceeding or issuance of any order, decree, decision or judgment of any court or Governmental Authority against any HMI Group Company or any of their respective directors, officers or senior management relating to any integrity issues (such as fraud, corruption and money laundering), shall any such event be taken into account in determining Material Adverse Effect;

" Merger Clearance Filings " has the meaning set out in Clause 3.1;

" Non-Defaulting Party " has the meaning set out in Clause 7.2;

" Notice " has the meaning set out in Clause 11.13.1;

" NTD " means New Taiwan Dollars, the lawful currency of the Republic of China;

" Party " and " Parties " have the meaning set out in the preamble of this Agreement;

" Payment Fund " has the meaning set out in Clause 7.2.1;

" Permitted Encumbrances " means: (i) Encumbrances reflected in the Consolidated Financial Statements, (ii) Encumbrances for current Taxes, assessments not yet due and payable or that are being contested in good faith, (iii) statutory or common law Encumbrances in favor of carriers, warehousemen, mechanics and materialmen, to secure claims for labor, materials or supplies for amounts not yet due or payable, and other like Encumbrances, (iv) easements, reservations, rights-of-way, restrictions, minor defects or irregularities in title and other similar Encumbrances, in each case affecting real property, and (v) Encumbrances in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;

" Person " means an individual, a company or corporation, a partnership, a limited liability company, a trust, an association, a foundation or other legal entity or unincorporated organisation, including a Governmental Authority;

" Private Placement " has the meaning set out in recital (D);

" Properties " has the meaning set out in Clause 5.1 of Schedule 5 ( HMI Warranties );

" Purchaser " has the meaning set out in Clause 2.3.1;

" Related Person " means, with respect to any Person, such Person's Affiliates, the respective directors, officers, partners, members, trustees, employees, agents, administrators, managers and representatives of such Person and such Person's Affiliates and any family members of such Person and such Person's Affiliates;

" Relief " means any relief, allowance, attribute, amortisation, depreciation, credit, deduction, exemption, tax loss carry forward, set-off or other relief of a similar nature granted or available in relation to Tax and any repayment or right to repayment of Tax;

" Representative " means, with respect to any Person, such Person's officers, directors, principals, employees, bankers, attorneys, advisors, auditors, and agents;

" Restricted Party " means any person or entity that is (a) the subject of, or beneficially owned or controlled by a person or entity who is the subject of, Sanctions, (b) the government of a Sanctioned Country, (c) located in or organised under the laws of any Sanctioned Country, or (d) otherwise a target of Sanctions;

" Sanctioned Country " means a country or territory which is subject to Sanctions;

" Sanctions " means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the United States government (b) the United Nations Security Council, (c) the European Union or (d) Her Majesty’s Treasury of the United Kingdom, or any other comparable regulation(s) applicable in any of the jurisdictions in which the businesses of the Seller or any of its Affiliates are carried on or in which any of its agents, customers or suppliers are operating or located for the purpose of doing business with the Seller or any of its Affiliates;

" SAR " means a stock appreciation right granted under either of the SAR Plans;

" SAR Plans " means (i) the HMI Employee Incentive Plan—2013, 1st Employee Stock Acquisition Rights Implementation Rules and (ii) HMI Employee Incentive Plan—2013, 2nd Employee Stock Acquisition Rights Implementation Rules;

" Section 721 " has the meaning set out in Clause 3.4(a);

" Senior Employees " or " Senior Employee " has the meaning set out in Clause 10.1(b) of Schedule 5 ( HMI Warranties );

" Shares " has the meaning set out in recital (A) of this Agreement;

" Signing " means the signing by the Parties of this Agreement;

" Signing Date " means the day on which the last of the Parties has signed this Agreement;

" Stock Agent " has the meaning set out in Clause 7.2.1;

" Subsidiary " means, with respect to any Person (other than a natural person) any other Person of which (a) the first mentioned Person or any Subsidiary thereof is a general partner, (b) the voting power to elect, directly or indirectly, a majority of the board or others performing similar functions with respect to such other Person is held by the first mentioned Person and/or by any one or more of its Subsidiaries, or (c) at least fifty per cent (50%) of the equity interests of such other Person is, directly or indirectly, owned by such first mentioned Person and/or by any one or more of its Subsidiaries;

" Taiwan IFRS " means International Financial Reporting Standards, as adopted in the Taiwan and as issued by the International Accounting Standards Board (or any successor organisation);

" Taiwan Regulatory Approvals " has the meaning set out in Clause 3.3;

" Taiwan Regulatory Filings " has the meaning set out in Clause 4.4.1;

" Tax ", " Taxation " or, collectively, " Taxes " means:

(a) any and all forms of taxation whether direct or indirect and whether levied by reference to income, profits, gains, net wealth, net worth, equity, excise, import, asset values, turnover, gross receipts, added value, use and occupation, ad valorem, services, franchise, property, or other reference, and statutory, governmental, state, provincial, local governmental or municipal impositions, duties, contributions, rates and levies (including sales and use taxes, social security contributions and any other payroll taxes), whenever and wherever imposed (whether imposed by way of a withholding or deduction or otherwise) and in respect of any person;

(b) any liability for the payment of any form of taxation set out in (a) above as a result of being or having been a member of an affiliated, consolidated, combined, unitary, fiscal unity or similar group for any period;

(c) any liability for the payment of any form of taxation set out in (a) or (b) above as a result of any express or implied obligation to indemnify or otherwise compensate any other person or as a result of any obligation under any agreement or arrangement with any other person with respect to such amounts and including any liability for taxes of a predecessor or transferor or otherwise by operation of Law; and

(d) any liability for the repayment of unlawful state aid relating to any form of taxation set out in (a) above,

" Tax Audit " means any routine or non-routine audit, investigation, visit, inspection, assessment, discovery, access order, or other proceedings from any Tax Authority including a notification thereof;

" Tax Authority " means any taxing or other authority competent to impose any liability in respect of Tax or responsible for the administration and/or collection of Tax or enforcement of any Law in relation to Tax;

" Tax Liability " means:

(a) a liability of any member of the HMI Group to make or suffer an actual or increased payment of or in respect of Tax;

(b) the use or set-off of any Relief in circumstances where, but for such use or set-off, the relevant member of the HMI Group would have had an actual liability to Tax (the amount of the Tax Liability for these purposes being deemed to be equal to the amount of the actual liability to Tax that is saved by the use or set off of the Relief); and

" Tax Return " means any return, amendment, information statement, election, form, transfer pricing or other technical study or report, declaration, information return relating to Taxes, including any schedule or attachments thereto, and including any amendment thereof;

" Third Party " means any Person not being an Affiliate of either ASML or HMI;

" TPEx " means the Taipei Exchange;

" Transaction " has the meaning set out in recital (A) of this Agreement;

" Unvested Company Option " means an option to purchase Shares granted under the ESOP, or a SAR under any of the SAR Plans, which is not a Vested Company Option;

" USD " means United States dollars, the lawful currency of the United States of America;

" Vested Company Option " means an option to purchase Shares granted under the ESOP, or a SAR under any of the SAR Plans, which is vested immediately prior to Completion .


2	Headings and references to Clauses, Schedules and Paragraphs


2.1	Headings have been inserted for convenience of reference only and do not affect the interpretation of any of the provisions of this Agreement.


2.2	A reference in this Agreement to:


(a)	a Clause is to the relevant clause of this Agreement;


(b)	a Schedule is to the relevant schedule to this Agreement; and


(c)	a Paragraph is to the relevant paragraph of the relevant Schedule.


3	References to liabilities and obligations


3.1	Any reference in this Agreement to a liability or obligation of (any member of) the ASML Group shall be deemed to incorporate references to obligations on the part of ASML to procure that the relevant liability is discharged or obligation is performed

by the relevant member(s) of the ASML Group, on the terms of and subject to the conditions set out in this Agreement.


3.2	Any reference in this Agreement to a liability or obligation of (any member of) the HMI Group shall be deemed to incorporate a reference to an obligation on the part of HMI to procure that the relevant liability is discharged or obligation is performed by the relevant member(s) of the HMI Group, on the terms of and subject to the conditions set out in this Agreement.


4	Other references


4.1	Whenever used in this Agreement, the words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation".


4.2	Whenever used in this Agreement, the words "as of" shall be deemed to include the day or moment in time specified thereafter.


4.3	Any reference in this Agreement to any gender shall include all genders, and words importing the singular shall include the plural and vice versa.


5	No presumption against drafting Party

The Parties agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, 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.

EXECUTION VERSION


Schedule 2	Merger Clearance Filings


1.	South Korea Fair Trade Commission


2.	Taiwan Fair Trade Commission


3.	Singapore Competition Commission

EXECUTION VERSION


Schedule 3	Taiwan Regulatory Approvals


1.	Approval from the Taiwan Investment Commission, Ministry of Economic Affairs in connection with the Transaction;


2.	Consent from the TPEx for the delisting of HMI;


3.	Consent from the Financial Supervisory Commission of Taiwan to cancel HMI's status as a public company; and


4.	Consent from the CBC for the foreign exchange transactions necessary to convert euro or other foreign currency into NTD for payment of the Payment Fund.

EXECUTION VERSION


Schedule 4	ASML Warranties


1	Incorporation, authority, corporate action


1.1	ASML validly exists and is a company duly incorporated under the Law of the Netherlands.


1.2	ASML has the full power and authority to enter into and perform this Agreement and any other documents to be executed by ASML pursuant to or in connection with this Agreement, which, when executed, will constitute valid and binding obligations on ASML, in accordance with their respective terms.


1.3	ASML has taken or will have taken by Completion all corporate action required by it to authorise it to perform in accordance with this Agreement and any other documents to be executed by it pursuant to or in connection with this Agreement.


1.4	The entering into by ASML of this Agreement and the consummation of the Transaction by ASML, do not and will not require any consent, approval, authorisation or permit of, or filing with or notification to, any Governmental Authority, except as set out in this Agreement.

1.5

All Persons who are nationals of the People’s Republic of China (" PRC ") or organised under the laws of the PRC (" PRC National(s) ") directly or indirectly own interest in ASML in an aggregate amount less than thirty (30%) in ASML. No PRC National has control over ASML or any of its direct or indirect investors, and no funds for payment of any amounts under this Agreement have been sourced from the PRC.


1.6	ASML has, and in case ASML has designated a wholly owned Subsidiary in accordance with Clause 2.3.1, the Purchaser will have immediately prior to Completion, all funds necessary for the payment of the aggregate Consideration.


1.7	There are no action, claim, suit, litigation, arbitration, legal, administrative or other proceedings pending or, to ASML's Knowledge, threatened against the ASML Group, taken as a whole, that would prohibit or otherwise limit the ability of ASML or the Purchaser to consummate the transactions contemplated hereby.

1.8

ASML is a sophisticated purchaser and has made its own investigation, review and analysis regarding HMI and the transactions contemplated hereby based on the HMI Disclosed Information, which investigation, review and analysis were conducted by ASML together with expert advisors engaged for such purpose. ASML is not relying on any statement, representation or warranty, oral or written, express or implied, made by HMI unless otherwise provided under this Agreement.

EXECUTION VERSION


Schedule 5	HMI Warranties


1	Incorporation, authority, corporate action


1.1	HMI validly exists and is a company duly incorporated under the Law of its jurisdiction of incorporation.

1.2

HMI has the full power and authority to enter into and perform this Agreement and any other documents to be executed by HMI pursuant to or in connection with this Agreement (except for any such failures as would not reasonably be expected, either individually or in the aggregate, to materially impair the ability of HMI to perform its obligations hereunder), which, when executed, will constitute valid and binding obligations on HMI, in accordance with their respective terms.


1.3	HMI has taken or will have taken by Completion all corporate action required by it to authorise it to perform in accordance with this Agreement and any other documents to be executed by it pursuant to or in connection with this Agreement.


1.4	The entering into by HMI of this Agreement and the consummation of the Transaction by HMI, do not and will not require any consent, approval, authorisation or permit of, or filing with or notification to, any Governmental Authority, except as set out in this Agreement.


1.5	There are no action, claim, suit, litigation, arbitration, legal, administrative or other proceedings pending or, to the Knowledge of HMI, threatened against the HMI Group, taken as a whole, that would prohibit or otherwise limit the ability of HMI to consummate the transactions contemplated hereby.


2	Shares, corporate information


2.1	The Shares comprise all of the issued share capital of HMI and have been properly and validly issued and are each fully paid up.


2.2	HMI directly or indirectly holds all of the issued and outstanding shares in the capital of the HMI Group Companies (except, in relation to HMI USA, HMI indirectly holds all of the issued and outstanding shares as at Completion) and such shares have been properly and validly issued and are each fully paid up.

2.3

No Person has been granted the right, or has asserted a claim against any HMI Group Company to have the right, (whether exercisable now or in the future and whether contingent or not,) to call for the conversion, issue, registration, sale or transfer, amortisation or repayment of any share capital or any other security giving rise to a right over, or an interest in, the capital of any HMI Group Company under any option, agreement or other arrangement (including conversion rights and rights

EXECUTION VERSION

of pre-emption), except for any statutory pre-emptive rights, any buy-back of Dissenting Shares, or pursuant to any employee incentive arrangements disclosed in the Data Room.


2.4	There are no Encumbrances on any of the shares of the HMI Group Companies (excluding HMI) except for Permitted Encumbrances.


2.5	The constitutional documents made available in the Data Room are true and accurate copies of the constitutional documents of the HMI Group Companies and no HMI Group Company is in violation of its respective constitutional documents in any material respect.


2.6	All the share registers (except where an external third-party stock transfer or stock affairs agent is used), books and chops are in the possession, or under the control, of the relevant HMI Group Company.


3	Existence


3.1	Each HMI Group Company validly exists and is a legal entity duly incorporated or organised, as the case may be, under the Law of its jurisdiction of incorporation or organisation, as the case may be.


3.2	No HMI Group Company is insolvent under the Law of its jurisdiction of incorporation or unable to pay its debts as they fall due.


3.3	There are no proceedings in relation to any compromise or arrangement with creditors or any winding up, bankruptcy or other insolvency proceedings concerning any HMI Group Company and, to the Knowledge of HMI, no events have occurred which, under Law, would justify such proceedings.


4	Consolidated Financial Statements

4.1

The Consolidated Financial Statements have been prepared in accordance with the accounting principles set out in the Consolidated Financial Statements. On that basis, the Consolidated Financial Statements present fairly, in all material respects, the consolidated financial position of the HMI Group as of their respective dates, and the consolidated results of operation and their cash flows for the periods presented therein.


4.2	Since the Accounts Date, there has not occurred a Material Adverse Effect of the HMI Group.


4.3	There are no Liabilities of the HMI Group, whether accrued, absolute, determined or contingent, except for (i) Liabilities disclosed and provided for in the Consolidated

EXECUTION VERSION

Financial Statements, (ii) Liabilities incurred in the ordinary course of business substantially consistent with past practice, (iii) Liabilities which have been disclosed in the Data Room, and (iv) Liabilities which would not have a Material Adverse Effect.


5	Real property


5.1	The Data Room contains a list of all real property owned or leased by the HMI Group Companies as of the Signing Date (the " Properties ").

5.2

In respect of each Property listed as being owned by an HMI Group Company (the " Owned Property "), the HMI Group Company named as the owner is the legal and beneficial owner of the whole Owned Property and has legal and marketable title to the Owned Property. The Owned Property is registered in the relevant real estate register for the benefit of the relevant HMI Group Company where the relevant jurisdiction requires the registration of ownership regarding real estate. No Owned Property is subject to any Encumbrance except for Permitted Encumbrances.


5.3	In respect of each Property listed as being leased by an HMI Group Company (the " Leased Property "), the HMI Group Company has leasehold interests or other similar rights and interests in the Leased Property pursuant to a lease agreement which is in full force and effect, except for any failure or default that would not have a material impact on the HMI Group, taken as a whole.


5.4	To the Knowledge of HMI, there is no outstanding written notice or dispute involving the relevant HMI Group Company and any bona fide third party as to the ownership, occupation or use of any Property which, if implemented or enforced, will have or could reasonably be expected to have a material impact on the HMI Group, taken as a whole.


6	Assets

6.1

None of the assets material to the HMI Business, other than the Properties, Intellectual Property and any assets disposed of or realised in the ordinary course of business, is subject to Encumbrance, except for Permitted Encumbrances, which, when enforced, would constitute a Material Adverse Effect on the HMI Group, taken as a whole. As at Signing, no Person has, to the Knowledge of HMI, asserted a claim against any HMI Group Company to enforce any Encumbrance over any assets material to the HMI Business.


6.2	The plant and other material machinery, vehicles and equipment owned or used by the HMI Group Companies as at Signing are in reasonable working order in all material respects having regard to their age and use, have been periodically maintained where maintenance is usually required, and are sufficient for conducting the HMI Business

EXECUTION VERSION

as currently conducted at Signing and for the current purposes for which they are being used at Signing.


7	Intellectual Property


7.1	The HMI Disclosed Information contains a complete and accurate list of all Intellectual Property registered in the name of an HMI Group Company as of the Signing Date.


7.2	All HMI Intellectual Property in the field of E-Beam and Inspection Solutions and, to the Knowledge of HMI, all HMI Intellectual Property outside that field is (or where appropriate in the case of pending applications, will upon registration be) wholly owned (legally and beneficially) by the relevant HMI Group Companies.

7.3

No ownership in or right to use any of the HMI Intellectual Property in the field of E-Beam and Inspection Solutions that is currently used or intended to be used by any HMI Group Company and, to the Knowledge of HMI, none of the HMI Intellectual Property outside that field that is currently used or intended to be used by any HMI Group Company, will be lost for the HMI Group prior to Completion or as a result of the Transaction.


7.4	All HMI Intellectual Property in the field of E-Beam and Inspection Solutions and, to the Knowledge of HMI, all HMI Intellectual Property outside that field, including all pending applications for the foregoing are:


(a)	valid and subsisting;


(b)	free from Encumbrances;


(c)	not being infringed, misappropriated or opposed and have not been infringed, misappropriated or opposed by any Person since 1 January 2014; and


(d)	not licensed to a third party.


7.5	To the extent applicable, all renewal and application fees for registered HMI Intellectual Property have been paid up-to-date.

7.6

The processes currently employed or under development and the products currently manufactured, sold or under development in the HMI Business that are in the field of E-Beam and Inspection Solutions and, to the Knowledge of HMI, all such processes and products outside that field, do not and will not infringe any rights in Intellectual Property of any third party and have not infringed any such rights since 1 January 2014.

EXECUTION VERSION

7.7

No pending or, to the Knowledge of HMI threatened, claims or legal proceedings with respect to Intellectual Property, including oppositions, exist in relation to the HMI Business, whether this is an (alleged) infringement on, or challenge of ownership, validity or enforceability by a third party of any HMI Intellectual Property, or an alleged or actual infringement on, or challenge of ownership, validity or enforceability by the HMI Group of any Intellectual Property of third parties.

7.8

The HMI Group has undertaken commercially reasonable steps to protect and maintain the proprietary nature of all material confidential information and Know-how that is used or being developed for use in the HMI Business or which the HMI Group must keep private or secret by Law or written policy and such confidential information and Know-how has not been disclosed to third parties (other than in the ordinary course of business and subject to written confidentiality obligations from the third party) and, to the Knowledge of HMI, has not been subject to unauthorised access by a third party.


7.9	Each past or current officer, director, employee, contractor or consultant that has or had access to any material confidential information or Know-how that is used or being developed for use in the HMI Business is subject to written confidentiality obligations. To the Knowledge of HMI, there have been no material breaches of any such confidentiality obligations.


7.10	The HMI Group has undertaken commercially reasonable steps to protect its new innovations and to assess Intellectual Property of third parties in its innovation process.

7.11

Each past or current officer, director, employee, contractor or consultant that has developed HMI Intellectual Property in the field of E-Beam and Inspection Solutions and, to the Knowledge of HMI, each past or current officer, director, employee, contractor or consultant that has developed HMI Intellectual Property outside the field, for or on behalf of the HMI Group has legally assigned all right, title and interest in and to such Intellectual Property to an HMI Group Company.

7.12

The HMI Group is not a party to any agreements currently in effect under which a third party is granted or retains any rights (including but not limited to a license right or a right to receive royalties or other payments) in or to or in connection with any HMI Intellectual Property, including license agreements, settlement agreements, (co-)development agreements, joint venture agreements, co-existence agreements or covenants not to sue or assert.


7.13	None of the HMI Intellectual Property has been developed using university or government funding.

EXECUTION VERSION


8	Information technology

In the twelve (12) months prior to the Signing Date, there have been no failures or breakdowns of any computer hardware or software, or other computer or communication systems, used or licensed exclusively in relation to and material to the HMI Business, which have had or could reasonably be expected to have a material impact on the HMI Business.


9	Contracts and other agreements


9.1	No HMI Group Company is or has agreed to become a member of any joint venture, consortium, partnership or other association, other than a recognised trade association in relation to which the HMI Group Company has no liability or obligation except for the payment of annual subscription or membership fees.


9.2	All material written agreements between an HMI Group Company and any current or former Related Person currently in effect have been disclosed in the Data Room and have been entered into on normal commercial terms in the ordinary course of business.


9.3	No HMI Group Company is a party to any agreement which materially restricts any HMI Group Company from undertaking the HMI Business.


9.4	To the Knowledge of HMI, all contracts currently in effect to which any of the HMI Group Companies is a party and which are material to the HMI Business, are valid and binding obligations of the parties to those contracts and the terms of those contracts have been complied with in all material respects by the relevant HMI Group Company and by any other party to those contracts.


9.5	No written notice of termination or of the intention to terminate has been received by an HMI Group Company in respect of any contract currently in effect to which any of the HMI Group Companies is a party and which is material to the HMI Business.


9.6	The consummation of the Transaction will not result in a breach of, or give any third party a right to terminate any contract currently in effect to which any HMI Group Company is a party and which is material to the HMI Business.


10	Employees and employee benefits

EXECUTION VERSION


10.1	HMI has made available to ASML:


(a)	the total number of individuals employed by the HMI Group as at 31 May 2016; and


(b)	details of the formal employer, salary and other benefits, period of continuous employment and location of each employee whose annual salary (on the basis of full-time employment) is in excess of NTD 1,500,000 (" Senior Employees ").


10.2	No member of the HMI Group has received any written notice of resignation from any Senior Employee as of Signing.


10.3	No HMI Group Company is involved in any current on-going strike or industrial or trade dispute or any dispute or negotiation regarding a claim with any trade union or other body representing employees or former employees of any HMI Group Company.


10.4	The documents disclosed in the Data Room contain details of the rules and other documentation relating to all share incentive, share options, profit-sharing, bonus and other incentive arrangements in respect of any employee of any HMI Group Company.


10.5	To the Knowledge of HMI, the HMI Group's pension schemes are in compliance with their terms and with the Law and government Taxation or funding requirements in all material respects. All contributions and costs in relation to the pension schemes which are due have been paid by the relevant HMI Group Company to the pension providers.


11	Legal compliance

11.1

To the Knowledge of HMI, all required licences, permits, consents, authorisations, certificates and registrations (" Permits ") material to the HMI Business as carried on at Signing have been obtained, are in force and, are being complied with in all material respects. Since January 1, 2014, the HMI Group Companies have not received any written notice or other written communication from any Governmental Authority regarding any actual or threatened revocation, withdrawal, suspension, cancellation, termination, deficiency, dispute or modification with respect to any material Permit.


11.2	To the Knowledge of HMI, each HMI Group Company is conducting its business activities in material compliance with Law, or, if an HMI Group Company is not conducting its business activities in material compliance with Law, this will not have a Material Adverse Effect on the HMI Group.

EXECUTION VERSION

11.3

HMI maintains a code of ethics, code of conduct or similar legal compliance program of a type customarily maintained by a company listed on TPEx, and HMI has established and maintains a system of internal controls that is sufficient to prevent, monitor and address (potential) violation of Law, and provide reasonable assurance regarding compliance with Law and with such code of ethics, code of conduct or similar legal compliance program.

11.4

To the Knowledge of HMI, there is no charge, investigation, disciplinary proceeding or inquiry by, or order, decree, decision or judgment of, any court, tribunal, arbitrator, governmental agency or regulatory body outstanding against any HMI Group Company or any of their respective directors and officers, employees, agents or other third-parties acting for or on the behalf of any HMI Group Company, which would result in a Material Adverse Effect on the HMI Group.


11.5	No HMI Group Company has received any written notice during the twelve (12) months before the Signing Date from any court, tribunal, arbitrator, governmental agency or regulatory body with respect to a material violation and/or material failure to comply with any applicable Law.


11.6	To the Knowledge of HMI, there are no circumstances with respect to the HMI Business that has involved the making or offering of any payment or anything of value by HMI or any person acting on its behalf to any official or employee of any state-owned company, court, tribunal, arbitrator, governmental agency, regulatory body, political party, candidate for political office or any other person:


(a)	while knowing or having reason to know that money or something of value may be offered, given or promised, directly or indirectly, for the purpose of influencing any action or decision, inducing a person to use his or its influence with any court, tribunal, arbitrator, governmental agency or regulatory body to affect or influence any act or decision or secure any improper advantage;


(b)	in violation of Law; and/or


(c)	where such payment would constitute a bribe, corrupt act, unlawful kickback, facilitation payment, or otherwise illegal or improper payment to assist the HMI Group or any HMI Group Company in obtaining or retaining business for, or with, or directing business to, any Person.


11.7	To the Knowledge of HMI, each HMI Group Company, including any Person acting on its behalf, has conducted its export, import and related transactions in all material respects in material compliance with applicable Law relating to export and import control and Sanctions.


11.8	To the Knowledge of HMI, there are no circumstances that exist with respect to the HMI Business, including through any Person acting on its behalf, involving (a)

EXECUTION VERSION

transactions with any Restricted Party; (b) violation of any Sanctions; or (c) violation of any applicable export or import control Laws.


12	Environment


12.1	To the Knowledge of HMI, each HMI Group Company is conducting, and since January 1, 2014, has conducted the business activities of the HMI Group in material compliance with environmental Law.


12.2	Since January 1, 2014, no HMI Group Company has received any written notice of any civil, criminal, regulatory or administrative action, claim, investigation or other proceeding or suit relating to a violation of environmental Law or any material environmental permits.


13	Litigation


13.1	No HMI Group Company is involved, whether as claimant or defendant or other party, in any on-going claim, proceeding, litigation, prosecution, investigation, inquiry or arbitration (other than as claimant in the collection of debts arising in the ordinary course of its business) which is material to the HMI Business as at Signing.


13.2	To the Knowledge of HMI, no claim, proceeding, litigation, prosecution, investigation, inquiry or arbitration of material importance to the HMI Business is threatened against any HMI Group Company.


14	Insurance


14.1	The insurances of the HMI Group have been disclosed in the Data Room.


14.2	In respect of the insurances referred to in Paragraph 14.1 all premiums due before the Signing Date have been duly paid to date and HMI has not received any notification that the insurances are not valid or enforceable.


14.3	Details of all outstanding insurance claims in excess of NTD 10 million and of all insurance claims in excess of NTD 10 million made during the three (3) years preceding the Signing Date have been disclosed in the Data Room.


15	Products

Since January 1, 2014, no individual claims of more than NTD 10 million and in aggregate not more than NTD 100 million have been made against any HMI Group Company in respect of any products which have been manufactured or sold by any HMI Group Company.

EXECUTION VERSION


16	Tax

16.1

All material Tax Liabilities whether actual, deferred, contingent or disputed, of each member of the HMI Group, on a consolidated basis: (i) measured by reference to income, profits or gains earned, accrued or received on or before the Accounts Date, or (ii) arising in respect of an Event occurring or arising on or before (whether wholly or partly) the Accounts Date, are fully provided for or (as appropriate) disclosed in the Consolidated Financial Statements. In the period starting on the Accounts Date and ending at the end of the Completion Date, (i) no Event has occurred which has or may have the effect of materially prejudicing any Relief taken into account in computing or eliminating the provision for deferred Tax contained in the Accounts, and (ii) no member of the HMI Group has been involved in any transaction which has given or may give rise to a material Tax Liability other than in respect of normal trading income or receipts of the member of the HMI Group concerned arising from transactions entered into by it in the ordinary course of business.

16.2

Each member of the HMI Group has duly, and within any appropriate time limits, made all material Tax Returns, given all material notices and supplied all other information required to be supplied to all relevant Tax Authorities and has maintained all records required to be maintained for Tax purposes; all such information was and remains complete and accurate in all material respects and all the Tax Returns and notices were and remain complete and accurate in all material respects.


16.3	No member of the HMI Group is involved in any current dispute with any Tax Authority. Since January 1, 2014, no member of the HMI Group has been the subject of any Tax Audit by any Tax Authority.


16.4	There is no action or proceeding pending or, to the Knowledge of HMI, threatened in writing against any HMI Group Company with respect to any Taxes.

16.5

Any material Tax incentives and concessions, including Tax holidays, Tax refunds, or similar Tax attributes claimed by the HMI Group, have been supported by relevant approval from the applicable Governmental Authorities and all information supplied to any Tax Authority or other appropriate authority in connection with any such incentives and concessions contains full and accurate disclosure of all relevant material facts and circumstances. To the Knowledge of HMI, there are no facts or circumstances that could cause any such incentive or concession to be revoked or annulled or that could result in a claw-back or repayment of the benefits resulting therefrom.


16.6	No material written claim has been made by a Governmental Authority in a jurisdiction where an HMI Group Company does not file Tax Returns that an HMI Group Company is or may be subject to Tax in that jurisdiction.

EXECUTION VERSION


16.7	No member of the HMI Group has claimed any Relief, including roll-over relief, exemption, deferral or facility that is subject to a potential claw-back, revision or other condition.


17	Disclosure of information


17.1	To the Knowledge of HMI, as at Signing, no information has intentionally been withheld that (a) is important for a prospective purchaser of the Shares to obtain a true and fair view of the business, material assets and material Liabilities of the HMI Group as at the Signing Date or (b) would make any HMI Disclosed Information (as at Signing) materially untrue or inaccurate.

EXECUTION VERSION


Schedule 6	Post-Completion organisation plan


1	Management team

After Completion, the senior management team of HMI will consist of:


(a)	Jack Jau as CEO;


(b)	Leo Shen as CFO; and


(c)	Zhong Wei Chen as CTO.


2	Post-Completion organisation


2.1	ASML currently envisions that, after Completion, the headquarters of HMI will remain in Taiwan, HMI's research and development activities will continue to be located in Taiwan and San Jose, CA, United States, and manufacturing of e-beam hardware will continue to be done in Taiwan.


2.2	Notwithstanding the foregoing, after Completion, ASML and HMI will explore how certain key functions within ASML and HMI may potentially be integrated in order to further cooperation and efficiency of business operations. Some examples of possible integration include:


(a)	ASML's defect-prediction (PFC) software team and HMI's R&D department, resulting in one combined team with a shared roadmap;


(b)	joint teams of application engineers;


(c)	a combined sales and marketing team; and


(d)	certain support functions for HMI to be provided in part by the ASML organisation.


3	Employee retention

ASML considers the employees of HMI to be a critical component of the HMI Business going forward and does not currently envision implementing significant cost savings following Completion through reduction of the number of employees of the HMI Group. In addition, in connection with this Agreement, ASML has entered into (or will prior to Completion enter into) separate retention agreements with certain key employees of HMI on terms mutually acceptable to ASML and such employees.

EXECUTION VERSION


Schedule 7	Funding of payment for Dissenting Shares


1	Loan

1.1

In the event HMI will have to make payments to Dissenting Shareholders with respect to buy back of Dissenting Shares prior to Completion and the required aggregate payments to Dissenting Shareholders exceed US$100,000,000 (one hundred million US Dollars) (such excess amount, the " Loan Amount "), the Parties shall promptly enter into good faith discussions to agree on a mutually acceptable way to fund such payments in the following order:


(a)	HMI shall first seek external bank financing on terms reasonably acceptable to ASML and HMI for the Loan Amount (the " External Loan "), it being understood that external bank financing offered at Taiwan market rates and terms shall be deemed acceptable;


(b)	if HMI is unable to obtain sufficient external bank financing for the Loan Amount in accordance with Paragraph 1.1(a) within 50 days of the date of the EGM, ASML will promptly seek to obtain external bank financing for the External Loan for HMI at Taiwan market rates and terms, such External Loan to be guaranteed by ASML;


(c)	if within 70 days of the date of the EGM no External Loan has been obtained, ASML agrees to provide a 3-year loan to HMI for a principal amount equal to the Loan Amount (the " ASML Loan "). The interest on the ASML Loan will be equal to the interest to be paid by ASML under its revolving credit facility;


(d)	the Parties shall cooperate in good faith to cause the External Loan or the ASML Loan, as the case may be, to be available for draw down by HMI reasonably in advance of the 90th day from the date of the EGM for payment to Dissenting Shareholders.


2	Termination of Agreement and Convertible Bond

2.1

In the event the Share Swap Agreement is terminated prior to Completion and an External Loan or ASML Loan is then outstanding, the Parties shall first enter into good faith discussions within 30 days of such termination to seek a mutually acceptable resolution for repayment by HMI of the External Loan or the ASML Loan, as the case may be. If the Parties are unable to reach an agreement at the end of such 30-day period, the Parties shall promptly work with each other for HMI to issue convertible bonds (the " Convertible Bonds ") by way of private placement to ASML as soon as practicable in an amount equal to the outstanding amount of the External

EXECUTION VERSION

Loan or the ASML Loan, as applicable. ASML will subscribe to all such Convertible Bonds, subject to (i) HMI shareholder approval for the private placement and, if required, increase of HMI's authorised share capital to allow for full conversion of the Convertible Bonds and (ii) all required consents, filings, notifications and approvals of or with Governmental Authorities required for the issuance and conversion of the Convertible Bonds having been made or obtained. HMI shall use the proceeds of the Convertible Bonds to repay the External Loan or the ASML Loan, as applicable, as soon as possible after subscription by ASML to the Convertible Bonds.


2.2	The principal terms of the Convertible Bonds are as follows:



Maturity	3 years from issuance
Principal Amount	amount outstanding under External Loan or ASML Loan, as applicable, including any accrued interest
Redemption	HMI may redeem at par value at any time prior to maturity with 30 days' notice
Interest	0% coupon; 0% yield to maturity
Conversion Price	buy-back price of Dissenting Shares, adjusted for any dividends, distributions and changes in share capital after the issuance of the Convertible Bonds
Conversion	ASML may elect to convert some or all Convertible Bonds into ordinary shares of HMI at Conversion Price at any time during the 3-year period
Mandatory Conversion	all Convertible Bonds outstanding at maturity will be mandatorily converted into ordinary shares of HMI at Conversion Price


Schedule 8	Announcement

Exhibit 4.15



	Investment Agreement

regarding

an indirect investment in

Carl Zeiss SMT GmbH

dated

2 November 2016

TABLE OF CONTENTS

A. RECITALS 6

B. SHARE PURCHASE AND ASSIGNMENT AGREEMENT ("SPA") 8

1. Sale and Assignment of Partnership Interest in SMT Holding KG 8

2. Transfer of Shares in SMT GmbH 8

3. Transfer of Shares in Carl Zeiss SMS Ltd. (Israel) 9

4. Purchase Price 9

5. Domination and Profit and Loss Transfer Agreement 10

6. Closing 10

7. Representations, Warranties and Liability 13

8. Further Covenants of CZ AG (No Leakage and Conduct of Business) 23

9. Taxes 24

C. CORPORATE GOVERNANCE OF THE SMT GROUP AND OTHER PROVISIONS 28

1. Partnership Agreement of SMT Holding KG 28

2. Articles of Association of SMT Holding Management GmbH 28

3. Articles of Association of SMT GmbH 28

4. By-Laws and Rules of Procedures of SMT Group Companies 28

5. Relations between CZ Group and SMT Group 29

6. Future Lock-up and Exit Rules 30

7. Agreements for period after ASML Exit 31

8. Reporting Table 32

D. MISCELLANEOUS 33

1. Notices 33

2. Confidentiality 33

3. Fees 33

4. Amendments 33

5. Entire Agreement 34

6. Assignment 34

7. No Waiver 34

8. Exclusion of Ordinary Termination Right 34

9. Applicable Law and Jurisdiction 34

10. Interpretation 35

Definitions 38

INVESTMENT AGREEMENT

between


1.	ASML Holding N.V. , a stock corporation, established under the laws of the Netherlands, having its registered seat in Veldhoven, the Netherlands, located at De Run 6501, 5504 DR Veldhoven, the Netherlands, registered under no. 10785815,

(hereinafter referred to as " ASML "),

and


2.	Carl Zeiss AG , a stock corporation ( Aktiengesellschaft ), established under the laws of Germany, having its registered seat in Oberkochen, Germany, located at Carl-Zeiss-Straße 22, 73447 Oberkochen, Germany, registered in the commercial register of the Local Court of Ulm, Germany under no. HRB 501555,

(hereinafter referred to as " CZ AG "),

and


3.	Carl Zeiss SMT GmbH , a limited liability company ( GmbH ), established under the laws of Germany, having its registered seat in Oberkochen, Germany, located at Rudolf-Eber-Straße 2, 73447 Oberkochen, Germany, registered in the commercial register of the Local Court of Ulm, Germany under no. HRB 725667,

(hereinafter referred to as " SMT GmbH " or the " Company "),

and


4.	Carl Zeiss SMT Holding GmbH & Co. KG , a limited partnership ( Kommanditgesellschaft ), established under the laws of Germany, having its registered seat in Oberkochen, Germany, located at Rudolf-Eber-Straße 2, 73447 Oberkochen, Germany, registered in the commercial register of the Local Court of Ulm, Germany under no. HRA 725098,

(hereinafter referred to as " SMT Holding KG " or the " JV Company "),

and


5.	Carl Zeiss SMT Holding Management GmbH , a limited liability company ( GmbH ), established under the laws of Germany, having its registered seat in Oberkochen, Germany, located at Rudolf-Eber-Straße 2, 73447 Oberkochen, Germany, registered in the commercial register of the Local Court of Ulm, Germany under no. HRB 734127,

(hereinafter referred to as " SMT Holding Management GmbH "),

(ASML, CZ AG, SMT GmbH, SMT Holding KG and SMT Holding Management GmbH hereinafter also referred to as the " Parties " or individually as a " Party ").

* * *


A.	RECITALS


1.	SMT GmbH covers with its product portfolio a variety of key processes in the production of microchips. The Company develops and manufactures lithography optics, optical systems for semiconductor manufacturing equipment as well as systems and solutions for manufacturing defect-free photomasks.


2.	ASML is one of the world's leading manufacturers of chip-making equipment. It is engaged in the business of inventing, developing, manufacturing and servicing advanced technology for high-tech lithography, metrology and software solutions for the semiconductor industry.

SMT GmbH and ASML have a longstanding and successful business relationship which dates back into the 1990ies. The Parties intend to strengthen their relationship through an (indirect) equity investment by ASML into SMT GmbH and corresponding agreements in this context. The joint aim of the equity investment, besides the generation of profits, is, subject to the terms and conditions of this Investment Agreement, (i) a better alignment of interests, (ii) higher transparency and (iii) a greater degree of trust between the Parties.

SMT GmbH, at the date of signing this Investment Agreement, still is a 100% subsidiary of CZ AG. It is, however, the intention of the Parties that CZ AG shall transfer its share in the Company (i.e. 100% of the entire share capital) to SMT Holding KG which has been founded solely for purposes of the transactions contemplated by this Investment Agreement, and which shall serve as joint venture entity into which ASML will invest. CZ AG currently is the sole limited partner ( Kommanditist ) of SMT Holding KG. SMT Holding Management GmbH, which currently is and shall continue to be a 100% subsidiary of CZ AG, is the only general partner ( Komplementärin ) of SMT Holding KG. SMT Holding Management GmbH as of the date of this Investment Agreement does not have a capital participation in SMT Holding KG but shall obtain a capital participation in SMT Holding KG of 0.1% before Closing.

In consideration of the foregoing, ASML wishes to invest into the Company indirectly through the acquisition of a 24.9% limited partnership interest ( Kommanditanteil ) in SMT Holding KG after such JV Company has become the sole shareholder of SMT GmbH. CZ AG will remain the majority limited partner of the JV Company with a limited partnership interest ( Kommandit-anteil ) of 75%. CZ AG will also remain the sole shareholder of SMT Holding Management GmbH, which shall be the sole general and managing partner ( Komplementär ) of SMT Holding KG with a capital participation of 0.1%.

The Parties agree that the future corporate governance structure of SMT GmbH as well as of SMT Holding KG, SMT Holding Management GmbH and SMT Israel (as defined below) (these four companies hereinafter together also referred to as the " SMT Group Companies " or " SMT Group " and individually as " SMT Group Company ") shall reflect that (i) the SMT Group Companies together with the business of SMT Group shall be consolidated by CZ AG (CZ AG together with its affiliated companies, with the exclusion of the SMT Group Companies, hereinafter referred to as the " CZ Group Companies " or " CZ Group ") with the ultimate decision power with respect to the SMT Group remaining with CZ AG as the majority shareholder of the JV Company and (ii) ASML shall be granted certain shareholder, consent and information rights as an indirect minority shareholder of SMT GmbH and as a direct minority shareholder of the JV Company, as specified and contemplated in this Investment Agreement and its Annexes and the corporate

documents of the SMT Group Companies that shall come into effect on or before the Closing Date (as defined in Section B 6.1 below).


7.	Now therefore, the Parties wish to enter into the following agreements:


─	CZ AG wishes to sell a 24.9% limited partnership interest (Kommanditanteil) in SMT Holding KG and ASML wishes to acquire such partnership interest subject to the terms and conditions of the Share Purchase and Assignment Agreement ("SPA") under Part B of this Investment Agreement.

─

In connection with the SPA, the Parties agree that, each as a condition precedent of the Closing (as defined in Section B.6.1 below), (i) CZ AG, ASML and SMT Holding Management GmbH shall enter into a revised partnership agreement of SMT Holding KG, (ii) CZ AG shall resolve revised articles of association of SMT Holding Management GmbH, and (iii) certain revised by-laws ( Geschäftsordnungen ) shall come into effect for the SMT Group Companies, each as set out under Part C of this Investment Agreement.


─	Finally, various miscellaneous general provisions concerning this Investment Agreement as set out under Part D of this Investment Agreement.


B.	SHARE PURCHASE AND ASSIGNMENT AGREEMENT ("SPA")


1.	Sale and Assignment of Partnership Interest in SMT Holding KG

1.1

CZ AG's fully paid-in limited partnership interest ( Kapitalanteil ) in SMT Holding KG, which is equal to its registered limited partner's contribution ( Kommanditeinlage, Hafteinlage ), amounts (at the time of Closing after the prior execution of the transfer and contribution agreement mentioned below in Section B.2.1) to EUR 100,000 (in words: Euro one hundred thousand). CZ AG hereby sells to ASML, and ASML hereby purchases from CZ AG, a limited partnership interest in SMT Holding KG in the amount of EUR 24,900 (in words: Euro twenty four thousand and nine hundred) – which equals 24.9% of the limited partnership capital ( Gesellschaftskapital ) in SMT Holding KG (the " Minority Limited Partnership Interest "). CZ AG shall be the only other limited partner with a limited partner's contribution ( Kommanditeinlage, Hafteinlage ) of EUR 75,000 (in words: Euro seventy five thousand) – which equals 75.0% of the limited partnership capital (the " Majority Limited Partnership Interest "). Subject to the sale and transfer mentioned below in Section B.2.3, SMT Holding Management GmbH shall remain the only general partner of the JV Company with a capital contribution of EUR 100 (in words: Euro one hundred) which equals 0.1% of the limited partnership capital.

1.2

Subject to the Closing Conditions and as of the Closing Date (each as defined below), CZ AG hereby transfers and assigns the Minority Limited Partnership Interest to ASML, who accepts such transfer and assignment. The transfer and assignment of the Minority Limited Partnership Interest shall be subject to the condition precedent ( aufschiebende Bedingung ) that the change of the limited partner and a corresponding notice of succession ( Rechtsnachfolgevermerk ) shall be registered in the commercial register of SMT Holding KG. CZ AG and ASML agree, however, to treat each other as if such transfer and assignment had become fully effective as of the Closing Date which shall also be the date on which the economic ownership in the Minority Limited Partnership Interest shall transfer to ASML.

1.3

The Minority Limited Partnership Interest is sold and transferred to ASML with all rights and obligations pertaining thereto, including a balance on the capital accounts of SMT Holding KG in the amount of EUR 24,900. ASML shall participate in the profits of SMT Holding KG with effect as of (i) 1 April 2017 if the Closing Date is on 3 April 2017, and (ii) if the Closing Date is later than 3 April 2017 the actual Closing Date, which shall be reflected in the distribution of profits for the fiscal year ending on 30 September 2017.


2.	Transfer of Shares in SMT GmbH

2.1

CZ AG hereby undertakes to assign as soon as practical after the execution of this Investment Agreement but at the latest until 31 December 2016 its 100% share in SMT GmbH in the nominal amount of EUR 49,985,090 (the " SMT Share ") to SMT Holding KG by way of contribution at book value pursuant to Section 24 of the German Transformation Tax Act ( Umwandlungs-steuergesetz ) in accordance with the share transfer and contribution agreement in the form attached hereto in Annex 2.1 . CZ AG shall provide ASML with a certified copy of the notarial deed by

virtue of which CZ AG has unconditionally assigned the SMT Share to SMT Holding KG after the execution of the relevant notarial deed.


2.2	SMT GmbH hereby undertakes to file after the execution of the assignment agreement mentioned in Section B.2.1 with the commercial register of the Local Court in Ulm the new shareholders list attached hereto in Annex 2.2 .


2.3	CZ AG hereby undertakes, as soon as practical after the execution of the assignment agreement mentioned in Section B.2.1 above but at the latest until 31 January 2017, to sell and assign to SMT Holding Management GmbH a partnership interest in SMT Holding KG in the amount of EUR 100 (in words: Euro one hundred) – which equals to 0.1% of the partnership capital in SMT Holding KG.


3.	Transfer of Shares in Carl Zeiss SMS Ltd. (Israel)

CZ AG hereby undertakes to procure that Carl Zeiss B.V. will sell and transfer (for a purchase price equal to the amount indicated in the attached share transfer agreement) as soon as practical but at the latest until 31 December 2016 its share in Carl Zeiss SMS Ltd. (Israel) (" SMT Israel ", together with the Company and SMT Holding KG, the " Target Companies ") to SMT GmbH in accordance with, and at the purchase price specified in, the share transfer agreement attached hereto as Annex 3 . For the avoidance of doubt, the relevant purchase price shall be paid by SMT GmbH at the time stipulated in Annex 3 and at the latest until 31 December 2016. CZ AG shall provide ASML with a certified copy of the relevant documents evidencing that Carl Zeiss B.V. has unconditionally assigned its share in SMT Israel to SMT GmbH after the execution of such documents.


4.	Purchase Price


4.1	The purchase price for the Minority Limited Partnership Interest (the " Purchase Price ") shall be equal to EUR 1,000,000,000 (in words: Euro one billion). The Purchase Price shall be fixed and subject to no adjustment. CZ AG shall not opt for VAT in respect of the sale and transfer of the Minority Limited Partnership Interest.

4.2

The Purchase Price shall be due and payable by ASML, without any right of set-off or retention, by irrevocable wire transfer of immediately available funds to the bank account no. IBAN DE81 6137 0086 0212 5367 00 of CZ AG with Deutsche Bank AG (bank identification code SWIFT: DEUTDESS613 (" Bank Account ") on, and with value date as of the Closing Date; provided that such payment shall be made concurrently with ( Zug um Zug ) the other Closing Actions contained below in Section B.6.7. CZ AG may replace the Bank Account with any other bank accounts at the latest 10 Business Days prior to the Closing Date by notifying ASML of such replacement.


5.	Domination and Profit and Loss Transfer Agreement

5.1

On 5 June 2002 CZ AG and SMT GmbH entered into a domination and profit and loss transfer agreement ( Beherrrschungs- und Ergebnisabführungsvertrag ) (hereinafter referred to as " DPLA "). CZ AG and SMT GmbH shall, promptly after the execution of this Investment Agreement, change the current fiscal year of SMT GmbH (running from 1 October through 30 September) to 31 March 2017. After the registration of the new fiscal year in the commercial register, CZ AG and SMT GmbH shall enter into an agreement mutually terminating the DPLA with effect as of 31 March 2017 on the basis of a termination agreement substantially in the form as attached hereto as Annex 5.1 . Thereafter, the fiscal year of SMT GmbH shall be changed back to 1 October through 30 September. CZ AG and SMT GmbH shall procure that all relevant approvals from the tax authorities will be obtained and filings with the competent commercial register will be promptly made.

5.2

CZ AG shall ensure that half-year accounts of SMT GmbH as of 31 March 2017 will be prepared in accordance with the generally accepted accounting principles in Germany applied on a consistent basis with those used in the preparation of the two preceding financial years (" Half-year Accounts 2017 "). The Half-year Accounts 2017 (together with all information reasonably necessary to adequately verify these accounts) shall be provided by CZ AG to and approved by ASML, which approval shall not be unreasonably delayed or withheld. The performance of the DPLA as of 31 March 2017 ( Durchführung ) shall be based on the Half-year Accounts 2017 approved by ASML.

5.3

The Parties agree and shall procure that a new domination and profit and loss transfer agreement ( Beherrschungs- und Ergebnisabführungsvertrag ) shall be concluded between SMT Holding KG as dominating shareholder and the Company as dominated entity which shall become effective as of 1 April 2017, 00:00 (the " New DPLA "). The New DPLA shall substantially be in the form as attached hereto as Annex 5.3 .


6.	Closing

6.1

The consummation of the transactions contemplated by this Investment Agreement, as set forth in Section B.6.2 below (the " Closing "), shall take place 5 Business Days (as defined below) after all of the conditions set forth below in Section B.6.2 of this Investment Agreement are met, but not before 3 April 2017. Notwithstanding the foregoing, the Parties may mutually agree that the Closing will take place on any other date. The date on which the Closing is completed is referred to herein as the " Closing Date ".


6.2	The Parties' obligation to effect the Closing shall be subject to the satisfaction of all of the following closing conditions, unless otherwise explicitly agreed between CZ AG and ASML (" Closing Conditions "):


a)	The Closing shall be permissible pursuant to the merger control laws of Germany, South Korea and, if applicable, other relevant jurisdictions; and


b)	prior to the Closing Date, no enforceable decision prohibiting the Closing has been issued against any Party; and

ASML has obtained (i) a certified copy of the notarial deed by virtue of which CZ AG has unconditionally assigned its share in SMT GmbH to SMT Holding KG in accordance with its undertaking pursuant to Section B.2.1, and the new shareholder list of SMT GmbH has been filed with the commercial register of SMT GmbH pursuant to Section B.2.2 as well as (ii) a certified copy of the agreement by virtue of which CZ AG has sold and transferred a limited partnership interest in SMT Holding KG in the amount of EUR 100 to SMT Holding Management GmbH in accordance with its undertaking pursuant to Section B.2.3; and

ASML has obtained a certified copy of the share transfer agreement by virtue of which Carl Zeiss B.V. has unconditionally transferred its share in SMT Israel to SMT GmbH in accordance with its undertaking pursuant to Section B.3 plus a copy of all other documents evidencing the transfer of the shares in SMT Israel to SMT GmbH (in particular the documents referred to in Section 3.2 of the relevant share transfer agreement); and


e)	The DPLA has been validly terminated as of 31 March 2017.

The Closing Conditions shall be deemed to have been fulfilled once Closing has occurred (irrespective of whether the Closing Conditions have been fulfilled or waived in accordance with Section B.6.5 below), and no Party shall be entitled to withdraw from the transaction by alleging the non-satisfaction of a Closing Condition.

6.3

ASML shall submit any necessary merger control filing(s) without undue delay after the date of this Investment Agreement to the German Federal Cartel Office ( Bundeskartellamt ), the South Korean and, if applicable, other jurisdiction competition authority. CZ AG and the SMT Group Companies shall provide to ASML all information regarding the SMT Group Companies' business as required for such filings. CZ AG and ASML shall fully support each other in relation to the relevant merger filings and procedures and take all commercially reasonable efforts to ensure that the relevant merger clearances will be granted, provided, however, that neither ASML nor CZ AG are obliged to dispose of any of their businesses in order to obtain a relevant merger clearance.

6.4

ASML undertakes to, between Signing and Closing, provide information to the works council of ASML Netherlands B.V. with respect to, and to facilitate the works council's right to provide its opinion on, the transactions contemplated by this Investment Agreement and any related transactions, in accordance with the agreement concluded between ASML, ASML Netherlands B.V. and the works council of ASML Netherlands B.V. on 21 August 2014. At the request of ASML,

CZ AG and the SMT Group Companies shall provide ASML with such information and cooperation as may reasonably be necessary for these purposes.


6.5	With respect to waiving the Closing Conditions the following shall apply:


a)	The Closing Conditions referred to in Sections B.6.2 a) (merger control) and b) (no injunction) shall not be waived at all.


a)	The Closing Conditions under Sections B.6.2c) (transfer of SMT GmbH) and d) (transfer of SMT Israel) and under Section B.6.2 e) (termination of DPLA) may be waived by ASML alone.

6.6

In case that not all of the Closing Conditions have been met by 31 October 2017, both ASML and CZ AG (acting also for SMT GmbH, SMT Holding KG and SMT Holding Management GmbH) have the right to withdraw from this Investment Agreement by written notice to the other Party. In this case, the Parties shall not have any liabilities against each other except for any liabilities for breaches of this Investment Agreement which have occurred prior to such withdrawal. No Party shall have any right of withdrawal if the non fulfilment of the relevant Closing Condition has been caused by such Party. The provisions set forth in Section C.7 and part D of this Investment Agreement shall survive any withdrawal under this provision or any other termination of this Agreement.


6.7	On the Closing Date, the Parties shall take the following actions (" Closing Actions "), which shall be taken simultaneously ( Zug-um-Zug ):


a)	ASML shall pay the Purchase Price in accordance with Section B.4.


b)	ASML, CZ AG and SMT Holding Management GmbH shall duly execute the notarial registration with the commercial register of SMT Holding KG for the registration of ASML as new limited partner and a corresponding notice of succession ( Rechtsnachfolgevermerk ) (as referred to in Section B.1.2).


c)	ASML, CZ AG and SMT Holding Management GmbH shall enter into the revised partnership agreement of SMT Holding KG in the form attached to this Investment Agreement as Annex 6.7 c) (the " Revised Partnership Agreement of SMT Holding KG ").


d)	CZ AG shall resolve the revised articles of association of SMT Holding Management GmbH in the form attached to this Investment Agreement as Annex 6.7 d) (the " Revised Articles of Association of SMT Holding Management GmbH ").


e)	SMT Holding KG shall resolve the revised by-laws for the managing directors of SMT GmbH in the form attached to this Investment Agreement as Annex 6.7 e) (the " Revised By-laws for the Managing Directors of SMT GmbH ").


f)	If not effected before, CZ AG shall resolve the revised by-laws for the managing directors of SMT Holding Management GmbH in the form attached to this Investment Agreement as Annex 6.7 f) (the " Revised By-laws for the Managing Directors of SMT Holding Management GmbH ").

ASML, CZ AG, SMT Holding KG, SMT GmbH and SMT Holding Management GmbH shall sign the closing protocol substantially in the form as attached in Annex 6.7 g) , confirming in particular payment and receipt of the Purchase Price and transfer of Minority Limited Partnership Interest, subject only to the registration of ASML as new limited partner and a corresponding notice of succession ( Rechtsnachfolgevermerk ) in the commercial register of the JV Company.

6.8

ASML has the right to designate until 1 March 2017 a direct or indirect wholly owned subsidiary of ASML to become a Party to this Investment Agreement replacing the position of ASML (" Designee "), provided that ASML shall continue to remain as a guarantor under this Investment Agreement guaranteeing the due fulfilment of all obligations of the Designee under or in connection with this Investment Agreement. The Parties shall take all necessary actions to validly include the Designee in this Investment Agreement without undue delay after ASML has notified all other Parties in writing of the appointment of the Designee.


7.	Representations, Warranties and Liability


7.1	CZ AG hereby represents and warrants to ASML by way of independent guarantees pursuant to section 311 (1) of the German Civil Code ( BGB ) that the following statements are true and correct as of the date of this Investment Agreement and, unless otherwise expressly stated, as of the Closing Date (" CZ AG’s Guarantees "):


a)	Title and Ownership of SMT Group Companies and Authorization


aa)	CZ AG is the sole owner of SMT Holding Management GmbH, SMT Holding KG and the Minority Limited Partnership Interest, as set forth in Section B.1.1 of this Investment Agreement.


bb)	CZ AG is fully authorized to sell and transfer the Minority Limited Partnership Interest in accordance with this Investment Agreement.

cc)

The Minority Limited Partnership Interest, the Majority Limited Partnership Interest and the shares in SMT Management Holding GmbH are free and clear of any rights of any third party or other defects of title ( Rechtsmängel ), are fully paid and have not been repaid, neither in whole nor in part. There are no other circumstances that would result in a liability of the limited partner in respect of the Limited Partnership Interest (including under § 172 (4) of the German Commercial Code ( HGB )).


dd)	CZ AG is, at the date of execution of this Investment Agreement, the sole owner of SMT GmbH, and SMT Holding KG shall be, at the Closing Date, the sole owner of SMT GmbH.


ee)	CZ AG is fully authorized to assign the SMT Share to SMT Holding KG in accordance with this Investment Agreement.


ff)	The SMT Share (i) has been duly authorized and validly issued, (ii) is fully paid up, non-assessable ( nicht nachschusspflichtig ), (iii) has not been repaid and (iv) is free and clear of any rights of any third party or other defects of title ( Rechtsmängel ).


gg)	Carl Zeiss B.V. is, at the date of execution of this Investment Agreement, the sole owner of SMT Israel, and SMT GmbH will be, at the Closing Date, the sole owner of SMT Israel. Other than SMT Israel, SMT GmbH does not have any other subsidiaries or participations and is under no commitment to acquire any subsidiaries or participations (in each case through an asset or share deal).


hh)	Carl Zeiss B.V. is fully authorized to transfer the shares in SMT Israel to SMT GmbH in accordance with this Investment Agreement.


ii)	All shares in SMT Israel (i) have been duly authorized and validly issued, (ii) are fully paid up, non-assessable ( nicht nachschusspflichtig ), (iii) have not been repaid and (iv) are free and clear of any rights of any third party or other defects of title ( Rechtsmängel ).

jj)

The SMT Group Companies are (except for the DPLA and the New DPLA) not party to any enterprise agreements within the meaning of Sections 291 and 292 German Stock Corporation Act ( AktG ), silent partnership or similar agreements which would entitle a third person to participate in the profits or revenues of any SMT Group Company or to exercise control over any SMT Group Company. There are no shareholders’ agreements pertaining to any SMT Group Company. There are no obligations to make any further contributions to the shares in any SMT Group Company ( Nachschusspflichten ).


kk)	SMT GmbH, SMT Holding KG and SMT Holding Management GmbH are duly incorporated and validly existing under the laws of Germany and SMT Israel under the laws of Israel, and each of the SMT Group Companies has all requisite corporate power and authority to own its respective properties and assets.


ll)	This Investment Agreement constitutes the legal, valid and binding obligation of CZ AG and the SMT Group Companies, enforceable under German laws against CZ AG and the SMT Group Companies in accordance with its terms. The execution

and performance of this Investment Agreement by CZ AG and the SMT Group Companies are within CZ AG's and the SMT Group Companies' corporate powers (except for the still outstanding approval of the supervisory board of SMT GmbH for the transfer of SMT Israel which shall be obtained until Closing), do not violate any applicable law, regulation, judgement, injunction, order, their articles of association or by-laws and have been duly authorized by all necessary corporate action on their part. There is no action, suit, investigation or proceeding pending against, or threatened against or affecting CZ AG or any of the SMT Group Companies which challenges or seeks to prevent the transactions contemplated by this Investment Agreement.


b)	No Insolvency

No insolvency proceedings are pending in respect of CZ AG or any of the SMT Group Companies or have been filed or are required to be filed by CZ AG or any of the SMT Group Companies and there are no circumstances which would require the filing of any such insolvency proceedings.


c)	Financial Statements


aa)	The (German GAAP) financial statements of SMT GmbH as of 30 September 2015, as delivered to ASML prior to the date hereof, have been audited by Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, and the audit opinion has not been qualified in any respect.

bb)

The (German GAAP) unaudited financial statements of SMT GmbH as of 30 September 2016 consisting of an unaudited income statement and balance sheet, as delivered to ASML prior to the date hereof (the " Reference Financial Statements "), have not yet been audited by Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, but to the knowledge of CZ AG there is currently no reason why the Reference Financial Statements should not be audited or why the audit opinion should be qualified in any respect.

cc)

The Reference Financial Statements and the financial statements of SMT GmbH as of 30 September 2015 have been prepared in accordance with the generally accepted accounting principles in Germany, applied on a basis consistent with those used in the preparation of the relevant financial statements for the preceding financial year (unless otherwise disclosed in the notes to the Reference Financial Statements and the financial statements of SMT GmbH as of 30 September 2015), and present in accordance with such principles a true and fair view of the net assets ( Vermögenslage ), financial condition ( Finanzlage ) and results of operations ( Ertragslage ) of SMT

GmbH as of, and with respect to the financial year ending on, 30 September 2016 and 30 September 2015, respectively.

dd)

The financial statements of SMT Israel as of 30 September 2015, as delivered to ASML prior to the date hereof, (the " Israeli Financial Statements "), have been prepared in accordance with local Israeli accounting principles, applied on a basis consistent with those used in the preparation of the relevant financial statements for the preceding financial year (unless otherwise disclosed in the notes to the financial statements of SMT Israel) and present in accordance with such principles a true and fair view of the financial position of SMT Israel as of, and with respect to the financial year ending on, 30 September 2015.

ee)

Since 30 September 2015, SMT Israel and since 30 September 2016 none of the remaining SMT Group Companies have incurred any material obligations or liabilities (in each case actual or contingent) outside the ordinary course of business. In relation to SMT Israel, no significant changes in business activities and/ or financial results have occurred since 30 September 2015 outside the ordinary course of business, but in any event there were no such changes that have had or could have a material adverse effect.

ff)

Except as disclosed in Exhibit 7.1. c) ff) to the SPA, SMT Holding KG is not subject to any kind of liabilities and obligations (in each case actual or contingent), other than those incurred in the context of their foundation or in the ordinary course of business (including the liabilities in connection with the employment of six employees and certain administrative costs in respect therewith). Except as disclosed in the Reference Financial Statements or in Exhibit 7.1. c) ff) to the SPA, none of the SMT Group Companies has issued any material surety, collateral or any other security instrument for any material obligations or liabilities of any third parties or any members of the CZ Group (except for hold-harmless letters and guarantees for customers and suppliers laid out in the ordinary course of business).


gg)	None of the accounts of SMT Holding KG (as laid down in the existing partnership agreement of SMT Holding KG and/or the Revised Partnership Agreement of SMT Holding KG) which will be transferred to ASML pursuant to this Investment Agreement will be negative.

hh)

The assets in the contractual trust arrangement(s) of the CZ Group (and to which SMT GmbH is also a party) regarding pension ( betriebliche Altersversorgung ) obligations and regarding old age part-time ( Altersteilzeit ) and part-time accounts ( Teilzeitkonten ) (the " CTAs ") which are covering parts of relevant pension, old age part-time and part-time obligations of the SMT Group Companies (i) are allocatable to SMT GmbH and

(ii) can, in case of a Separation in accordance with Section 10.8 a) of the Revised Partnership Agreement of SMT Holding KG, be transferred to an adequate vehicle to be set up by the relevant SMT Group Company or ASML. There are no assets covering any kind of pension, old age part-time and part-time obligations of any of the SMT Group Companies which are not owned by the relevant SMT Group Companies other than in the CTAs.


d)	Title to Assets; Encumbrances


aa)	The Target Companies are the legal or beneficial owner of all tangible fixed and current assets which are reflected in the Reference Financial Statements, except for assets disposed of since 30 September 2016 in the ordinary course of business and with the care of a prudent business person.

bb)

The assets owned by the Target Companies and referred to in the subparagraph aa) above are free and clear of any liens, pledges, mortgages, charges or other security interests or encumbrances in favour of any third party, except for (i) retention of title rights, liens, pledges or other security rights in favour of suppliers, mechanics, workmen, carriers and the like, (ii) security rights granted to banks and other financial institutions over cash and other assets deposited with such banks or financial institutions but solely based on the relevant bank’s general terms and conditions ( AGB ) and (iii) encumbrances or rights of third parties created under statutory law.


cc)	None of the SMT Group Companies does own any real property or real property like rights or has entered into any commitment to acquire any real property or real property like rights.

dd)

Except for the assets used by the CZ Group to provide services under the Service Level Agreements and except for such goods and services which SMT GmbH customarily acquires from its suppliers, the SMT Group Companies own all material assets (whether tangible or intangible) which are necessary for the conduct of SMT Group's business as presently conducted (disregarding the transactions contemplated by this Investment Agreement).


e)	Intellectual Property Rights

aa)

Other than certain intellectual property rights owned by suppliers and subject to the outcome of any proceedings pursuant to ee) below, the Target Companies own all intellectual property rights which are material for their businesses (" Owned Intellectual Property Rights ") or license such intellectual property rights (the " Licensed Intellectual Property Rights ", together with the Owned Intellectual Property Rights, the " Intellectual Property Rights ").


bb)	The Owned Intellectual Property Rights are not subject to any pledges or other tangible security rights of any third party.


cc)	The Target Companies have fulfilled all material obligations to their employees for inventions made in relation to Owned Intellectual Property Rights.

dd)

The Target Companies have paid all material registration fees and filed all renewal applications which are reasonably necessary to validly maintain all registrations with any regulatory authorities with respect to the Owned Intellectual Property Rights (it being understood that the management of SMT GmbH, in its sound business judgment, has decided in the past, and may decide until Closing Date, not to maintain all registrations of its Owned Intellectual Property Rights, provided, however, that such Owned Intellectual Property Rights are not material for the relevant businesses of the Target Companies).


ee)	Except as for cases known to ASML, as of the date hereof, none of the Intellectual Property Rights is either subject to any outstanding judgments, injunctions, orders or decrees issued against the Target Companies or, to the knowledge of CZ AG, to any threatened litigation which materially restricts the use of the technology that is material for their business.


f)	Governmental Permits; Compliance with Laws

aa)

The SMT Group Companies have all material governmental permits and authorizations (other than those required by or relating to any Tax matters or Environmental Matters) which are required in order to operate their businesses, as presently conducted (the " Governmental Permits ") and no Governmental Permit has been cancelled or revoked towards the SMT Group Companies by any competent authority nor has any of the SMT Group Companies received any written notice by any such authority that it intends to cancel or revoke or add any conditions ( Auflagen ) to any Governmental Permit and, to the knowledge of CZ AG, there is no indication that any Governmental Permit will be cancelled or become subject to any conditions or revoked in whole or in part.

bb)

To the knowledge of CZ AG, the SMT Group Companies are, as of the date hereof, in no violation of any applicable law, regulations or Governmental Permit, in each case as in effect, enforced and interpreted on the date hereof, provided that such violation has had or would have a material adverse effect on the business of the SMT Group. As of the date hereof, none of the SMT Group Companies has received any notice of, and, to the knowledge of CZ AG, the SMT Group Companies are under no investigation with respect to any such violation.


g)	Environmental Matters

aa)

To the knowledge of CZ AG, except for the properties used by SMT Israel, the properties used by the Target Companies on the date hereof are free from any contamination, pollution or other hazardous materials that are existing in or on the soil, subsurface, air, groundwater or surface water or in buildings, facilities or plants (the " Environmental Contamination ") which has been caused by any business activity of the Target Companies in violation of any environmental laws, and requires under any decision or judgement or under any environmental laws as currently in effect or under any enforceable decision by any court or governmental authority any clean-up, containment measures or any other comparable measures, and no requirement to take any such measures has been threatened in writing. Other than SMT Israel, no other SMT Group Companies can be held liable in whatever form for any kind of Environmental Contamination in relation to the properties used by SMT Israel.

bb)

To the knowledge of CZ AG, no proceeding or investigation is pending before, or conducted by, any court or public authority the subject matter of which is any Environmental Contamination of any property used by the Target Companies or the violation of any environmental laws by the Target Companies, provided that any such matter has had, or would have, a material adverse effect on the business of the SMT Group.


h)	Litigation

aa)

As of the date hereof, no lawsuit or other proceeding of principle or material nature for the SMT Group Companies’ business or involving an amount in excess of EUR 1,000,000 (excluding costs and fees) is pending against any of the Target Companies (as claimant or defendant) before any state court, arbitrator or governmental authority and, to the knowledge of CZ AG, no such lawsuit or proceeding has been threatened against any of the SMT Group Companies.


bb)	As of the date hereof, the SMT Group Companies are not subject to any decision by a court or governmental authority that materially limits their ability to operate their businesses in the ordinary course and, to the knowledge of CZ AG, there is no reason to believe that such decision could be issued against any Target Company.


i)	Employee and Labor Matters


aa)	Exhibit 7.1 i) aa) to the SPA sets forth, as of the date hereof, a true and complete list of all managing directors of the SMT Group Companies and all employees of the Target Companies whose annual base salary (excluding any performance-related

payments, bonuses and benefits) exceeds an amount of EUR 250,000 (the " Key Employees "). To the knowledge of CZ AG, none of the Key Employees has given or received written notice of termination of his or her employment or service agreement or has entered into a termination agreement with the relevant entity and there is no indication that any of the Key Employees will terminate its employment or service agreement. No payment or benefit which will become payable or arise as a result of the transactions contemplated by this Investment Agreement (other than compensation for extra workload and the like) has been promised to any employees, officers or directors of any of the Target Companies for which any of the Target Companies could become liable.

bb)

The Target Companies have not made any pension commitment to anybody, except for any commitments under the pension plans referred to in the Reference Financial Statements, the Israeli Financial Statements or in the actuarial reports listed in Exhibit 7.1. i) bb) to the SPA (the " Pension Commitments ") and except for pensions financed by the employees themselves such as direct insurance, pension pool ( Pensionskasse ), and deferred compensation, none of which need to be recorded on a balance sheet. All Pension Commitments and all commitments related to old-age part-time ( Altersteilzeit ) obligations comply with and have been administered in compliance with applicable laws and the rules stipulated in the Pension Commitments. The Target Companies have fulfilled all material obligations under and in connection with the Pension Commitments.


cc)	To the knowledge of CZ AG, the Target Companies are not subject to any private law or administrative proceedings ( arbeitsrechtliche oder behördliche Verfahren ) in connection with fictitious freelancers ( Scheinselbständige ). The Target Companies have a process in place in order to ensure compliance with respect to fictitious freelancers.


j)	Insurance Coverage of the SMT Group Companies


aa)	The Target Companies are insured under group insurance policies of CZ Group as are customary for companies of their size and nature and have all insurances which are legally mandatory or required by binding contractual obligations.

bb)

All such policies are in full force and effect and, to the knowledge of CZ AG, (i) the Target Companies or the respective CZ Group Company, as the case may be, are in compliance with all material obligations under such insurance policies, to the extent required to maintain the insurance coverage, and (ii) there are no material claims by any of the Target Companies pending under any of such policies as to which coverage has been questioned, denied or disputed by the insurer.


k)	Conduct of Business since 30 September 2015/2016

Except for any transactions contemplated by or any facts or events disclosed in Exhibit 7.1 k) to the SPA or otherwise in this Investment Agreement, in the period between (i) 30 September 2015 and the date hereof the businesses of SMT Israel, and (ii) 30 September 2016 and the date hereof the businesses of the remaining SMT Group Companies (to the extent that the relevant entity already existed) have been conducted in the ordinary course with the care of a prudent business person and in particular, there has not been:


aa)	any merger or similar business combination between any of the SMT Group Companies and any third party;


bb)	any acquisition or divestiture by any of the SMT Group Companies of a shareholding or business;


cc)	any incurrence by any of the SMT Group Companies of any indebtedness for borrowed money in addition to any indebtedness or guarantee shown or disclosed in the Reference Financial Statements, other than any indebtedness incurred under existing credit lines or from the CZ Group also shown in the Reference Financial Statements;


dd)	any capital expenditure by any of the SMT Group Companies, by additions or improvements to property, plant or equipment, in excess of EUR 2,500,000 each, which is not provided for in any plan, budget or reporting disclosed to ASML in the data room;


ee)	any transaction entered into by any of the SMT Group Companies outside the ordinary course of business which has had, or could have, a material adverse effect on the business of the SMT Group; or


ff)	any damage, destruction or other casualty loss (whether or not covered by insurance) of any material assets used by any of the SMT Group Companies, which has had, or could have, a material adverse effect on the business of the SMT Group.


l)	Material Agreements

The Target Companies have not entered into any material agreements (including agreements between any of the Target Companies and any other member of the CZ Group), (i) which are (wholly or partly) outside the ordinary course of business, (ii) which could have a material adverse effect on the business of the Target Companies taken as a whole, or (iii) that give a right of termination for the contractual counterparty due to the transactions contemplated by this Investment Agreement. To the knowledge of CZ AG, neither the Target Companies nor the relevant contractual counterparties are in material default with any material

provisions of such agreements which have or could reasonably be expected to have a material adverse effect on the business of the Target Companies taken as a whole.


m)	Subsidies

To the knowledge of CZ AG, (i) the Target Companies are in material compliance with the terms of any public grants ( Zuschüsse ), allowances, aids ( Beihilfen ) or other subsidies ( Subventionen ) unknown to ASML and exceeding EUR 500,000 in the individual case which were granted to them during the last three years preceding the date hereof (the " Subsidies "), and (ii) the relevant authorities have not terminated, revoked, withdrawn or otherwise cancelled in writing any of the Subsidies, and (iii) the Subsidies cannot be terminated, be added with conditions, revoked, withdrawn or otherwise cancelled as a result of the consummation of the transactions contemplated by this Investment Agreement.


n)	Disclosure

To the knowledge of CZ AG, (i) all material facts and circumstances which under the given circumstances and in light of the relation of the Parties are necessary to appropriately evaluate the investment of ASML pursuant to this Investment Agreement have been disclosed to ASML and such disclosures were correct in all material respects, and (ii) all answers given to ASML as part of the various due diligence expert telephone conferences held on 7 and 12 October 2016 (" Expert Sessions ") were correct in all material respects. ASML confirms that it asked all material questions that under the given circumstances and in light of the relation of the Parties it deemed necessary to appropriately evaluate the investment of ASML pursuant to this Investment Agreement, provided, however, that this confirmation shall in no way impede the preceding sentence which shall remain fully unaffected by the confirmation of ASML.


o)	No Other Representations and Warranties

ASML agrees to accept the Minority Limited Partnership Interest in the condition it is in on the Closing Date, based upon its own inspection, examination and determination with respect thereto (including the due diligence investigation conducted by ASML), without reliance upon any express or implied representations, warranties or information of any nature made or provided by CZ AG or SMT GmbH or any employee, advisor, agent or other representative of CZ AG, other than the warranties of CZ AG expressly contained in this Agreement. ASML acknowledges that CZ AG does not assume any disclosure or similar obligations in connection with the transactions contemplated hereby beyond the warranties expressly contained in this Agreement.


7.2	In the event of any breach or inaccuracy of, or non-fulfillment by CZ AG of any of CZ AG's Guarantees or any covenants (except for those in Section B.9) granted by CZ AG (the " Breach "),

CZ AG shall pay to ASML an amount equal to any damages (within the meaning of sections 249 et seq. of the German Civil Code ( BGB )) arising out of such Breach; provided, however, that (i) ASML shall first grant CZ AG the opportunity to remedy the matter within a reasonable period of time (which shall in no event exceed twelve weeks upon receipt by CZ AG of ASML's notice of the inaccuracy of the representation and warranty), except where such remedy is not possible or is refused by CZ AG, and that (ii) any damages shall be calculated in consideration of the relative shareholding of ASML in SMT Holding KG and the indirect shareholding in the relevant Target Companies. The "knowledge of CZ AG" shall include the knowledge of the managing directors of the SMT Group Companies, in each case including the knowledge they should have after due inquiry within CZ AG Group and the SMT Group Companies. However and in any case, CZ AG shall not be liable for the inaccuracy of any CZ AG's Guarantees if ASML knows of the inaccuracy or should have known of such inaccuracy after due inquiry within ASML Group. Section 442 of the German Civil Code ( BGB ) and Section 377 of the German Commercial Code ( HGB ) shall not apply to ASML, provided, however, that this non-application shall in no way impede the preceding sentence which shall remain fully unaffected by the non-application of the statutory provisions.

7.3

CZ AG shall only be liable for any damages resulting from any individual Breach or a series of Breaches if a claim exceeds an amount of EUR 375,000 (the " De Minimis Amount ") and the aggregate amount of all claims resulting from individual Breaches exceeds an aggregate amount of EUR 5,000,000 (the " Threshold "), in which case the excess amounts plus 50% of the Threshold amount shall be recoverable. The limitations of this Section B.7.3 shall not apply to claims for Breaches of CZ AG's Guarantees in Section B.7.1a) (the " Title Claims "), and any other obligations, indemnities and covenants in this Investment Agreement outside CZ AG’s Guarantees (together the " Exempted Claims ").


7.4	CZ AG's aggregate liability for any claims of ASML under or in connection with this part B of the Investment Agreement shall be limited to an aggregate amount of 15% of the Purchase Price except for (i) Exempted Claims and (ii) claims under Section B.9, which shall be limited to an aggregate amount of 100% of the Purchase Price.


7.5	Any claims of ASML under or in connection with this part B of this Investment Agreement, including Breaches of CZ AG's Guarantees, shall become time-barred ( verjähren ) 18 months after the Closing Date or six months after the audited financial statements for the Company for the fiscal year ending on 30 September 2017 have been delivered to ASML, whatever occurs later, except for


a)	Title Claims which shall become time-barred ( verjähren ) on the fifth (5th) anniversary of the Closing Date;


b)	claims arising as a result of a Breach of Section B.7.1g) (Environmental Matters) which shall become time-barred ( verjähren ) on the third (3rd) anniversary of the Closing Date; and


c)	claims under Section B.9 which shall become time-barred in accordance with Section B.9.9.

7.6

To the extent permitted by mandatory law and except for any claims for fraud or willful misconduct ( Vorsatz ), any rights and remedies of CZ AG and ASML in addition to those set forth in part B of this Investment Agreement, including, without limitation, any claims under the statutory representations and warranties (Sec. 434 et seq. of the German Civil Code ( BGB )), for breach of any statutory pre-contractual or additional contractual obligations (Sec. 311 (1) and (2) and Sec. 280 of the German Civil Code ( BGB )) or for frustration of contract (Sec. 313 of the German Civil Code ( BGB )) and any right to rescind or otherwise terminate this Investment Agreement, shall be excluded.

7.7

If CZ AG, SMT Holding Management GmbH or SMT GmbH become(s) aware of any facts or circumstances which constitute, or are reasonably likely to constitute, a Breach, CZ AG and SMT Holding Management GmbH or SMT GmbH shall notify ASML thereof and provide ASML with all information reasonably necessary to adequately analyse the (potential) Breach. ASML shall be entitled to request all information which is reasonably necessary to identify a Breach.


8.	Further Covenants of CZ AG (No Leakage and Conduct of Business)

8.1

CZ AG covenants to ASML that, except for (i) the payments under the DPLA by virtue of which the profits of SMT GmbH for the period between 1 October 2016 and 31 March 2017 as determined by the Half-year Accounts 2017 will be transferred to CZ AG (but not any other payments under the DPLA, such as a repayment of capital reserves), and (ii) any payments contained in Exhibit 8.1 for the period between 30 September 2016 and the Closing Date, no leakages have occurred or will occur, including, without limitation, the following:


a)	no dividends or other distributions (whether by reduction of capital ( Stammkapital oder Kapitalrücklagen ) or redemption ( Einziehung ) or purchase of shares or otherwise) are paid or made by any of the SMT Group Companies to CZ AG or any entity of the CZ Group;


b)	the share capital of the Company and any SMT Group Company is not increased, reduced or repaid;


c)	no SMT Group Company makes any payments to CZ AG or any entity of the CZ Group, except under the SLA (as defined below) or in the ordinary course of business or for payments

explicitly set forth under the SPA (such as, e.g., the current inclusion of SMT GmbH in the cash pooling of the CZ Group);


d)	no SMT Group Company (i) assumes from CZ AG or any entity of the CZ Group any financial debt owed by CZ AG or any entity of the CZ Group, (ii) waives any claims vis-à-vis CZ AG or any entity of the CZ Group or (iii), pays, commits to pay or guarantees for any financial debt owed by CZ AG or any entity of the CZ Group to third parties;


e)	no payments, incurrence or assumption of any liabilities or other advantages of any kind or waiver of any rights by a SMT Group Company vis-à-vis third parties for the benefit of CZ AG or any entity of the CZ Group have occured;


f)	any tax becoming payable by any SMT Group Company as a consequence of any of the matters referred to in a) to e) above.


8.2	CZ AG agrees to pay, in the event of a breach of the covenant contained in Section B.8.1 above, to ASML an amount equal to 24.9% of the amount of any payment or the fair market value of any other benefit made or granted by any of the SMT Group Companies in breach of Section B.8.1 above.

8.3

From the date of this Investment Agreement to the Closing Date, CZ AG shall ensure that, during such period, the SMT Group Companies will continue to conduct its respective businesses, in the ordinary course, consistent with past practice and with the care of a prudent business person (except as contemplated by this Investment Agreement and the agreements connected therewith or as may be approved by ASML).


9.	Taxes

9.1

" Tax " or " Taxes " means (i) any taxes ( Steuern ) and auxiliary levies ( steuerliche Nebenleistungen ) as defined in Section 3 of the German Fiscal Code ( Abgabenordnung ) and equivalent taxes and levies under foreign law, (ii) any other levies or duties ( Abgaben ) under German or foreign law, including (but not limited to) customs duties and social security contributions, (iii) any obligation to repay public allowances ( Zulagen ) or subsidies ( Beihilfen ), (iv) administrative fines, (v) any secondary liability ( Haftungsschulden ) for any of the aforementioned items, (vi) any liability for payment of amounts referred to in clauses (i) through (v) (whether based on law or contract), in particular as a result of any tax sharing, tax indemnity or tax allocation agreement and (vii) in each case together with any interest, penalty, fine or addition thereto (but excluding, for the avoidance of doubt, deferred taxes).


9.2	CZ AG shall pay to ASML 24.9% of any Taxes imposed on or payable by any of the Target Companies and relating to the time period ( Zeitraum ) prior to and including the Closing Date (irrespective of whether or not such Taxes are assessed/payable for a Tax period or based on single

events), provided that CZ AG shall not be liable vis-à-vis ASML (and the payment claim shall be reduced accordingly) if and to the extent


a)	the relevant Tax in case of SMT GmbH (i) has been paid before 1 October 2016 or (ii) is shown as a specific liability or a specific provision in the Reference Financial Statements or (iii) has been properly paid or accrued ( auflaufen ) in the time period from 1 October 2016 until the Closing Date in the ordinary course of business;


b)	the relevant Tax in case of SMT Israel (i) has been paid before 1 October 2015 or (ii) is shown as a specific liability or a specific provision in the Israeli Financial Statements or (iii) has been properly paid or accrued ( auflaufen ) in the time period from 1 October 2015 until the Closing Date in the ordinary course of business;


c)	the relevant Tax in case of SMT Holding KG has been properly paid or accrued ( auflaufen ) in the time period from 29 September 2016 until the Closing Date in the ordinary course of business;


d)	the relevant Tax has been recovered from a third party (other than any SMT Group Company), net of any Taxes due on the recovery amount;

any of the Target Companies expects to receive (based on the business forecast) benefits in the form of a reduction of Taxes otherwise payable as a result of the circumstance giving rise to the payment claim and which benefits arise for the time period ( Zeitraum ) after the Closing Date as a reversal effect ( Umkehreffekt ), including in particular benefits resulting from the lengthening of any amortization or depreciation periods, a step-up in the Tax basis of assets or the non-recognition of liabilities or provisions ( Phasenverschiebung ) but excluding any benefits resulting from, or in connection with, any kind of deferred Taxes such as in particular any potential benefits realized after the Closing Date which are related to differences between SMT GmbH's German GAAP books and tax books existing prior to Closing Date (herein collectively " Tax Benefits "), it being understood that 24.9% of the net present value of the corresponding Tax Benefits shall reduce the payment claim. The net present value shall be calculated on the basis of (i) the Tax rates applicable (or expected to be applicable) in the year in which the respective Tax Benefits arise, and (ii) an applied discount factor of six (6) per cent p.a. If the discount period cannot be determined a period of five (5) years shall be used. Any step up at the level of SMT Holding KG as a result of the transactions contemplated by this Investment Agreement shall not be deemed as a Tax Benefit within the meaning of this provision.


9.3	ASML shall pay to CZ AG 24.9% of (a) any refund of Taxes received by SMT GmbH and relating to the time period ( Zeitraum ) prior to and including the Closing Date, unless and to the extent such Tax refund is (i) received prior to 1 October 2016, (ii) shown in the Reference Financial Statements

or (iii) is received or accrued ( auflaufen ) in the time period from 1 October 2016 until the Closing Date in the ordinary course of business, (b) any refund of Taxes received by SMT Israel and relating to the time period ( Zeitraum ) prior to and including the Closing Date, unless and to the extent such Tax refund is (i) received prior to 1 October 2015, (ii) shown in the Israeli Financial Statements or (iii) is received or accrued ( auflaufen ) in the time period from 1 October 2015 until the Closing Date in the ordinary course of business, and (c) any refund of Taxes received by SMT Holding KG and relating to the time period from 29 September 2016 until the Closing Date unless and to the extent received or accrued ( auflaufen ) in the ordinary course of business, provided in each case that if such Tax refund is connected with an increase of Taxes after the Closing Date as a reversal effect, Section B.9.2 e) shall apply accordingly to the effect of reducing the amount payable by ASML under this provision, and (d) any Tax Benefits (as defined above) actually received and realized by SMT GmbH and SMT Holding KG for the time period after the Closing Date as a result of a (subsequent) reversal increase of income before the Closing Date which lead to additional income Taxes payable at the level of CZ AG because of the fiscal unity created by the DPLA, unless such Tax Benefits (i) have already reduced any claim of ASML under this Section B.9. or (ii) are connected with payments made by ASML Netherlands B.V. prior to and including the Closing Date to SMT GmbH under the HNA Development Agreement concluded or to be concluded between ASML Netherlands B.V. and SMT GmbH on or around the date hereof or any predecessor agreements between any members of the ASML Group and members of the CZ AG Group (including, but not limited to the High NA Risk Balancing Agreement dated 10 November 2015, the Amendment I to the EUV 34x0 Risk Balancing Agreement dated 10 April 2015 as well as all similar agreements also including the cooperation agreement dated 25 November 1997), which Tax Benefits (if any) shall not be reimbursed under this Section B.9.3.

9.4

In addition, CZ AG shall indemnify and hold harmless (a) SMT Holding KG from and against any trade Taxes triggered by the sale and transfer of the Minority Limited Partnership Interest to ASML under this Investment Agreement and the acquisition of the 0.1% capital participation by SMT Holding Management GmbH, (b) (as from 1 April 2017) ASML, SMT Holding KG and SMT GmbH from and against any Taxes resulting from excess distributions ( Mehrabführungen ) under the New DPLA caused by the time period prior to the New DPLA coming into existence within the meaning of Section 14(3) 1 ^st sentence of the German Corporate Income Tax Act ( KStG ), and (c) (as from 1 April 2017) ASML, SMT Holding KG and SMT GmbH from and against any Taxes resulting from the non-recognition of the fiscal unity for income Tax purposes under the New DPLA, it being understood that such indemnification shall terminate for the future if either (i) before the conclusion of the New DPLA the competent Tax authority issues a binding ruling according to Section 89(2) of the German Fiscal Code ( AO ) or (ii) after there has been a fiscal audit ( Betriebsprüfung ) of SMT Holding KG and SMT GmbH finalized for the fiscal year ending on 30 September 2017 (and corresponding Tax assessments have been issued and become non-appealable), the competent Tax authority issues a binding ruling within the meaning of Sections

204 through 206 of the German Fiscal Code ( AO ), in each case confirming (without limitations to the scope of the ruling, i.e. in particular covering the fulfillment of the requirements set out in Section 14(1) 1 ^st sentence no. 2 of the German Corporate Income Tax Act ( KStG )) that the fiscal unity under the New DPLA is to be recognized for income Tax purposes going forward; CZAG ensures to abide by the fact pattern as set out in the underlying ruling request. ASML shall have a right to enforce the claims of SMT Holding KG and SMT GmbH against CZ AG under this provision.

9.5

Any amounts payable under Section B.9.2 shall be due five (5) Business Days before the respective Tax is due for payment based on a formally binding assessment ( formell bestandskräftige Festsetzung ). Any amounts payable under Section B.9.3 shall be due five (5) Business Days after receipt of the Tax refund / Tax Benefits based on a formally binding assessment ( formell bestandskräftige Festsetzung ). Any amounts payable under Section B.9.4 shall be due and payable five (5) Business Days before the respective Tax is due for payment, irrespective of whether or not the relevant Tax is non-appealable; in case such Tax is reduced subsequently based on an ultimate, final and binding assessment, it shall be refunded to CZ AG. Payments between CZ AG and ASML under Sections B.7, B.8 and B.9 shall be treated as an adjustment to the Purchase Price. Should an indemnity payment of CZ AG under this Section B.9 lead to Taxes at the level of the indemnitee, then CZ AG shall make a corresponding gross-up payment to the indemnitee. ASML shall take, to the extent legally possible, reasonable efforts to mitigate any negative Tax effects of an indemnification payment.

9.6

CZ AG and ASML shall fully cooperate for the purpose of this Section B.9; Section B.7.7 shall apply accordingly. Any Tax period comprising the Closing Date shall be deemed to be split into one period ending on the Closing Date and another period starting thereafter for the purpose of allocating Taxes under this Section B.9. For the avoidance of doubt, (i) any (secondary) liability (whether based on law or contract) and (ii) any interest, penalty, fine or addition, in each case relating to underlying Taxes which are attributable to the time period prior to and including the Closing Date, shall likewise be treated to relate to the time period prior to and including the Closing Date even if such items accrue, or come into existence, only after the Closing Date.


9.7	CZ AG hereby represents and warrants to ASML that as of the Closing Date no Tax allocation agreements ( Steuerumlageverträge ) between the CZ Group and the SMT Group are in place, and that no obligations could arise for the Target Companies out of any former Tax allocation agreements.


9.8	In case that CZ AG breaches its obligation set forth in Section B.4.1 third sentence, it shall bear any VAT and the Purchase Price shall be a gross amount including any applicable VAT.


9.9	All claims under this Section B.9 shall be time-barred ( verjährt ) six (6) months after the later of (i) the ultimate, final and binding assessment ( endgültig bestandskräftige Festsetzung ) and (ii) the

statutory limitation of the relevant Tax, but not before six (6) months after ASML has been informed about such claims.


C.	CORPORATE GOVERNANCE OF THE SMT GROUP AND OTHER PROVISIONS


1.	Partnership Agreement of SMT Holding KG

CZ AG, ASML and SMT Holding Management GmbH shall enter into the Revised Partnership Agreement of SMT Holding KG as of the Closing Date.


2.	Articles of Association of SMT Holding Management GmbH

CZ AG shall, as soon as practical after the date hereof and at the latest as of the Closing Date, resolve upon the Revised Articles of Association of SMT Holding Management GmbH and shall procure that all other action necessary for effecting the change in the revised articles of association are taken (in particular registration with the commercial register, Handelsregisteranmeldung ).


3.	Articles of Association of SMT GmbH

CZ AG and SMT Holding Management GmbH shall procure that the Articles of Association of SMT GmbH attached as Annex C 3 shall not be changed without the prior written consent of ASML.


4.	By-Laws and Rules of Procedures of SMT Group Companies

The Parties shall procure that the following by-laws and rules of procedures ( Geschäfts-ordnungen ) for the SMT Group Companies shall be resolved upon as follows and not be changed without the prior written consent of ASML:


4.1	Revised By-laws for the Managing Directors of SMT Holding Management GmbH.


4.2	Revised By-laws for the Managing Directors of SMT GmbH.

CZ AG shall use its best efforts to ensure that (i) the current list of items for which the management of SMT GmbH needs consent of the supervisory board and (ii) the By-laws for the supervisory board of SMT GmbH, a copy of which is attached as Annex C 4.2 , shall not be changed.


5.	Relations between CZ Group and SMT Group

5.1

The Parties acknowledge and accept that there currently are various intra-group agreements between the SMT Group Companies and members of the CZ Group in place which cover the following areas: service level agreements for human resources, legal, tax, IT, research & development, business and infrastructure (incl. cleaning), accounting, security, PR and communications as well as financial services (" Service Level Agreements "), agreements for the supply and purchase of goods (" Product Supply and Purchase Agreements "), rental agreements regarding real estate (" Rental Agreements "), energy provisions agreements (" Energy Provisions Agreements "), license agreements regarding intellectual property (" IP Agreements "), shareholder loan / cash pooling agreements (" Finance Agreements ") and the trademark license agreement (these agreements together the " Current Intra-group Agreements "). The Parties agree that the Current Intra-group Agreements shall continue to remain in place. If and to the extent reasonably necessary, additional agreements between the SMT Group and the CZ Group shall be entered into (" Additional Intra-group Agreements ", together with the Current Intra-group Agreements, the " Intra-group Agreements ").


5.2	The Intra-group Agreements shall always be based on the following principles:


a)	The terms and conditions of any Intra-group Agreements shall always be at arm's length.

Any fees in relation to Service Level Agreements (current and future) shall be charged on the basis of the internal costs incurred by the relevant member of the CZ Group (" Cost Base ") plus a margin of 5%, provided, however, that with respect to any services which are ultimately provided by third parties (and only be procured by members of the CZ Group) the relevant third party costs shall simply be passed on and the member of the SMT Group shall only pay the third party costs without any margin.


c)	CZ AG may review on an annual basis and adapt the Cost Base reflecting changes in the relevant business conditions, however only in line with the Intra-Group Principles and with the consent of the relevant entity of the SMT Group.

In relation to (i) Finance Agreements, no SMT group company shall be obliged to grant any kind of security to any member of the CZ Group, (ii) the CTAs, CZ AG shall ensure that all contributions by the relevant SMT Group Companies for the obligations covered by the CTAs will be for the benefit of current or former employees only. In addition, CZ AG shall ensure that neither the CTAs nor any related contractual arrangements will be entered into, terminated or changed in a way that a transfer of relevant assets covering pension, old age part-time and part-time obligations of the SMT Group Companies pursuant to Section 10.8 a) of the Revised Partnership Agreement of SMT Holding KG will be negatively affected, in each case without the prior written approval of ASML which shall not unreasonably be withheld.


e)	The Intra-group Agreements of the SMT Group Companies shall not have less favorable conditions than the other intra-group agreements within the CZ Group, e.g. such intra-group agreements with Carl Zeiss Meditec AG and its affiliated companies ("most-favoured-nations-clause").

All principles set forth in Section C.5.2 together the " Intra-Group Principles ".


5.3	CZ AG shall ensure that all Current Intra-group Agreements will be amended, if necessary, so as to comply with the Intra-Group Principles until Closing. Should it turn out, at any time after Closing, that any of the Intra-group Agreements are not in compliance with the Intra-Group Principles, CZ AG shall ensure that the relevant Intra-Group Agreement will be amended accordingly.

5.4

To the extent that expenses for employees (including bonuses and incentive payments) that exclusively or predominantly work for any of the SMT Group Companies are currently borne by CZ AG or another CZ Group Company, such expenses that can be allocated to the SMT Group shall then be borne by the relevant SMT Group Companies after the Closing Date, provided that expenses for employees that do not work exclusively for the SMT Group Companies shall only be borne pro rata by the SMT Group Companies, provided, however, that such expenses must not be included in the Cost Base and must not be subject to the relevant 5% margin.

5.5

CZ AG shall ensure that SMT GmbH prepares as of 30 September a yearly report on related party transactions of SMT GmbH ( Abhängigkeitsbericht ) (" Related Party Transactions Report ") that will be provided to ASML. The Related Party Transactions Report shall be audited by the statutory auditor ( Abschlussprüfer ) of SMT GmbH and contain an auditor declaration similar as provided for in section 313 (3) of the German Stock Corporation Act ( Prüfungsvermerk zum Abhängigkeitsbericht ). CZ AG shall be obliged to compensate any relevant company of the SMT

Group for any financial disadvantages certified in the auditor report or if and to the extent the Intra-group Agreements do not comply with the Intra-Group Principles. ASML, through its members of the Shareholders Committee of SMT Holding KG, shall have the right to review the Related Party Transactions Report, in particular with respect to any compensation of disadvantages ( Nachteilsausgleich ) made by CZ AG to SMT Group Companies. CZ AG shall also inform the Shareholders Committee of SMT Holding KG about any material change in the Intra-group Agreements (together with substantiated information as to the reasons and background of such changes).


6.	Future Lock-up and Exit Rules

6.1

The Parties believe that it is desirable to agree on provisions regarding an extended transfer restriction for CZ AG in exchange for certain rights for CZ AG. The Parties shall, until the expiration of 24 months after the date hereof (" Negotiation Period "), use best efforts in agreeing in good faith on mutually acceptable provisions for such extended transfer restriction for CZ AG and corresponding rights for CZ AG (the " Future Lock-up and Exit Rules "). The Parties shall then include the Future Lock-up and Exit Rules in the Revised Partnership Agreement of SMT Holding KG which shall likely be inserted in Section 9 of the Revised Partnership Agreement of SMT Holding KG (which currently is intentionally left blank) and replace or, as the case may be, amend the transfer restrictions set forth in Sections 10.3 through 10.8 of the Revised Partnership Agreement of SMT Holding KG. During the Negotiation Period, the transfer restrictions set forth in Sections 10.3 (for CZ AG) and 10.9 (Guarantee Transferring LP) of the Revised Partnership Agreement of SMT Holding KG shall apply. For the avoidance of doubt, the transfer restrictions set forth in Sections 10.2 (for ASML) and 10.9 (Guarantee Transferring LP) of the Revised Partnership Agreement of SMT Holding KG shall also apply during the Negotiation Period and, in any case, also thereafter.


6.2	Should the Parties not agree on the Future Lock-up and Exit Rules (the " Non-agreement "), the provisions of Sections 10.1 and 10.2 as well as Sections 10.4 through 10.9 of the Revised Partnership Agreement of SMT Holding KG shall apply.


7.	Agreements for Period after ASML Exit

In case that ASML exercises the ASML Put Option, as referred to in Section 8.6 d) of the Revised Partnership Agreement of SMT Holding KG and, as a consequence, the Revised Partnership Agreement of SMT Holding KG terminates (the " ASML Exit "), the rules set forth in Sections C.7.1 and C.7.2 shall apply:


7.1	The provisions of Sections 10.1, 10.5 through 10.9 of the Revised Partnership Agreement of SMT Holding KG, and the provisions referenced therein, shall apply mutatis mutandis and as

applicable in such scenario, accordingly related to 100% of the partnership interest. ASML shall then accordingly be entitled to a right of first refusal if (i) CZ AG disposes of any of its shares in SMT Holding KG / SMT Holding Management GmbH (or any other general partner of the Partnership) or allows any third party to receive shares in SMT Holding KG / SMT Holding Management GmbH (or any other general partner of the Partnership), or (ii) SMT Holding KG disposes of any of its shares in SMT GmbH or any of its direct or indirect subsidiaries or participations or allows any third party to receive shares in SMT GmbH or any of its direct or indirect subsidiaries or participations, or (iii) SMT GmbH disposes of all or substantially all of its assets (in one or more steps); all of the above excluding any transfers within the CZ Group, which companies will then be subject to this Section C.7.1 as well as Sections 10.1, 10.5 through 10.9 of the Revised Partnership Agreement of SMT Holding KG with respect to the relevant shares and assets.

7.2

In case that the Parties agree on Future Lock-up and Exit Rules (and only in such case), the following shall apply for the time period during which CZ AG still might have an agreed exit opportunity, as may be agreed during the Negotiation Period after the ASML Exit: CZ AG shall not (i) dispose of or allow to be disposed of 1) any shares in SMT Holding KG or SMT Holding Management GmbH (or any other general partner of the Partnership), (b) the shares in SMT GmbH or any of its direct or indirect subsidiaries or participations, and (c) all or a material part of the assets of SMT GmbH or any of its direct or indirect subsidiaries or participations (exceeding a fair value of EUR 150 Mio. in one or a series of transactions), or (ii) replace SMT Holding Management GmbH with a different entity which is not a wholly owned subsidiary (directly or indirectly) of CZ AG, or (iii) allow any third party to receive any shares in SMT Holding KG, SMT Management Holding GmbH (or any other general partner of the Partnership), SMT GmbH or any of SMT GmbH's direct or indirect subsidiaries or participations through a capital increase, transformation within the meaning of the German Transformation Act ( Umwandlungsgesetz ) or any corresponding provisions of non-German law or otherwise, unless, in each case, ASML has granted its prior written approval to such a transaction or receives the right to acquire the relevant shares or assets in a way corresponding to ASML's rights in Sections 10.7 and 10.8 of the Revised Partnership Agreement of SMT Holding KG that shall apply mutatis mutandis .


8.	Reporting Table

8.1

The content of the information to be provided pursuant to Section 14.2 of the Revised Partnership Agreement of SMT Holding KG and the time frame for the provision of the information will be discussed and agreed upon between ASML and CZ AG in good faith between signing of this Investment Agreement and Closing, taking fully into account the principles set forth in Section 14.2 of the Revised Partnership Agreement of SMT Holding KG.


8.2	ASML has informed CZ AG that it must comply with the following reporting requirements under US GAAP and IFRS, which hence should be accommodated in the discussions and agreements pursuant to Section 8.1.


a)	Quarterly and annual reporting


aa)	Q uarterly : US GAAP and EU-IFRS income statement for the current quarter.

bb) Annual : US GAAP and EU-IFRS income statement and Business Enterprise Valuation (BEV) based on a discounted cash flow model.


b)	Timing

A SML must comply with its public reporting calendar. For example, for 2016, the due dates for the reporting package were April 5 for Q1, July 5 for Q2, October 4 for Q3. Q4 will be covered by the Annual Financial Statements as per September 30.


c)	Additional Information

ASML may have additional information and disclosure obligations for public filings and financial statements (e.g. statutory interim report, statutory management report).


D.	MISCELLANEOUS


1.	Notices

All notices, requests and other communications under or in connection with this Investment Agreement shall be made in writing in the English language and delivered by hand, courier, mail or telefax.


2.	Confidentiality

Each Party shall keep confidential and not disclose to any third party the content of this Investment Agreement and any business and trade secrets and other confidential information regarding the other Party disclosed to it in connection with this Investment Agreement or its implementation, except as expressly agreed upon with the other Party. Any press releases and other public communication in connection with this Investment Agreement shall require the prior consent of the respective other Party. Notwithstanding the above, each Party may disclose any information as required in order to comply with applicable law, the rules and regulations of any stock exchange or regulatory authority or an order or demand of a court or public authority or if required in any legal, administrative, regulatory or arbitration proceedings; provided, however, that the relevant

Party shall, to the extent legally permissible and practicable, notify the other Party thereof in advance and seek to agree with it upon the content of the information in light of applicable regulatory requirements.


3.	Fees


3.1	Subject to Section D.3.3, ASML shall bear fees for the notarization of this Investment Agreement and fees with any merger control authority.


3.2	CZ AG shall bear all fees, costs, expenses and Taxes arising under and in connection with the sale and transfer of the share in (i) SMT GmbH to SMT Holding KG and in (ii) SMT Israel to SMT GmbH. In addition, CZ AG shall bear all fees, costs and expenses arising under and in connection with the termination of the DPLA and the entering into the New DPLA.


3.3	Otherwise, each Party shall pay its own expenses, including the fees of its advisors and counsel, incurred in connection with this Investment Agreement and the implementation of the transactions contemplated hereby.


4.	Amendments

Any amendment or supplement to this Investment Agreement and any waiver of a right hereunder must be made by written instrument executed by the Parties and explicitly referring to this Investment Agreement, unless a stricter form is required by law. The foregoing provisions shall also apply with respect to a waiver of the requirement of the written form pursuant to this Section D.4.


5.	Entire Agreement

This Investment Agreement (including all Annexes and Exhibits hereto) contains the entire agreement between the Parties with respect to the subject matter hereof. No side agreements have been entered into.


6.	Assignment

Except as expressly set forth in this Investment Agreement or permitted under mandatory law, no Party may assign, delegate or otherwise transfer any of its rights or obligations under this Investment Agreement without the prior consent of the other Party.


7.	No Waiver

No provision of this Investment Agreement is intended to confer any rights or remedies upon any person or entity other than the Parties. No action or omission of a Party shall be deemed to constitute an implied waiver of any right under this Investment Agreement or an acceptance of any breach hereof.


8.	Exclusion of Ordinary Termination Right

The Parties agree that an ordinary termination of the continuing legal relationships created by this Investment Agreement shall be excluded to the extent legally permissible unless expressly set forth in this Investment Agreement and its Exhibits or Annexes.


9.	Applicable Law and Jurisdiction


9.1	This Investment Agreement and its Annexes (including, for the avoidance of doubt, the arbitration clause in Section D.9.2) shall be governed by the laws of the Federal Republic of Germany.

9.2

The Parties submit to the exclusive jurisdiction of an arbitral tribunal. All disputes arising out or in connection with this Investment Agreement or its validity (including this Section D.9.2) shall be finally settled according to the arbitration rules of the German Institution of Arbitration e.V. ( Deutsche Institution für Schiedsgerichtsbarkeit ) without recourse to the ordinary courts of law. The applicable substantive law for the arbitration proceedings shall be the laws of the Federal Republic of Germany; the applicable procedural law for the arbitration proceedings shall be solely the German Civil Process Code ( Zivilprozessordnung, ZPO ) without, for the avoidance of doubt, any discovery proceedings. The arbitral tribunal shall consist of three arbitrators, appointed in accordance with the abovementioned arbitration rules. The language of the arbitral proceedings shall be English; provided however, that documents originally existing in the German language may be submitted in the German language. The version of the arbitration rules of the German Institution of Arbitration e.V. ( Deutsche Institution für Schiedsgerichtsbarkeit ) which are applicable at the time of the initiation of the arbitration proceeding shall apply. The venue for the arbitration proceedings shall be Stuttgart, Germany.


10.	Interpretation

10.1

The headings of the sections and subsections in this Investment Agreement are for convenience purposes only and shall not affect the interpretation of any of the provisions hereof. The Annexes and Exhibits to this Investment Agreement are an integral part of this Investment Agreement and any reference to this Investment Agreement includes this Investment Agreement and the Annexes and Exhibits as a whole. For the purpose of this Investment Agreement, a " Business Day " shall mean any day on which banks in Frankfurt am Main, Germany, are generally open for business.

10.2

Should any provision of this Investment Agreement, or any provision incorporated into this Investment Agreement in the future, be or become invalid or unenforceable, the validity or enforceability of the other provisions of this Investment Agreement shall not be affected thereby. The invalid or unenforceable provision shall be deemed to be substituted by a suitable and equitable provision which, to the extent legally permissible, comes as close as possible to the economic intent and purpose of the invalid or unenforceable provision. The same shall apply: (i) if the Parties have, unintentionally, failed to address a certain matter in this Investment Agreement; in this case a suitable and equitable provision shall be deemed to have been agreed upon which reflects what the Parties, in the light of the economic intent and purpose of this Investment Agreement, would have agreed upon if they had considered the matter; or (ii) if any provision of this Investment Agreement is invalid because of the scope of any time period or performance stipulated herein; in this case a legally permissible time period or performance shall be deemed to have been agreed upon which comes as close as possible to the stipulated time period or performance.


10.3	This Investment Agreement is executed in the English language. Where a German term has been added in parenthesis after an English term, only such German term shall be decisive for the interpretation of the relevant English term whenever such English term is used in this Investment Agreement.

* * *

Frankfurt am Main, 2 November 2016

For ASML Holding N.V. :

/s/ Otto Klaassen

Otto Klaassen, Attorney-in-Fact,

based on a power of attorney

For Carl Zeiss AG :

/s/ Klaus Birkle

Klaus Birkle, Attorney-in-Fact,

based on a power of attorney

For Carl Zeiss SMT GmBH :

/s/ Henning Schulz

Henning Schulz, Attorney-in-Fact,

based on a power of attorney

For Carl Zeiss SMT Holding GmBH & Co. KG :

/s/ Tobias de Raet

Dr. Tobias de Raet, Attorney-in-Fact,

based on a power of attorney

For Carl Zeiss SMT Holding Management GmBH :

/s/ Elyas Abasi

Elyas Abasi, Attorney-in-Fact,

based on a power of attorney

and a delegated power of attorney

LIST OF ANNEXES



Annex	2.1	SMT GmbH Share Transfer Agreement
Annex	2.2	Shareholders List of SMT GmbH
Annex	3	Share Transfer Agreement for SMT Israel
Annex	5.1	DPLA Termination Agreement
Annex	5.3	New DPLA
Annex 6.7	c)	Revised Partnership Agreement of SMT Holding KG
Annex 6.7	d)	Revised Articles of Association of SMT Holding Management GmbH
Annex 6.7	e)	Revised By-laws for the Managing Directors of SMT GmbH
Annex 6.7	f)	Revised By-laws for the Managing Directors of SMT Holding Management GmbH
Annex 6.7	g)	Closing Protocol
Annex 7.1 c) ff)	aa)	Disclosed Liabilities and Obligations
Exhibit 7.1 i)	aa))	Managing Directors and Key Employees
Exhibit 7.1. i)	bb)	Pension Commitments
Exhibit 7.1	k)	Conduct of Business
Exhibit	8.1	Permitted Leakage
Annex C	3	Articles of Association of SMT GmbH
Annex C	4.2	By-laws for the Supervisory Board of SMT GmbH

DEFINITIONS



ASML defined in	Introduction
Breach defined in	B.7.2
Business Day defined in	D.10.1
Closing defined in	B.6.1
Closing Actions defined in	B.6.7
Closing Conditions defined in	B.6.2
Closing Date defined in	B.6.1
Company defined in	Introduction
CTAs defined in	B.7.1c)hh)
CZ AG defined in	Introduction
CZ AG’s Guarantees defined in	B.7.1
CZ Group defined in	A.6.
CZ Group Companies defined in	A.6.
De Minimis Amount defined in	B.7.3
Designee defined in	B.6.8
DPLA defined in	B.5.1



Environmental Contamination defined in	B.7.1g)
Exempted Claims defined in	B.7.3
Governmental Permits defined in	B.7.1f)aa)
Intra-Group Agreements defined in	C.5.1
JV Company defined in	Introduction
Key Employees defined in	B.7.i)aa)
Licensed Intellectual Property Rights defined in	B.7.1e)aa)
Majority Limited Partnership Interest defined in	B.1.1
Minority Limited Partnership Interest defined in	B.1.1
New DPLA defined in	B.5.3
Owned Intellectual Property Rights defined in	B.7.1e)
Parties defined in	Introduction
Party defined in	Introduction
Pension Commitments defined in	B.7.i)bb)
Purchase Price defined in	B.4.1
Reference Financial Statements defined in	B.7.1c)bb)
Related Party Transaction Report defined in	C.5.5
Revised Articles of Association of SMT Holding Management GmbH defined in	B.6.7d)
Revised By-laws for the Managing Directors of SMT GmbH defined in	B.6.7e)
Revised By-laws for the Managing Directors of SMT Holding Management GmbH defined in	B.6.7f)
Revised Partnership Agreement of SMT Holding KG defined in	B.6.7c)
SMT Group Companies defined in	A.6.
SMT Group Company defined in	A.6.
SMT Holding KG defined in	Introduction
SMT Holding Management GmbH defined in	Introduction
SMT Israel defined in	B.3
SMT Share defined in	B.2.1
SMT GmbH defined in	Introduction
SMT Group defined in	A.6
SPA defined in	A.7
Subsidies defined in	B.7.1m)
Target Companies defined in	B.3
Threshold defined in	B.7.3
Title Claims defined in	B.7.3

Annex 6.7 c)



	Partnership and Joint Venture Agreement

Carl Zeiss SMT Holding GmbH & Co. KG

("Partnership")

dated

[[●]. [●] 2017] [Date of Closing]

TABLE OF CONTENTS

Preamble 4

1. Form of Partnership and Registered Office, Business Name, Duration 4

2. Object of the Partnership and Business Year 4

3. General Partner 5

4. Limited Partners, Partnership Interests and Contributions 6

5. Partners' Accounts 6

6. Partners Meeting ( Gesellschafterversammlung ) 7

7. Shareholders Committee ( Beirat ) 8

8. Management of the Partnership 10

9. [Intentionally left blank] 11

10. Intra group transfers, Transfer Restrictions and CZ Exit Process 12

11. Put Option Valuation 16

12. Appointment and Revocation of Managing Directors of SMT GmbH 16

13. Operational Committees 16

14. Reporting, Information 17

15. Annual Accounts; Profits and Losses 19

16. Expelling of a Partner ( Ausschluss aus wichtigem Grund ) 19

17. Compensation of an Expelled Partner 19

18. Dissolution, Liquidation 20

19. Tax Clauses 20

20. Final Provisions 23

Definitions 34

PARTNERSHIP AND JOINT VENTURE AGREEMENT

between


1.	Carl Zeiss AG , a stock corporation ( Aktiengesellschaft ), established under the laws of Germany, having its registered seat in Oberkochen, Germany, located at Carl-Zeiss-Straße 22, 73447 Oberkochen, Germany, registered in the commercial register of the Local Court of Ulm, Germany under no. HRB 501555,

(hereinafter referred to as " CZ AG "),

and


2.	ASML Holding N.V. , a stock corporation, established under the laws of the Netherlands, having its registered seat in Veldhoven, the Netherlands, located at De Run 6501, 5504 DR Veldhoven, the Netherlands, registered under 10785815,

(hereinafter referred to as " ASML "),

(CZ AG and ASML hereinafter also referred to as " Limited Partners " or individually as a " Limited Partner "),

and


3.	Carl Zeiss SMT Holding Management GmbH , a limited liability company ( GmbH ), established under the laws of Germany, having its registered seat in Oberkochen, Germany, located at Rudolf-Eber-Straße 2, 73447 Oberkochen, Germany, registered in the commercial register of the Local Court of Ulm, Germany under no. HRB 734127,

(hereinafter also referred to as " SMT Holding Management GmbH " or " General Partner "),

(CZ AG, ASML and SMT Holding Management GmbH hereinafter also referred to as the " Partners " or individually as a " Partner "),

hereby conclude the following Partnership and Joint Venture Agreement (hereinafter also referred to as the " Agreement "):

* * *

Preamble

CZ AG and ASML have a longstanding and successful business relationship. By virtue of an agreement between, inter alia , the Partners (dated 2 November 2016), CZ AG and ASML Holding N.V. agreed that they want to strengthen their relationship by an investment of ASML into 24.9% of the share capital of Carl Zeiss SMT GmbH (" Investment Agreement "). The joint aim of the equity investment, besides the generation of profits, is, subject to the terms and conditions of the Investment Agreement, (i) a better alignment of interests, (ii) higher transparency and (iii) a greater degree of trust between the Parties. According to the Investment Agreement, such investment shall, however, be made not directly but indirectly into a limited partnership which shall hold 100% of the share capital of Carl Zeiss SMT GmbH. This Partnership and Joint Venture Agreement governs such limited partnership and sets out the provisions and rules of the joint venture between CZ AG and ASML.


11.	Form of Partnership and Registered Office, Business Name, Duration

11.1

The Partners hereby agree to be shareholders of a company which is a limited partnership ( Kommanditgesellschaft ), established under the laws of Germany, having its registered seat in Oberkochen, Germany, located at Rudolf-Eber-Straße 2, 73447 Oberkochen, Germany, registered in the commercial register of the Local Court of Ulm, Germany under no. HRA 725098 (hereinafter also referred to as the " Partnership ").


11.2	The business name of the Partnership shall be: " Carl Zeiss SMT Holding GmbH & Co. KG ".


11.3	The Partners enter into the Partnership for a fixed term of 30 years.


12.	Object of the Partnership and Business Year


12.1	The object of the Partnership shall be the holding of Carl Zeiss SMT GmbH, a limited liability company ( GmbH ), established under the laws of Germany, having its registered seat in Oberkochen, Germany, registered in the commercial register of the Local Court of Ulm, Germany under no. HRB 725667 (hereinafter " SMT GmbH ").

12.2

SMT GmbH is a company whose object is the development, manufacturing, treatment and processing as well as the distribution of optical, electron-optical, electronic and precision products, instruments and other equipment to be used in the semiconductor industry including the rendering of services in connection therewith. The Partnership serves as joint venture company for the Limited Partners for their joint investment in SMT GmbH. The Partnership shall provide services to SMT GmbH.


12.3	The business year of the Partnership shall be from 01 October to 30 September.


13.	General Partner

13.1

General partner ( Komplementärin ) of the Partnership shall be SMT Holding Management GmbH. The only shareholder of SMT Holding Management GmbH is CZ AG. SMT Holding Management GmbH has no voting right in the Partners Meeting with respect to the transfer of a Limited Partner's partnership interest, the admittance of a new limited partner, the exiting of a limited partner from the partnership, or the increase and the decrease of the partnership interests.


13.2	ASML agrees that the managing directors of the General Partner are appointed, and may be revoked, by CZ AG at its sole discretion.


13.3	CZ AG as sole shareholder of SMT Holding Management GmbH hereby is obliged, and by virtue of this Agreement undertakes vis-á-vis ASML, to take the following actions with regard to SMT Holding Management GmbH only with the prior written consent of ASML:


f)	Transformation ( Umwandlung ) within the meaning of Sec. 1 German Transformation Act ( UmwG ) or approval of any such transformation of SMT Holding Management GmbH;


g)	Liquidation or dissolution ( Auflösung ) of SMT Holding Management GmbH;


h)	Changes or amendments with respect to the articles of association ( Satzung ) of SMT Holding Management GmbH, as compared to the articles of association which have been agreed in the Investment Agreement;


i)	Changes or amendments with respect to the rules of procedure for the managing directors ( Geschäftsordnung für die Geschäftsführung ) of SMT Holding Management GmbH, as compared to the rules of procedure which have been agreed in the Investment Agreement;


j)	Sale, transfer, encumbrance of or granting of any rights relating to the share of CZ AG in SMT Holding Management GmbH, except for sales or transfers to an affiliated company of CZ AG (provided that all obligations of CZ AG regarding SMT Holding Management GmbH shall also be conferred upon the assignee and CZ AG shall remain a guarantor for these obligations);


k)	Approval of any enterprise agreement ( Unternehmensvertrag ) to which SMT Holding Management GmbH would be a party;


l)	Resignation as General Partner from the Partnership.


13.4	CZ AG further hereby is obliged, and by virtue of this Agreement undertakes vis-á-vis ASML, to refrain from giving any directions ( Weisungen ) to or approving acts of the managing directors of SMT Holding Management GmbH which are in contradiction to this Agreement, in particular regarding business transactions which require the approval of the Shareholders Committee.


14.	Limited Partners, Partnership Interests and Contributions


14.1	The sole Limited Partners of the Partnership ( Kommanditisten ) shall be CZ AG and ASML.


14.2	The capital of the Partnership ( Gesellschaftskapital ) shall be EUR 100,000 (in words: Euro one hundred thousand). The Partners shall hold the following partnership interests ( Kapitalanteile ) of the capital of the Partnership:


m)	CZ AG a partnership interest of EUR 75,000 (75.0%),


n)	ASML a partnership interest of EUR 24,900 (24.9%),


o)	SMT Holding Management GmbH a partnership interest of EUR 100 (0.1%).


14.3	The contributions of the Limited Partners to the capital of the Partnership shall be equal to their registered limited partner's contribution ( Kommanditeinlage, Hafteinlage ). All contributions of the Limited Partners have been duly made.

14.4

The non-competition prohibition set forth in Section 112 of the German Commercial Code shall apply to CZ AG and its affiliated companies in relation to the businesses of SMT GmbH and all of its direct and indirect subsidiaries and participations. To the extent that CZ AG and its affiliated companies should be in any form of competition as of 1 October 2016, such activities by CZ AG and its affiliated companies are not considered competition and are accepted by ASML.


15.	Partners' Accounts


15.1	The Partnership shall have the following partners' accounts ( Gesellschafterkonten ) for each Partner:


p)	a fixed capital account I ( Kapitalkonto I ), where the partnership interest ( Kapitalanteil ) of each Partner is booked,


q)	a capital account II ( Kapitalkonto II ), where the profit share, as far as it is not booked into the loss carried forward account, capital contributions and capital withdrawals are to be booked; the General Partner is entitled and upon request of a Limited Partner obliged to pay out any amount on the capital accounts II to the Partners,


r)	a loss carried forward account ( Verlustkonto ) as a sub-account to the capital account II, where losses of the Partnership are booked; subsequent profits shall be booked to the loss carried forward account up to the losses accumulated in this account in order to compensate them,


s)	a current account ( Darlehenskonto ), where loans and money transfers between the Partnership and a Limited Partner are booked. The General Partner is entitled and upon request of a Limited Partner obliged to pay out any amount on the current accounts to the Partners.

In addition, a joint reserve account ( Rücklagenkonto ) shall be maintained for all Partners, where profits of the Partnership that shall not be distributed to the Partners are booked.

Additional accounts may be established with the consent of all Partners.

The partners' accounts may only be transferred together with the interest of a Partner in the Partnership itself.


15.2	The capital accounts I and the capital accounts II, the loss carried forward accounts and the joint reserve account shall be non-interest-bearing. The current accounts of the Partners shall bear interest of 2 percentage points p. a. above the base interest rate ( Basiszinssatz ) pursuant to Sec. 247 of the German Civil Code ( BGB ).


16.	Partners Meeting ( Gesellschafterversammlung )


16.1	Resolutions of the Partners shall be adopted at a meeting of the Partners (the " Partners Meeting "). With the approval of all Partners resolutions may be adopted outside a meeting either orally (including by telephone or in a video conference) or in text form ( Textform ).


16.2	The Partners Meeting shall, however, resolve only matters that, by virtue of mandatory law, must be decided in the Partners Meeting ( Gesellschafterversammlung ) of a limited partnership or which must be decided in the Partners Meeting pursuant to this Agreement. All other shareholder affairs and matters shall be dealt with in the Shareholders Committee (Section 7).


16.3	The votes in the Partners Meeting shall be cast in proportion to the Partners' shares in the capital of the Partnership.

16.4

The resolutions of the Partners shall require a majority of all votes cast, unless otherwise required by mandatory law. However, changes or amendments to this Agreement shall require the approval of all Partners, provided, however that matters listed in Section 3.1 shall not require the approval of the General Partner. The approval of all Limited Partners is required for a transformation of the Partnership within the meaning of Section 1 of the German Transformation Act, a liquidation or dissolution or continuation of the Partnership, a disproportionate profit distribution, a sale of all or substantially all assets of the Partnership and an admission of a new partner.


16.5	The General Partner shall convene an ordinary Partners Meeting each year which shall be held in Oberkochen (Germany). Any Partner may require the General Partner to convene an extraordinary Partners Meeting. If such request has not been complied with after 1 week following the request, the requesting Partner is entitled to convene such Partners Meeting himself.

16.6

The Partners Meeting shall be convened with a 20 days-notice period (excluding the day on which the invitation is sent and further excluding the day of the meeting) by letter, fax or email giving notice of the agenda, the place and the time of the meeting. The meeting shall be held in English. Any Partner is entitled to add additional items to the agenda if such additional items to the agenda are communicated to the other Partners in the same form and at the latest three days prior to the relevant Partners Meeting.

16.7

The Partners Meeting shall be competent to pass a resolution if all Partners are present. Otherwise, a second Partners Meeting shall be convened in accordance with Section 6.6 determining the same agenda without undue delay. Such second Partners Meeting shall have a quorum irrespective of the number of Partners present, if the Partners have been expressly notified thereof in the convocation letter.


16.8	Every unusual transaction within the meaning of Sec. 116 (2) of the German Commercial Code ( HGB ) which is neither listed in Exhibit 1 , nor in Exhibit 2 , nor in Exhibit 3 , nor in Exhibit 4 shall require a prior resolution of the Partners in accordance with this Section 6.


17.	Shareholders Committee ( Beirat )

17.1

The Partnership shall have a shareholders committee (the " Shareholders Committee "). The Shareholders Committee shall be competent for all matters and resolutions that are expressly conferred to it by this Agreement. It shall further be competent for all shareholder affairs and matters, unless such matters, by virtue of mandatory law or pursuant to this Agreement, must be decided in the Partners Meeting ( Gesellschafterversammlung ) of the Partnership. The Shareholders Committee shall resolve upon any shareholders rights which the Partnership has vis-à-vis SMT GmbH, including giving instructions to ( Weisungsrecht ) or consenting to acts of the managing directors of SMT GmbH.

17.2

The Shareholders Committee shall consist of four members, unless the Limited Partners unanimously agree otherwise. Both CZ AG and ASML shall – at their sole discretion – have the right to appoint two individuals as member of the Shareholders Committee. Each Limited Partner shall at its sole discretion have the right to revoke the members that it appointed to the Shareholders Committee at any time without cause. However, members shall not be revoked at an inopportune moment ( zur Unzeit ). The members of the Shareholders Committee shall not obtain any compensation from the Partnership.


17.3	The members of the Shareholders Committee shall have the right to resign as a member of the Shareholders Committee by giving written notice to both Limited Partners and the General Partner, provided that a resignation shall not be made at an inopportune moment ( zur Unzeit ).

17.4

The Shareholders Committee shall meet four times a year, unless otherwise agreed or requested by at least two of its members. Meetings of the Shareholders Committee shall be held in-person in Oberkochen (Germany) unless all members of the Shareholders Committee unanimously agree to hold (i) an in-person meeting at any other place or (ii) a meeting via telephone or video conference or in any other format. Notwithstanding the foregoing, any member of the Shareholders Committee may participate in any meeting via telephone. The meeting shall be convened by the chairman or one or more of the requesting members if the chairman does not convene the meeting within 1 week after the relevant request. Meetings of the Shareholders Committee shall be convened with a 20 days-notice period (excluding the day on which the invitation is sent and further excluding the day of the meeting) by letter, fax or email giving notice of the agenda, the place and the time of the meeting. The meetings shall be held in English. Any member is entitled to add additional items to the agenda if such additional items are communicated to the other members in the same form and at the latest 1 week prior to the relevant Shareholders Committee Meeting.


17.5	The Shareholders Committee shall be competent to pass a resolution if all of its members are present. Otherwise, a second Shareholders Committee shall be convened in accordance with Section 7.4 determining the same agenda without undue delay. Such second Shareholders

Committee shall have a quorum irrespective of the number of members present if the members of the Shareholders Committee have been expressly notified hereof in the convocation letter.


17.6	Unless otherwise provided for in this Agreement, resolutions in the Shareholders Committee shall be adopted in meetings of the Shareholders Committee. However, upon the consent of all members of the Shareholders Committee, resolutions may be adopted either orally (including by telephone or in a video conference) or in text form ( Textform ).


17.7	The members of the Shareholders Committee that have been appointed by CZ AG must cast their vote in the Shareholders Committee unanimously. The members of the Shareholders Committee that have been appointed by ASML must cast their vote in the Shareholders Committee unanimously.


17.8	The members of the Shareholders Committee that have been appointed by CZ AG shall have a vote of 75.1% in the Shareholders Committee. The members of the Shareholders Committee that have been appointed by ASML shall have a vote of 24.9% in the Shareholders Committee.


17.9	Unless otherwise provided for in this Agreement, resolutions in the Shareholders Committee shall be adopted with a simple majority of the votes cast. In case that a matter requires a unanimous vote and the representatives of CZ AG and ASML in the Shareholders Committee cannot agree upon a joint resolution, the procedures for a deadlock situation pursuant to Section 8.6 below shall apply.

17.10

The Shareholders Committee shall have a chairman which shall be one of the members of the Shareholders Committee who have been appointed by CZ AG. The chairman of the Shareholders Committee shall be responsible for organizational matters (such as calling and presiding over meetings, determining the method of casting votes, keeping minutes). The chairman may resign from the office as a chairman at his sole discretion at any time by giving written notice to the other members of Shareholders Committee, provided that a resignation from the office as a chairman shall not be made at an inopportune moment ( zur Unzeit ). A resignation from the office of the chairman shall not affect the person's membership of the Shareholders Committee.


17.11	Any material, extraordinary and strategic matter can be brought to the attention of the Shareholders Committee by any of its members or any member of the management of the Limited Partner or SMT GmbH. The Shareholders Committee shall have a meaningful debate on such matters taking into account in good faith the arguments presented by its members.


17.12	The members of the Shareholders Committee can unanimously adopt rules of procedure ( Geschäftsordnung ) for the Shareholders Committee.


18.	Management of the Partnership

18.1

The General Partner shall manage the affairs of the Partnership and act on behalf of the Partnership (power of representation). The General Partner is obliged, and by virtue of this Agreement undertakes, to follow and comply with any resolution of the Shareholders Committee or the Partners Meeting. The managing directors of the General Partner must obtain the prior consent or instruction of the Shareholders Committee or the Partners Meeting before resolving on any matter in relation to SMT GmbH.


18.2	The General Partner, as well as the managing directors of the General Partner, shall be exempt from the restrictions of Sec. 181 alternative 2 of the German Civil Code ( BGB ) ( Befreiung vom Verbot der Mehrfachvertretung ).


18.3	The General Partner shall obtain for its services an annual fee of Euro 2,500 (in words: Euro two thousand and five hundred) which shall be treated between the Partners as expenses ( im Verhältnis der Gesellschafter untereinander als Aufwand ).


18.4	The business transactions that are listed in Exhibit 1 to this Agreement require the approval of the Shareholders Committee with a simple majority vote.

18.5

The business transactions that are listed in Exhibit 2, Exhibit 3 and Exhibit 4 to this Agreement require the approval of the Shareholders Committee with unanimous vote. All other business transactions that (i) require the consent of the Shareholders Committee and that (ii) are not mentioned in Exhibit 2, Exhibit 3 or Exhibit 4 shall be decided with simple majority of the Shareholders Committee (even if such matters are not mentioned in Exhibit 1).


18.6	In case of a deadlock situation for the matters that require unanimous vote in the Shareholders Committee the following escalation process shall apply:


a)	Adjournment/Reflection

The matter shall be forwarded to the agenda of the next meeting of the Shareholders Committee which shall take place within 1 month from the meeting in which the deadlock occurred. In the meantime, the members of the Shareholders Committee shall use their best efforts to reflect on their positions and consider and discuss solutions to resolve the matter, also considering widening the scope of the respective matters (e.g. coupling with other issues). If at this second meeting of the Shareholders Committee a unanimous decision cannot be reached, the unresolved matter shall be brought up to the highest management level of CZ AG and ASML Holding N.V. as described under (b) below.


b)	Involvement of Top Management

The top management level of CZ AG and ASML Holding N.V. (including the chairmen of the supervisory boards ( Aufsichtsratsvorsitzende ) of CZ AG and ASML Holding N.V.) shall use their best efforts to resolve the matter, including investigating acceptable alternative

solutions and/or reframing the issue considering a wider scope regarding the matter to be resolved. The top management shall come to a conclusion within 2 months.


c)	Final Decision for CZ AG

If the top management of CZ AG and ASML Holding N.V. cannot resolve the matter (as described under (b) above) within 2 months after the second meeting of the Shareholders Committee (as described under (a) above), the chairman of the Shareholders Committee shall immediately call an extraordinary Partners Meeting with a 20 days-notice period (excluding the day on which the invitation is sent and further excluding the day of the meeting). This Partners Meeting shall decide on the matter with a simple majority vote, except for the matters listed in Exhibit 4. The matters listed in Exhibit 4 must not be resolved without the approval of ASML.


d)	Ultimate Remedy for ASML

If a matter listed in Exhibit 3 is resolved by a majority vote of the Partners Meeting against the vote of ASML, ASML shall have a put option, according to which CZ AG has the obligation to acquire the ASML Limited Partnership Interest in the Partnership from ASML (the " ASML Put Option "). ASML may exercise the ASML Put Option by written request to CZ AG at the latest 2 months following the relevant resolution of the Partners Meeting. Within 2 weeks thereafter, CZ AG and ASML shall enter into a share purchase and transfer agreement which shall contain no representations, warranties and indemnities other than in relation to unencumbered ownership of the ASML Limited Partnership Interest. For the ASML Put Option, the valuation process set out in Section 11 shall apply. The transfer of the ASML Limited Partnership Interest to CZ AG shall not require the prior consent of the General Partner. CZ AG shall be granted a period of up to 6 months as from the entering into the relevant share purchase and transfer agreement to duly arrange for necessary financing. In case the purchase price to be paid by CZ AG exceeds EUR 1,000,000,000 (in words: Euro one billion), CZ AG and ASML shall negotiate in good faith how the purchase price (for the avoidance of doubt, not only the excess amount) may be paid in several installments. If CZ AG and ASML do not agree on a schedule for such installments, CZ AG shall be entitled to request that the due date for the purchase price shall be deferred for up to 2 years, subject to a payment of an interest rate of 150 basis points above 3 months LIBOR to ASML, which interest payment may be paid together with the final installment.


19.	[Intentionally left blank]


20.	Intra Group Transfers, Transfer Restrictions and CZ Exit Process

20.1

Each Limited Partner shall be entitled to transfer its partnership interest (for the avoidance of doubt, including all rights and obligations under this Agreement) to an affiliated company of this Limited Partner without the prior consent of the other Limited Partner. Neither such intra group transfer nor any other transfer of a partnership interest of a Limited Partner requires the prior consent of the General Partner.


20.2	Except for any intra group transfer pursuant to Section 10.1, ASML shall not be entitled to sell, transfer or encumber with any kind of third party rights its 24.9% partnership interest to any other party, or to enter into any other transaction which would have a similar economic effect, without the prior written consent of CZ AG.

20.3

Except for any intra group transfer pursuant to Section 10.1, until the expiration of 1 November 2018 (the " Negotiation Period "), CZ AG shall not be entitled to sell, transfer or encumber with any kind of third party rights its (direct and indirect) 75.1% partnership interest, i.e. including the General Partner interest, to any other party, or to enter into any other transaction which would have a similar economic effect, without the prior written consent of ASML. After the Negotiation Period, Sections 10.4 through 10.8 shall apply instead of this Section 10.3, if not otherwise agreed by the Partners.

20.4

If by the end of the Negotiation Period CZ AG and ASML have not agreed on the Future Lock-up and Exit Rules (as defined and set forth in the Investment Agreement), CZ AG may sell and transfer wholly or partly (but at least 25.2% of the capital of the Partnership as a first tranche) its (direct and indirect) 75.1% partnership interest after the Negotiation Period has ended, however subject to the ASML Right of First Offer pursuant to Section 10.5 and, if applicable, in accordance with the Drag-Along-Right pursuant to Section 10.6 (provided, however, that CZ AG wishes to sell and transfer all of its (direct and indirect) 75.1% partnership interest) as well as subject to the ASML Right of First Refusal pursuant to Section 10.7.

20.5

If CZ AG wishes to sell and transfer its (direct and indirect) 75.1% partnership interest (but at least 25.2% of the capital of the Partnership as a first tranche) at any time after the Negotiation Period has ended to a third party, it must first inform ASML in writing about its intention to divest (" Exit Call "). The Exit Call shall, at each time, include the percentage of the limited partnership interest in the Partnership CZ AG wishes to sell and transfer. Then the following procedure shall apply:


a)	After each Exit Call, ASML shall have the right to make within 3 months a first offer to buy the (direct and indirect) partnership interest at a price which is in ASML's sole discretion (the " ASML Right of First Offer "). If ASML chooses to make an offer, such offer must be communicated in writing to CZ AG (the " ASML Offer ").


b)	For a period of 6 months after the ASML Offer or after expiry of the 3 months period without an ASML Offer, CZ AG shall be free to (i) either accept the ASML Offer (in which case CZ

AG and ASML shall enter into a share purchase and transfer agreement which shall contain neither representations nor warranties other than in relation to unencumbered ownership of the partnership interest (directly and indirectly) held by CZ AG and a tax indemnity with mutatis mutandis the same wording as Section B.9 of the Investment Agreement – adjusted to the partnership interest that will be transferred – whereby the indemnity payment shall already be due once the relevant taxes are owed to the tax authorities, irrespective of whether or not they are non-appealable (combined with a repayment obligation in case the taxes are subsequently reduced), the share purchase and transfer agreement shall provide that CZ AG does not opt for VAT in respect of a transfer of a partnership interest and shall provide also for customary information and cooperation rights for CZ AG with respect to the indemnity for taxes), or (ii) sell the partnership interest to any third party, however in such case only at a price that must be higher than the ASML Offer, if any. In the latter case, for the avoidance of doubt, ASML shall have no matching right for the offer of the third party or any Right of First Refusal.

If CZ AG has accepted the ASML offer, CZ AG shall ensure that SMT Holding Management GmbH will exit SMT Holding KG. SMT Holding Management GmbH shall be replaced by ASML by a new GmbH (which will be allowed by CZ AG), which shall be a wholly owned (direct or indirect) subsidiary of ASML. CZ AG and ASML shall ensure and procure that the shareholder rights of ASML and CZ AG with respect to all corporate governance matters in this Agreement shall be switched such that ASML shall take CZ AG's position as majority shareholder, e.g. Section 7.8, Section 7.10 and Section 8.6 (c), provided, however, that (i) CZ AG shall not be entitled to the ASML Put Option, (ii) the Operational Committees shall no longer be necessary, and (iii) Section 14 shall no longer apply and ASML may decide in its full discretion on all reporting and information to be provided by SMT GmbH. Further, CZ AG shall ensure that all members of the supervisory board of SMT GmbH which have been elected by the shareholders shall resign from their position with immediate effect.

If the 6 months period expired and CZ AG has (i) neither accepted the ASML Offer, (ii) nor sold the partnership interest to any third party, CZ AG may thereafter sell and transfer its (direct and indirect) partnership interest only subject to the ASML Right of First Refusal pursuant to Section 10.7. For the avoidance of doubt, the procedure described in this Section 10.5 with the ASML Right of First Offer shall then not apply again.

20.6

If CZ AG wishes to sell and transfer all (and not less than all) of its (direct and indirect) 75.1% partnership interest at any time after the Negotiation Period has ended and the exit procedure pursuant to Section 10.5 was inconclusive, CZ AG may, subject to the ASML Right of First Refusal set forth in Section 10.7, at its option require ASML to transfer all (and not less than all) of its 24.9% partnership interest to the same third party (the " Drag-Along Transferee ") to which CZ AG will sell its (direct and indirect) 75.1% partnership interest (the " Drag-Along Right ").

Accordingly, if CZ AG exercises its Drag-Along Right, CZ AG shall be entitled to include all of ASML's partnership interest in the sale of its (direct and indirect) 75.1% partnership interest to the Drag-Along Transferee and ASML shall be obligated to sell and transfer its 24.9% partnership interest to the Drag-Along Transferee on the same terms and conditions as negotiated by CZ AG with the Drag-Along Transferee (the " Drag-Along Sale ") for its 75.1% partnership interest. ASML shall take all actions which are reasonably necessary to enable CZ AG to include all of ASML's partnership interest in the sale of its (direct and indirect) 75.1% partnership interest to the Drag-Along Transferee.

20.7

In case CZ AG wishes to sell and transfer any of its partnership interest at any time after the Negotiation Period has ended and the exit procedure pursuant to Section 10.5 was inconclusive, ASML shall be entitled to a right of first refusal ( Vorkaufsrecht , §§ 463 et seq. German Civil Code, Bürgerliches Gesetzbuch , BGB) in respect of such partnership interest (the " ASML Right of First Refusal "), meaning that ASML shall have the right to acquire CZ AG's (direct and indirect) partnership interest at the same terms and conditions agreed upon between CZ AG and the third party buyer. For the avoidance of doubt, the ASML Right of First Refusal shall also apply to the sale to a Drag-Along Transferee. The ASML Right of First Refusal shall be exercisable by ASML within a period of 6 weeks commencing upon receipt of the notification in writing by CZ AG. The notification must contain a copy of the sale and purchase agreement containing any and all terms and conditions agreed upon between CZ AG and the third party buyer (including a Drag-Along Transferee). The exercise of the ASML Right of First Refusal shall be made by written declaration and entering into a binding sale and purchase agreement.

20.8

If CZ AG accepts the ASML Offer or if ASML exercises the Right of First Refusal, CZ AG and ASML shall negotiate in good faith an appropriate separation of the SMT Group Companies (which for purposes of this clause and in relation to the separation in general shall include any direct or indirect subsidiaries and participations of SMT GmbH at the relevant time of the separation) from the CZ Group (as defined in the Investment Agreement) taking the reasonable interest of the CZ Group and the SMT Group Companies duly into account (the " Separation "). The Separation shall be guided by the following principles:


a)	CZ AG shall ensure that (i) the SMT Group Companies will have such assets (whether via transfer or by means of contractual arrangements) that are needed to establish the SMT Group Companies on a stand-alone basis, (ii) the SMT Group Companies will receive the

level of services (at terms and conditions consistent with those prior to the signing of the share purchase agreement) as long as needed to establish the SMT Group Companies on a stand-alone basis, (iii) all material assets primarily belonging to the businesses of the SMT Group Companies but owned by members of the CZ Group shall be transferred upon ASML's request to the SMT Group Companies at a price the concept of which the Limited Partners will discuss in good faith during the Negotiation Period, with the exception, however, that any building facilities (real estate and/or real estate like rights) or any other assets which will or have been financed, fully or partially, through down payments or any other means of financings by any member of the ASML Group, through any agreements concluded or to be concluded between ASML or any member of the ASML group on the one side and SMT GmbH or any member of the CZ Group on the other side shall be sold and transferred to SMT GmbH at book value, (iv) any necessary licenses to members of the SMT Group Companies under intellectual property rights that are owned by members of the CZ Group shall continue to be licensed as long as reasonably needed for the SMT Group Companies, provided that, notwithstanding anything to the contrary herein, any know-how (including, without limitation, all design and manufacturing data, processes, methods, techniques, trade secrets, specifications, parts lists, CAD and other construction data, and software) which is owned by a member of the CZ Group and which is required for the business of the SMT Group Companies shall, if legally possible, be transferred or, if not legally possible, be made available for as long as reasonably needed for the relevant business by way of a contractual arrangement to SMT GmbH irrespective of whether it had already been licensed to SMT GmbH or not, (v) as far as this is in the power of CZ AG, any customer and supply relationships shall be adequately adapted to the new ownership structure, (vi) all intra-group shareholder loans, cash-pool or other receivables of any SMT Group Company against any member of the CZ Group shall be settled in cash, (vii) the payment due date terms in relation to any continuing (interim) services and/or supplies to any of the SMT Group Companies by any member of the CZ Group shall be at least 35 calendar days, (viii) all sales and corresponding contractual relationships belonging to the SMT Group Companies but routed via other sales companies of the CZ Group shall be transferred to SMT GmbH at no cost, and (ix) all assets related to pension, old age part time and part-time or similar obligations of any of the SMT Group Companies (irrespective of whether or not included in the relevant financial statements of SMT GmbH or any of its affiliates) which are not owned by the relevant SMT Group Companies shall be transferred in accordance with, and pursuant to, (a) the relevant CTAs (as defined in Section B.7.1c) hh) of the Investment Agreement), if applicable, to the relevant SMT Group Companies (or a new appropriate pension vehicle owned by SMT GmbH), provided, however, that if the CTA imposes difficulties for such transfer, CZ AG and ASML shall agree on a solution to enable the relevant transfer without any additional cost for any of the SMT Group Companies or ASML and (b) otherwise with the relevant applicable transfer provisions, in each case (a) and (b) at no cost for any of the

SMT Group Companies or ASML. In case of the Separation, the SMT Group Companies shall be entitled to use the brand of Carl Zeiss for a maximum period of 12 months after the signing of the share purchase agreement, unless otherwise agreed between CZ AG and SMT GmbH.


b)	ASML shall ensure that the SMT Group Companies shall pay the costs for providing such services and measures which are needed for a stand-alone operation of the SMT Group Companies (or its integration into the ASML group).


c)	CZ AG shall be responsible and bear all residual overhead costs ( Remanenzkosten ) resulting from and connected with the Separation.


20.9	In case of any intra group transfer pursuant to Section 10.1 the transferring Limited Partner (the " Transferring LP ") shall guarantee the prompt fulfillment of all obligations of its affiliated company. The affiliated company shall be obliged to retransfer the partnership interest to the Transferring LP if it is no longer an affiliated company of such Transferring LP.


21.	Put Option Valuation

The ASML Put Option shall be valued in accordance with the formula in Exhibit 5 to this Agreement.


22.	Appointment and Revocation of Managing Directors of SMT GmbH


22.1	CZ AG and ASML are aware and acknowledge that the managing directors ( Geschäftsführer ) of SMT GmbH are appointed by the supervisory board of SMT GmbH pursuant to the provisions of the German Co-Determination Act ( Mitbestimmungsgesetz ).

22.2

However, CZ AG shall inform ASML in advance (with a notice period of 1 month, unless there is a requirement for urgent action) about any intended appointment or revocation of a managing director of SMT GmbH, and how the representatives of CZ AG in the supervisory board of CZ AG intend to cast their vote (acknowledging that the members of the supervisory board of SMT GmbH are not bound by any order or instruction of CZ AG). If ASML, for whatever reason, objects to any given personnel decision of CZ AG, the matter shall be discussed in good faith in the Shareholders Committee, and CZ AG shall take into consideration any objection by ASML. However, the ultimate decision about such appointment or revocation of a managing director of SMT GmbH shall rest with CZ AG (to the extent that it can influence the decision of the supervisory board).


23.	Operational Committees

23.1

CZ AG and ASML are aware and acknowledge that there are currently various operational committees in place, in which SMT GmbH and ASML discuss business matters of joint operational interest (the " Operational Committees "). Such Operational Committees shall continue to stay in place and function as in the past. In case CZ AG shall sell and transfer wholly or partly its (direct and indirect) 75.1% partnership interest to any third party whereby such third party shall become the majority partner, the Operational Committees, which will exist as of 1 January of the year in which CZ AG starts the exit procedure pursuant to Section 10, shall become an integral part of and be documented in this Agreement and neither their competencies nor their rules of procedure shall be changed without ASML's consent.

23.2

The matters in the table attached as Exhibit 6 to this Agreement (" Haarlem Table ") will be discussed and agreed according to this table in the various operational meetings or, if escalated or foreseen in the Haarlem Table, the Shareholder Committee and in the manner referred to therein, i.e., on the basis of information rights, consultation rights or as mutual agreement topics, in each case depending on whether the relevant matters are related to (i) the 'HiNA business', (ii) 'other EUV businesses', (iii) 'other ASML related businesses' or (iv) 'non-ASML related businesses'. With respect to the Operational Committees the following shall apply:


t)	CZ AG and the General Partner shall be obliged to provide all members of the respective Operational Committees with all relevant information pertaining to the relevant matters, however only as specified in, and in accordance with, the provisions of this Agreement.


u)	The members of the respective Operational Committees shall comprehensively discuss the matters listed in the Haarlem Table which are marked with 'Consultation' based on the information received, i.e. the relevant members of the respective Operational Committees are entitled to provide their opinion on the relevant topics and participate in a meaningful discussion.

The members of the respective Operational Committees shall comprehensively discuss, consult on and vote on the matters listed in the Haarlem Table which are marked with 'Mutual agreement'. If the members of the respective Operational Committee disagree on such a matter, the ASML members are entitled to escalate such matter to the Shareholders Committee. The escalation process described above in Section 8.6 shall apply in this case, provided, however that such matter shall be treated as a matter listed on Exhibit 2, i.e. without the ultimate remedy of the ASML Put Option. CZ AG and the General Partner shall ensure that a matter which is subject to mutual agreement and in relation to which no mutual agreement has been reached in the relevant Operational Committees shall not be implemented before the relevant escalation process has been completed, provided, however, that if such a disputed matter is reflected in the current business plan or budget of SMT GmbH, the management of SMT GmbH may continue the business in accordance with such business plan and/or budget, until the Shareholders Committee has rendered its ultimate

decision (after escalation). In urgent matters, a meeting of the Shareholders Committee shall be called as soon as reasonably possible and the escalation procedure shall be accelerated.


24.	Reporting, Information


24.1	ASML shall be entitled to receive reporting regarding SMT GmbH, the General Partner and the Partnership as set forth in Exhibit 7 to this Agreement and the General Partner shall be obliged to provide ASML with such information without undue delay.


24.2	The General Partner shall be obliged to provide ASML with consolidated accounts regarding the Partnership (as also set forth in Section 15.1 below). With respect to the requirement of ASML to prepare its US GAAP and IFRS accounts, the Partners agree on the following guiding principles:


w)	CZ AG and the SMT Group do not need to change their accounting and reporting practices.


x)	The General Partner shall support ASML in ASML Holding N.V.'s requirements for fulfillment of public reporting obligations under the applicable law and regulations.

CZ AG, the General Partner and SMT GmbH shall ensure that ASML receives all information necessary for the fulfillment of the relevant reporting requirements of ASML Holding N.V. which is readily available to them. For the avoidance of doubt: the fulfillment of ASML's requirements is in the sole responsibility of ASML. CZ AG, the General Partner and SMT GmbH shall provide the information to ASML in accordance with the standard of care in their own affairs.

If there should be further information requirements that are necessary for the fulfillment of the relevant ASML reporting requirements which is not available to CZ AG, the General Partner and SMT GmbH, ASML shall be entitled to retrieve, with the support of CZ AG, from the SMT Group Companies such information at its own cost, it being understood that ASML shall be entitled to use the support of its own auditors in reviewing the relevant information together with ASML.


aa)	Any reasonable additional costs and expenses of, as the case may be, CZ AG, any of the SMT Group Companies or the General Partner arising out of the provision of information which will be specifically and only prepared for ASML shall be borne by ASML (after approval by ASML).


bb)	The Partners shall apply the foregoing guiding principles fully in good faith.


24.3	The General Partner shall provide ASML without undue delay with copies of all agendas and minutes of all meetings of the supervisory board of SMT GmbH and, upon reasonable request of ASML, the management boards of SMT GmbH and the General Partner. The minutes of the

supervisory board of SMT GmbH shall be provided to ASML at the latest 2 months after each meeting or, with respect to the minutes of the management boards, without undue delay after a request.

24.4

The General Partner shall inform the Limited Partners without undue delay if it becomes aware of any material events that occurred or may occur with respect to SMT GmbH or any of its subsidiaries, which for the avoidance of doubt shall include anything reasonably expected to have a material impact on ASML or its subsidiaries and participations, its investment in the Partnership and indirectly in SMT GmbH and its subsidiaries and participations, in particular in relation to financial, commercial, business, technical / or customer road map related aspects, and the General Partner shall provide the Limited Partners with all information reasonably necessary to fully evaluate the relevant matters.

24.5

Each Limited Partner shall be entitled to request and the General Partner shall ask and ensure that SMT GmbH provides the information requested by the relevant Limited Partner to the Shareholders Committee (including, without any limitation, information requests escalated from any of the operational committees) unless disclosure of such information would have a materially detrimental impact on SMT GmbH, in particular with regard to the client-customer-relationship between SMT GmbH and ASML. The Shareholders Committee shall have a meaningful debate on such matters taking into account in good faith the arguments presented by its members.


25.	Annual Accounts; Profits and Losses

25.1

The annual accounts of the Partnership as well as consolidated accounts for the Partnership and the companies of the SMT Group shall be established ( aufgestellt ) by the General Partner within 2 months after the end of the financial year and in accordance with the pertinent statutory provisions. The unaudited accounts shall be transmitted to the Limited Partners as soon as they are available and in no case later than 2 months after the end of the financial year; the audited financial statements shall be transmitted to the Limited Partners within 3 months after the end of the financial year. The accounts shall be transmitted to the Limited Partners together with an English translation.


25.2	The accounts shall be adopted ( festgestellt ) at the ordinary Partners Meeting by the Partners.

25.3

The profits shall be shared by the Partners in proportion to their share of the capital of the Partnership (within the meaning of Section 4.2). Losses shall also be borne in proportion to the shares of the capital of the Partnership. Each Partner shall be entitled to withdraw its share of the profits. All annual profits shall be distributed to the Partners unless by unanimous resolution the Limited Partners decide to credit all or a portion of the annual profits to the joint reserve account for all Partners.


26.	Expelling of a Partner ( Ausschluss aus wichtigem Grund )

26.1

A Partner shall be expelled from the Partnership only in accordance with the pertinent statutory provisions for important cause, including, for the avoidance of doubt, Section 131 subsection 3 No. 4 of the German Commercial Code ( HGB ) applying in case of an insolvency of one of the Partners. In case that CZ AG or the General Partner itself is expelled from the Partnership, ASML shall in each case have the right to immediately replace the General Partner with a new general partner which shall be wholly owned, directly or indirectly, by ASML.


26.2	The dissolution of a Partner shall lead to its expulsion from the Partnership.


27.	Compensation of an Expelled Partner


27.1	An expelled Partner shall be entitled to compensation in proportion to its share of the capital of the Partnership. The calculation of the compensation shall be based on the fair value of the Partnership, including its goodwill and its hidden reserves.


27.2	If no agreement is reached on the fair value of the Partnership, any Partner may, at the expense of the Partnership, require an arbitrator’s expert opinion to be delivered by an auditor that shall be binding on all Partners. That accountant shall be appointed by the competent Chamber of Public Accountants ( Wirtschaftsprüferkammer ) in Stuttgart.


27.3	The compensation shall be paid in 3 yearly installments. The first installment shall be due 3 months after the expelled Partner’s retirement. The compensation balance shall be non-interest-bearing. The expelled Partner shall not be entitled to require any securities.


27.4	The expelled Partner shall not be subject to a non-competition obligation.


28.	Dissolution, Liquidation


28.1	In the event that the Partnership is dissolved for any reason, it shall be liquidated in accordance with the pertinent statutory provisions. The Partners may agree on a different form of liquidation.


28.2	The liquidator shall be the General Partner.


29.	Tax Clauses

29.1

Subject to Section 19.2, which shall prevail over this Section 19.1, if an event, which is – for tax purposes – to be qualified as a disposal or discontinuation of a partnership interest ( Veräußerung oder Aufgabe eines Mitunternehmeranteils ) of the Partnership (or a part thereof), triggers trade tax at the level of the Partnership it shall be compensated for the respective tax burden by the Partner whose entrepreneurial partnership interest was disposed of/discontinued or is treated as disposed of/discontinued for tax purposes. The same applies in case of a disposal of special business assets ( Sonderbetriebsvermögen ) by a Partner. The compensation shall be made by way of a contribution to the Partnership of 100% of the trade tax burden (including, for the avoidance of doubt, any trade tax triggered by the contribution itself) by the disposing Partner into the joint reserve account; if such contribution triggers German (corporate) income tax (including solidarity surcharge) at the level of the other Partners the disposing Partner shall indemnify and hold harmless the other Partners accordingly.

29.2

CZ AG shall indemnify and hold harmless ASML from and against any German taxes payable by ASML (in particular German (corporate) income tax, including solidarity surcharge) and – in deviation from Section 19.1 – ASML and the Partnership from and against any trade taxes payable by the Partnership in each case arising from the sale and transfer (or other disposition) of ASML's (current or future) partnership interest in the Partnership to any third party (i.e. excluding intra-group transfers, but including, for the avoidance of doubt, CZ AG and its affiliates) or the dissolution of the Partnership, if and to the extent the amount of such taxes exceeds the amount of taxes that would be otherwise due if ASML Holding N.V. had invested directly in SMT GmbH and disposed of its share in SMT GmbH. The indemnity pursuant to sentence 1 shall be calculated based (i) on the tax laws as of today, i.e. changes in law for the benefit or to the detriment of a Partner shall be disregarded and (ii) in case of intra-group transfers preceding the sale and transfer to a third party, the original acquisition costs of ASML's (current or future) partnership interest, i.e. without taking into account any step up (or step down) by the intra-group transfer. This Section 19.2 shall not apply to any special business assets ( Wirtschaftsgüter des Sonderbetriebsvermögens ) of ASML, i.e. in case of a disposition of such assets by ASML it shall bear its own taxes, and Section 19.1 shall apply.

29.3

Subject to Section 19.2, which shall prevail over this Section 19.3, the Partners agree that certain trade tax effects ( Gewerbesteuereffekte ) resulting from the sphere of the Partners shall be attributed entirely to the Partner from whose sphere the respective trade tax effect resulted (with the exception of section 19.3 a) sentence 4). In order to achieve this result, the respective trade tax effects ( Gewerbesteuereffekte ) shall be handled by way of an adjustment of the profit allocation in the form of a (positive or negative) pre-allocation ( Vorabzurechnung ) of such trade tax effects ( Gewerbesteuereffekte ) as follows, it being understood that a profit of a Partner could thereby become negative which is to be reflected on its loss carry forward account:

cc)

Effects on the trade tax burden at the level of the Partnership due to a negative or positive supplementary balance sheet ( Ergänzungsbilanz ) and/or special business expenses or proceeds ( Sonderbetriebsausgaben/-einnahmen ), including effects from special business assets / liabilities ( Sonderbetriebsvermögen ), of a Partner shall be pre-added to, or pre-subtracted from, the profits of the respective Partner. The respective Partner shall receive a credit ( Gutschrift ) in the amount of which the trade tax decreases due to expenses ( Aufwand ) at his level from items mentioned in the preceding sentence. Vice versa, any increase in the trade tax burden due to such items shall be pre-charged to the respective Partner. This Section 19.3 a) sentences 1 through 3 shall not apply to special business expenses in the form of interest expenses ( Zinsaufwendungen ).


i)	Negative and positive effects on the trade income ( Gewerbeertrag ) of the Partnership (as defined in section 19.3 a) above) caused by the same Partner shall be offset. A positive balance shall be treated as an increasing amount ( Erhöhungsbetrag ) (" Increasing Amount ") and a negative balance shall be treated as a decreasing amount ( Minderungsbetrag ) (" Decreasing Amount ").

ii)

For the purposes of calculating these trade tax effects, in a first step, the trade tax burden of the Partnership for the respective fiscal year shall be calculated as if the Partnership would be liable for it on the basis of its consolidated joint assets balance sheet for tax purposes ( steuerliche Gesamthandelsbilanz ) (i.e. without taking into account disposals of partnership interests resulting in trade tax and – for the time being – without taking into account any Increasing Amounts or any Decreasing Amounts) ( fiktive Gewerbesteuer I / notional trade tax I). Trade tax loss carry forwards are to be considered in accordance with the applicable law (especially Sec 10a Trade Tax Act). Such notional trade tax I cannot be less than zero. In a second step, the trade tax burden of the Partnership shall be calculated taking into account any Increasing Amounts (but not Decreasing Amounts and without taking into account disposals of partnership interests) ( fiktive Gewerbesteuer II / notional trade tax II). Trade tax loss carry forwards are to be considered in accordance with the applicable law (especially Sec 10a Trade Tax Act). Such notional trade tax II cannot be less than zero. The difference between these two calculations shall be pre-charged to the Partner who caused these tax effects. If more than one Partner caused these tax effects, the amount of the difference shall be allocated to them on a pro rata basis. In a third step, the actual trade tax shown in the local GAAP profit and loss statement ( handelsrechtliche Gewinn- und Verlustrechnung ) (without any impacts from disposals of partnership interests) will be deducted from the notional trade tax II ( fiktive Gewerbesteuer II ). A positive balance shall be pre-credited to the Partner who caused the reduction. If several Partners caused reductions, the difference shall be pre-credited to the Partners on a pro rata basis.

dd)

If the trade tax liability for the respective fiscal year is assessed different (e.g. due to a tax assessment or a later tax audit) to the local GAAP profit and loss statement ( handelsrechtliche Gewinn- und Verlustrechnung ) after the balance sheet for the respective fiscal year has been established ( Aufstellung des Jahresabschlusses ), the positive or negative difference shall be pre-credited or pre-charged to the Partners in the year of the relevant amendment, whereas Section 19.3 a) shall apply mutatis mutandis.

29.4

With respect to Sec. 4h of the German Income Tax Act ( Einkommensteuergesetz ) (interest barrier rule ( Zinsschrankenregelung )), it shall be assumed that the calculation of non-deductible interest expenses ( nicht abziehbare Zinsaufwendungen ) is made on a per-business basis ( betriebsbezogen ) by the German tax authorities ( Finanzverwaltung ) and that interest expenses are to be allocated to the Partners on the basis of the general rules on the allocation of profits and losses between the Partners (as stipulated in Section 15.3), even if the interest expenses are derived from the special business assets ( Sonderbetriebsvermögen ) of a Partner.


ee)	When calculating if and to what extent the non-deductibility of interest expenses is caused by interest expenses derived from the special business assets of a Partner, it shall be assumed that any interest incurred at the level of the Partnership is with priority deducted at the level of the joint assets ( Gesamthandsvermögensbereich ).

ff)

If and to the extent the non-deductibility of interest expenses from the special business assets of a Partner leads to an increase of the taxable profit of the other Partners, the Partner who caused the increase has to bear, and compensate the other Partners for, the tax burden ((corporate) income tax and solidarity surcharge) ( Körperschaftsteuer oder Einkommensteuer und Solidaritätszuschlag ) of the other Partners resulting from such increase.

29.5

The Partners shall fully cooperate for the purpose of this Section 19. The term "tax" as used in this Section 19 shall include any interest, penalty, fine or addition thereto. Should an indemnity payment of CZ AG under this Section 19 lead to taxes at the level of the indemnitee, then CZ AG shall make a corresponding gross-up payment to the indemnitee; ASML shall take, to the extent legally possible, reasonable efforts to mitigate any negative tax effects of an indemnification payment. Claims under this Section 19 shall become time-barred 6 months after the later of (i) the ultimate, final and binding assessment ( endgültig bestandskräftige Festsetzung ) and (ii) the statutory limitation of the relevant tax, but not before 6 months after ASML has been informed about such claims.


30.	Final Provisions


30.1	This Partnership and Joint Venture Agreement and its Exhibits shall be governed by the laws of the Federal Republic of Germany.


30.2	Any disputes under or in connection with this Partnership and Joint Venture Agreement (including those regarding its validity) shall be exclusively settled in the courts of Stuttgart (as courts of first instance).


30.3	The provisions in Part D of the Investment Agreement (except for the arbitration clause) shall apply mutatis mutandis to this Partnership and Joint Venture Agreement.


30.4	As from the date hereof, this Partnership and Joint Venture Agreement shall supersede all prior partnership agreements of the Partnership.

Exhibit 1 to the Partnership and Joint Venture Agreement

List of Matters that require approval of the Shareholders Committee with simple majority:


gg)	Approval of the annual financial statements of SMT GmbH and of the Partnership;


hh)	Decisions about a distribution of reserves of the Partnership (and, to the extent that there is no profit transfer agreement in place, of SMT GmbH), provided that such distribution of profits must be according to shareholding ratio;

ii)

Actions pursuant to the German Transformation Act (merger ( Verschmelzung ), spin-off ( Abspaltung ), split-off ( Aufspaltung ), hive-down ( Ausgliederung ), change of legal form ( Formwechsel )) with respect to a SMT Group Company, whereas for the purpose of this Agreement, an " SMT Group Company " shall include SMT GmbH and any of its direct and indirect subsidiaries or participations, or the Partnership, provided that such action does not have a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other);


jj)	A SMT Group Company incurring debt from outside the CZ Group, provided that such action does not have a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other);


kk)	A SMT Group Company granting loans, guarantees and securities binding a SMT Group Company for third party debt not being part of the ordinary course of business, provided that such action does not have a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other);

ll)

Discontinuation of existing and commencement of new business by a SMT Group Company, whereas new business shall be business which does not have an impact on the combined business of the SMT Group Companies and an ASML Group Company (including additional business, if any, as it is in existence between SMT Group Companies and an ASML Group Company at the time of decision) whereas for the purpose of this Agreement, an " ASML Group Company " shall include ASML Holding N.V. and any of its direct and indirect subsidiaries or participations, provided that such action does not have a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other);


mm)	Acquisition and disposal of enterprises ( Unternehmen ) or parts of enterprises and participations of a SMT Group Company or the Partnership, whether in the form of an asset deal or a share deal, provided that such action does not have a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other);


nn)	Setting-up and dissolution and liquidation of subsidiaries and participations, permanent establishments, businesses and representative offices in Germany and abroad by SMT GmbH or the Partnership, provided that such action does not have a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other);


oo)	Decisions (e.g. approval) on the annual business plan and the annual budget of SMT GmbH;


pp)	Decisions of SMT GmbH on CAPEX (including area planning), OPEX and capacity planning (FTE production) exceeding the relevant budget by more than 10%; provided that the relevant budget is not exceeded by more than 15%;


qq)	Capital increases in subsidiaries and participations of SMT GmbH or the Partnership, provided that such action does not have a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other);


rr)	Matters of an SMT Group Company outside the ordinary course of business exceeding EUR 1 million in transaction value, provided that such action does not have a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other);


ss)	Strategic consulting projects of a SMT Group Company with a financial impact exceeding EUR 0.3 million;


tt)	Determination and appointment of board members in subsidiaries and participations of SMT GmbH;

uu)

Collective bargaining agreements ( Tarifverträge ), general salary changes for employees at the management level of an SMT Group Company not covered by collective bargaining agreements ( generelle Gehaltsanpassungen für außertarifliche leitende Angestellte ), shop agreements with an impact on remuneration (including fringe benefits), social measures with long term character, classification and granting of any special remuneration to the entire work force of an SMT Group Company;


vv)	Severance payments to employees of an SMT Group Company exceeding EUR 300,000;

ww)

Filing of active (patent infringement) law suits, if (i) interests of CZ AG or an affiliated company thereof are affected (potentially also through counterclaims ( Gegenklagen )), provided that such lawsuit would not harm significantly the combined business of the SMT Group Companies and an ASML Group Company (including additional business, if any, as it is in existence between SMT Group Companies and an ASML Group Company at the time of decision), or (ii) the active law suits involve a cost risk exceeding EUR 1 million but without having a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other);


xx)	Acquisition, sale and encumbrance by an SMT Group Company or the Partnership of real estate ( Grundstücke ) and leasehold rights ( grundstücksgleiche Rechte) exceeding EUR 3 million;


yy)	Construction projects (new buildings/renovations) by an SMT Group Company or the Partnership exceeding EUR 3 million;


zz)	Rental and lease agreements by an SMT Group Company or the Partnership exceeding a value of EUR 3 million (calculated as duration of term x net rent);


aaa)	Approval of M&A projects of an SMT Group Company or the Partnership (to the extent not already covered under another line item);


bbb)	Approval of any business activities conducted as a non-Zeiss business (according to the Carl Zeiss trademark policies);


ccc)	Granting of licenses regarding the trademarks of Carl Zeiss AG or an affiliated company thereof;


ddd)	Granting of Carl Zeiss company names to entities affiliated with SMT GmbH or the Partnership.

Exhibit 2 to the Partnership and Joint Venture Agreement

List of Matters that require approval of the Shareholders Committee with unanimous vote but which ultimately do not lead to the ASML Put Option pursuant to Section 8.6 of this Agreement:


eee)	A SMT Group Company incurring debt from outside the CZ Group, provided that such action has a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other);


fff)	A SMT Group Company granting loans, guarantees and securities binding an SMT Group Company for third party debt not being part of the ordinary course of business, provided that such action has a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other);

ggg)

Discontinuation of existing and commencement of new business by an SMT Group Company, provided that (i) such action does have a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other), and (ii) it does not have an impact on the combined business of the SMT Group Companies and an ASML Group Company (including additional business, if any, as it is in existence between SMT Group Companies and an ASML Group Company at the time of decision);

hhh)

Acquisition by and disposal of enterprises ( Unternehmen ) or parts of enterprises and participations of an SMT Group Company or the Partnership, whether in the form of an asset deal or a share deal, provided that (i) such action does have a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other), and (ii) it does not have an impact on the combined business of the SMT Group Companies and an ASML Group Company (including additional business, if any, as it is in existence between SMT Group Companies and an ASML Group Company at the time of decision);


iii)	Setting-up and dissolution and liquidation of subsidiaries and participations, permanent establishments, businesses and representative offices in Germany and abroad by an SMT Group Company or the Partnership, provided that such action has a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other);


jjj)	Decisions of SMT GmbH on CAPEX (including area planning), OPEX and capacity planning (FTE production) exceeding the relevant budget by more than 15%;


kkk)	Capital increases in subsidiaries or participations of SMT GmbH or the Partnership, provided that such action has a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other);


lll)	Matters of an SMT Group Company outside the ordinary course of business exceeding EUR 1 million in value, provided that such action has a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other);

mmm)

Filing of active (patent infringement) law suits, if (i) interests of an ASML Group Company are affected (potentially also through counterclaims ( Gegenklagen )), provided that such lawsuit would harm significantly the business of an ASML Group Company, or (ii) the active law suit has a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other).

Exhibit 3 to the Partnership and Joint Venture Agreement

List of Matters that require approval of the Shareholders Committee with unanimous vote and which ultimately lead to the ASML Put Option pursuant to Section 8.6 of this Agreement:


nnn)	Decisions about a distribution of profits and reserves of SMT GmbH to the Partnership (to the extent that there is no profit transfer agreement in place) and allocation of parts of the annual net profit of SMT GmbH to the other earnings reserves (Sec. 272 para. 3 of the German Commercial Code);


ooo)	Enterprise agreements ( Unternehmensverträge ) according to Sec. 291 et seq. of the German Stock Corporations Act ( Aktiengesetz ), to which either SMT GmbH or the Partnership is a party (except for the domination and profit sharing agreement between SMT GmbH and the Partnership that shall come into effect as of 1 April 2017);


ppp)	Actions pursuant to the German Transformation Act (merger ( Verschmelzung ), spin-off ( Abspaltung ), split-off ( Aufspaltung ), hive-down ( Ausgliederung ), change of legal form ( Formwechsel )) with respect to SMT GmbH, provided that such action has a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other);


qqq)	Liquidation or dissolution of SMT GmbH;


rrr)	Amendments of articles of association of SMT GmbH;

sss)

Discontinuation of existing and commencement of new business by an SMT Group Company, provided that such business has an impact on the combined business of the SMT Group Companies and an ASML Group Company (including additional business, if any, as it is in existence between SMT Group Companies and an ASML Group Company at the time of decision), and further provided that such action has a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other);

ttt)

Acquisition by and disposal of enterprises ( Unternehmen ) or parts of enterprises and participations of an SMT Group Company or the Partnership which has an impact on the combined business of the SMT Group Companies and an ASML Group Company (including additional business, if any, as it is in existence between SMT Group Companies and an ASML Group Company at the time of decision), whether in the form of an asset deal or a share deal, provided that such action has a financial impact of more than EUR 150 million (in the individual case or in the aggregate if several cases are connected to each other).

Exhibit 4 to the Partnership and Joint Venture Agreement

List of Matters that require approval of the Shareholders Committee with unanimous vote and which must not be resolved without the approval of ASML:


uuu)	Sale, transfer or encumbrance of the share of the Partnership in SMT GmbH (or the issuance of shares by way of capital increase);


vvv)	Capital increase of SMT GmbH in case of the subscription of the shares by a third party, i.e. not the Partnership;


www)	Initial public offering of an SMT Group Company (after a change in legal form);


xxx)	Actions pursuant to the German Transformation Act (merger ( Verschmelzung ), spin-off ( Abspaltung ), split-off ( Aufspaltung ), hive-down ( Ausgliederung ), change of legal form ( Formwechsel )) with respect to SMT GmbH, provided that a third party, i.e. a party not affiliated with either CZ AG or ASML, would become (directly or indirectly) a shareholder of SMT GmbH by way of that measure;


yyy)	Sale of all or substantially all assets of an SMT Group Company.

Exhibit 5 to the Partnership and Joint Venture Agreement

Price Formula for ASML Put Option


Price t1 =	0.249 x 0.13 x tax ratio x (average ASML market capitalization at t2)

t1: ASML Put Option Exercise Date

t2 : period between (t1 – 15 days) and (t1 + 15 days)

0.13 : fixed sales ratio


tax ratio :	tax adjustment ratio of 70/89 shall apply in case of an exercise until 31 December 2022

In case of an exercise of the ASML Put Option after 31 December 2022, the tax adjustment ratio rate shall be calculated as the weighted annual effective tax rate * of SMT GmbH (as determined under IFRS on a stand-alone basis not considering any profit & loss pooling agreement / tax consolidation with a parent entity (dominating entity)) and ASML Holding N.V. (as included in ASML Holding N.V.'s Annual Report on Form 20-F) based on SMT GmbH’s and ASML Holding N.V.'s weighted average effective tax rate of three fiscal years during a period of the last five fiscal years prior to the year in which the ASML Put Option has been exercised, provided that the highest and lowest effective tax rate percentages during the last five year period shall be excluded from the calculation. In case the weighted average effective tax rate of ASML or SMT GmbH for the three relevant fiscal years is below 0% or above 30%, that weighted average effective tax rate is considered to be corrected to the limit that was exceeded.

* whereas the weighted average effective tax rate is calculated as the sum of the tax expense of the three relevant fiscal years divided by the sum of the profit before tax of the three applicable fiscal years. Example: If during such years SMT GmbH shall have a weighted average effective tax rate of 25%, and ASML Holding N.V. of 15%, the ratio shall be 75/85. In case e.g. SMT GmbH shall have a weighted average effective tax rate of 34%, this is corrected to 30%).

ASML market capitalization:

Shall be determined on the volume-weighted average price of the ordinary ASML shares on Euronext Amsterdam during t2 (9.00 C.E.T. to 17.20 C.E.T.) excluding opening and closing auctions, block trades and any (OTC) market cross trades, per Bloomberg (derived using Bloomberg command ASML NA EQUITY VWAP) multiplied by the number of outstanding shares (as per trade register extract).

In case that the shares of ASML Holding N.V. are not listed anymore at the time of exercising the put option, the value of ASML Holding N.V. shall be determined by a third party expert valuation based on customary valuation methods.

Exhibit 6 to the Partnership and Joint Venture Agreement

Exhibit 7 to the Partnership and Joint Venture Agreement

DEFINITIONS



Agreement defined in	Introduction
ASML defined in	Introduction
ASML Offer defined in	10.5a)
ASML Put Option defined in	8.6d)
ASML Right of First Offer defined in	10.5a)
ASML Right of First Refusal defined in	10.7
Carl Zeiss SMT Holding GmbH & Co. KG defined in	1.2
CZ AG defined in	Introduction
Decreasing Amount defined in	19.3a)i)
Drag-Along Right defined in	10.6
Drag-Along Sale defined in	10.6
Drag-Along Transferee defined in	10.6
Exit Call defined in	10.5
General Partner defined in	Introduction
Haarlem Table defined in	13.2
Increasing Amount defined in	19.3a)i)
Investment Agreement defined in	Preamble
Limited Partner defined in	Introduction
Limited Partners defined in	Introduction
Negotiation Period defined in	10.3
Operational Committees defined in	13.1
Partner defined in	Introduction
Partners defined in	Introduction
Partners Meeting defined in	6.1
Partnership defined in	1.1
Separation defined in	10.8
Shareholders Committee defined in	7.1
SMT GmbH defined in	2.1
SMT Holding Management GmbH defined in	Introduction
Transferring LP defined in	10.9

Exhibit 8.1

List of main subsidiaries




Legal Entity	Country of Incorporation

Main subsidiaries of ASML Holding N.V. ¹ :
ASML Netherlands B.V.	Netherlands (Veldhoven)
ASML Systems B.V.	Netherlands (Veldhoven)
ASML Germany GmbH	Germany (Dresden)
ASML France S.a.r.l.	France (Bernin)
ASML (UK) Ltd.	UK (Edinburgh (Scotland))
ASML Israel (2001) Ltd.	Israel (Ramat-Gan)
ASML Ireland Ltd.	Ireland (Dublin)
ASML Italy S.r.l.	Italy (Avezzano)
ASML Hong Kong Ltd.	Hong Kong SAR
ASML Singapore Pte. Ltd.	Singapore
ASML Korea Co. Ltd.	Korea (Kyunggi-Do)
ASML Japan Co. Ltd.	Japan (Tokyo)
ASML (Shanghai) Lithography Facilities Science and Technology Co. Ltd.	China (Shanghai)
ASML Taiwan Ltd.	Taiwan (Hsinchu)
ASML Equipment Malaysia Sdn. Bhd.	Malaysia (Penang)
ASML Belgium BVBA	Belgium (Turnhout)
ASML Belgium Finance GCV	Belgium (Turnhout)
Brion Technologies (Shenzhen) Co. Ltd.	China (Shenzhen)
Brion Technologies, Inc.	US (Wilmington, Delaware)
ASML US, Inc.	US (Wilmington, Delaware)
ASML MaskTools, Inc.	US (Dover, Delaware)
ASML Participations US Inc.	US (Wilmington, Delaware)
Lehrer Pearson, Inc.	US (Wilmington, Delaware)
Cymer, LLC.	US (Reno, Nevada)
eLith LLC.	US (Wilmington, Delaware)
ASML Hong Kong Logistic Services Ltd.	Hong Kong SAR
ASML Global, Inc	US (Wilmington, Delaware)
Cymer B.V.	Netherlands (Amsterdam)
Cymer Japan, Inc.	Japan (Tokyo)
Cymer Korea, Inc.	Korea (Kyunggi-Do)
Cymer Singapore Pte Ltd.	Singapore
Cymer Southeast Asia Ltd.	Taiwan (Hsinchu)
Cymer Semiconductor Equipment (Shanghai) Co. Ltd.	China (Shanghai)
TCZ, LLC.	US (Reno, Nevada)
TCZ Pte Ltd. ²	Singapore
TCZ GmbH ²	Germany (Oberkochen)
Epsilon Co.	Taiwan (Taipei)
Hermes Microvision, Inc.	Taiwan (Hsinchu)
HMI Holdings Inc.	Samoa (Apia)
Hermes Microvision Korea Inc.	Korea (Kyungki-do)
Hermes Microvision Japan Inc.	Japan (Tokyo)
Hermes Microvision Co., Ltd.	China (Beijing)
HMI Investment Corp.	Samoa (Apia)
Hermes Microvision, Inc	US (San Jose, California)
HMI North America Inc.	US (Las Vegas, Nevada)
Hermes Microvision (Shanghai) Co., Ltd	China (Shanghai)


1.	All of our subsidiaries are (directly or indirectly) wholly-owned, with exception of eLith LLC, in which we hold an interest of 50 percent.


2.	In liquidation .

Exhibit 12.1

Certification of the Chief Executive Officer

I, Peter T.F.M. Wennink, certify that:

1. I have reviewed this Annual Report on Form 20-F of ASML Holding N.V.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the Financial Statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the Annual Report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: February 7, 2017

/s/ Peter T.F.M. Wennink Peter T.F.M. Wennink

President, CEO and member of the Board of Management

Certification of the Chief Financial Officer

I, Wolfgang U. Nickl, certify that:

1. I have reviewed this Annual Report on Form 20-F of ASML Holding N.V.;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the company and have:

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: February 7, 2017

/s/ Wolfgang U. Nickl Wolfgang U. Nickl

Executive Vice President, CFO and member of the Board of Management

Exhibit 13.1

Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 20-F of ASML Holding N.V. for the fiscal year ended December 31, 2015 as filed with the SEC on the date hereof, Peter T.F.M. Wennink, as CEO of the Company, and Wolfgang U. Nickl, as CFO of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the issuer.

/s/ Peter T.F.M. Wennink Name: Peter T.F.M. Wennink

Title: President, CEO and member of the Board of Management

Date: February 7, 2017

/s/ Wolfgang U. Nickl Name: Wolfgang U. Nickl

Title: Executive Vice President, CFO and member of the Board of Management

Date: February 7, 2017

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

This certification accompanies the Report pursuant to section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of section 18 of the Securities Exchange Act of 1934.

Exhibit 15.1

Consent of Independent Registered Public Accounting Firm

To the Supervisory Board of ASML Holding N.V.

We consent to the incorporation by reference in the following Registration Statements on Form S-8 Nos. 333-116337, 333-126340, 333-136362. 333-141125,333-142254,333-144356, 333-147128, 333-153277, 333-162439, 333-170034, 333-188938, 333-190023, 333-192951, and 333-203390 of our report dated February 4, 2016, relating to the financial statements of ASML Holding N.V. and subsidiaries for the year ended December 31, 2015, appearing in the Annual Report on Form 20-F of ASML Holding N.V. for the year ended December 31, 2016 .

/s/ Deloitte Accountants B.V.

Deloitte Accountants B.V.

Eindhoven, The Netherlands

February 7, 2017

Exhibit 15.2

Consent of Independent Registered Public Accounting Firm

To the Supervisory Board of ASML Holding N.V.

We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 333-116337, 333-126340, 333-136362, 333-141125, 333-142254, 333-144356, 333-147128, 333-153277, 333-162439, 333-170034, 333-188938, 333-190023, 333-192951, and 333-203390) of ASML Holding N.V. of our report dated February 7, 2017 with respect to the consolidated balance sheet of ASML Holding N.V. and subsidiaries as of December 31, 2016 and the related consolidated statements of operations, comprehensive income shareholders’ equity, and cash flows for the year ended December 31, 2016 and the effectiveness of internal control over financial reporting as of December 31, 2016, which report appears in the December 31, 2016 Annual Report on Form 20-F of ASML Holding N.V.

Our report dated February 7, 2017 contains an explanatory paragraph that states that our audit of internal control over financial reporting of ASML Holding N.V. excluded an evaluation of the internal control over financial reporting of Hermes Microvision Inc., including subsidiaries, which was acquired in November 2016.

/s/ KPMG Accountants N.V.

KPMG Accountants N.V.

Rotterdam, the Netherlands

February 7, 2017

Exhibit 15.3

Letter dated February 7, 2017 from Deloitte Accountants B.V.

To Securities and Exchange Commission

We have read the statements made by ASML Holding N.V. (copy attached) included in Item 16F of Form 20-F dated February 7, 2017 of ASML Holding B.V., and are in agreement with the statements contained in the paragraphs 1, 2 and 3 on page 54 therein. We have no basis to agree or disagree with other statements of the registrant contained therein.

Yours sincerely,

/s/ Deloitte Accountants B.V.

Deloitte Accountants B.V.

Eindhoven, The Netherlands

February 7, 2017