Jonathan G. Katz, Secretary
RE: Proposed Rules 10A(m)(1) of the Securities Exchange Act, as added by Sarbanes Oxley Act §301 Standards Relating to Listed Company Audit Committees; File No. S7-02-03 Dear Mr. Katz: We are pleased to submit this letter to the Securities and Exchange Commission (the "SEC" or "Commission") on behalf of ASML Holding N.V., a Netherlands corporation and foreign private issuer, with ordinary shares listed on Nasdaq and on the Official Segment of the stock market of Euronext Amsterdam ("ASML" or the "Company"), in response to the SEC's proposed Rule on Standards Relating to Listed Company Audit Committees, Release Nos. 33-8173; 34-47137; IC-25885; File No. S7-02-03, in which the Commission solicited comments on its proposed rules implementing the provisions of the Sarbanes-Oxley Act of 2002 (the "Act") relating to audit committee independence. The purpose of providing these comments to the Commission is to highlight those aspects of the proposed rules that may be incompatible with the overall corporate governance structure not only of ASML but also of a substantial number of other Netherlands corporations which have securities listed on a national securities exchange or quoted on an automated interdealer quotation system in the United States. ASML Corporate Governance Structure Like other "large" Netherlands based corporations,1 ASML has a two-tier board structure where non-executive members serve on the Supervisory Board, which in turn supervises and advises the members of the executive Board of Management in performing their management tasks. Responsibility for the day-to-day management of the Company lies with the Board of Management. The Board of Management has a duty to keep the Supervisory Board informed, to consult with the Supervisory Board on important matters and to submit certain important decisions to the Supervisory Board for its prior approval. Supervisory Board members are prohibited from also serving as officers or employees of the Company, and a member of the Board of Management cannot serve on the Supervisory Board. Appointments to the Supervisory Board are made by the Supervisory Board itself, subject to certain rights of objection retained by the General Meeting of Shareholders or the Works Council, an employee representative body. Members of the Supervisory Board generally serve for a term of four years from the date of their appointment and may be re-appointed by, and serve at the discretion of, the Supervisory Board. The Supervisory Board has two sub-committees, a Remuneration Committee and an Audit Committee. We understand that none of the Company's Supervisory Board members accepts any compensatory fees from the Company except in their role as Supervisory Board members. The Audit Committee consists of three members of the Supervisory Board. The Audit Committee, among other things, verifies the independence of the external auditors of the Company's financial statements and determines whether to recommend to the Supervisory Board to adopt the audited financial statements. The Priority Foundation Like many other Netherlands corporations2, ASML has outstanding priority shares (the "Priority Shares"), that are 100% owned by the Stichting Prioriteitsaandelen ASML Holding N.V., a special-purpose non-profit Netherlands foundation (the "Priority Foundation"). The object of the Priority Foundation is to secure the interests of the Company and all other related stakeholders, more particularly to protect the independence and identity of ASML and its related companies to the greatest extent possible. The Priority Shares are entitled to vote on all matters subject to a vote by the Company's shareholders (together with holders of the Company's ordinary shares (the "Ordinary Shares"), and protective cumulative preference shares (the "Preference Shares"), if any, with one vote attaching to each Priority Share, Ordinary Share and Preference Share outstanding). In practice this voting right is immaterial because the Priority Shares account for less than 0.1% of the Company's outstanding share capital. In addition, the approval of the Priority Shareholders, voting separately as a class, is required for the Company to take certain actions that are significant for the Company (e.g. issuance of shares, amendments to the Company's articles of association, dividends, liquidation of the Company and determination of the number of Board of Management and Supervisory Board members). The Priority Foundation is governed by a five-member board, consisting solely of members of ASML's Supervisory Board and Board of Management, with two members appointed by the Company's Board of Management from its own members, and the remaining three board members appointed by the Company's Supervisory Board from its own members. We understand that none of the Priority Foundation's Board members receives compensation for serving in that capacity. Accordingly, three of the Company's Supervisory Board members, who coincidentally constitute all of the members of the Company's Audit Committee, also serve on the board of the Priority Foundation. The composition of the board of the Priority Foundation and its powers have been established in accordance with Netherlands law and practice and satisfy the requirements of the Euronext Amsterdam Exchanges Listing and Issue Rules: Rules for admission to listing on the Official Market of the AEX-Stock Exchange (the "Euronext Amsterdam Listing Rules").3 The Preference Foundation The Company currently has no outstanding Preference Shares. Like many other Dutch companies4, however, the Company has granted to a special purpose, non-profit Netherlands foundation (in the case of ASML, the Stichting Preferente Aandelen ASML, the "Preference Foundation" and, together with the Priority Foundation, the "Foundations"), an option to acquire from the Company at their nominal value of €0.02 per share, a number of Preference Shares, equal to the then outstanding number of Ordinary Shares. Full exercise of the Preference Share option would therefore effectively dilute the voting power of the Ordinary Shares then outstanding by one-half. The practical effect of any such exercise could be to prevent hostile takeover attempts of the Company by third-parties. The Preference Shares could then be redeemed by the Company only upon a proposal of the Board of Management, which proposal has the prior approval of the Supervisory Board and the meeting of Priority Shares, voting separately as a class (i.e., the Priority Foundation), and is then adopted by a general meeting of shareholders (which includes both holders of Ordinary Shares and the Preference Shareholders). The Preference Foundation has been established in accordance with Netherlands law and practice and satisfies the independence requirements of the Euronext Listing Rules.5 As required by the Euronext Amsterdam Listing Rules, the Preference Foundation has as its object "the protection of the interests of ASML and the enterprises maintained by it in such a way that the interests of ASML and those enterprises and of all concerned are protected as well as possible, and to minimize influences which, in conflict with these interests, could affect the independence and identity of ASML and those enterprises, as well as everything which is connected with or could be conducive to the above". For this purpose, the term "enterprise" includes each of ASML's subsidiaries. The board of the Preference Foundation is required by the Euronext Amsterdam Listing Rules to be independent6 of the Company and is composed of three voting members drawn from the Dutch business and academic communities. In addition, the Chairman of ASML's Supervisory Board is a member of the Preference Foundation's board, for which, we understand, he receives no additional compensation. Consistent with the Euronext Amsterdam Listing Rules to establish the independence of a foundation, the charter of the Preference Foundation states that a member of the board of the Preference Foundation who is also the Chairman of the Supervisory Board, shall have the right to vote so long as there are at least four independent Preference Foundation Board members on the Preference Foundation Board. Should the number of independent Preference Foundation Board members fall below four, the Supervisory Board member shall become a non-voting member of the Preference Foundation Board. Given that the Preference Foundation Board currently has only three independent board members, the Chairman of the Supervisory Board is currently a non-voting member of the board of the Preference Foundation. Sarbanes-Oxley Act of 2002 Under Section 301 of the Sarbanes Oxley Act of 2002 (the "Act"), all members of a public company's audit committee must be independent. In order to be considered independent under the Act, an audit committee member may not:
We note that the Commission has proposed to define "affiliate", for the purposes of this rule, to mean "a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified." The term "control" is proposed to be consistent with the Commission's other definitions of this term under the Securities Exchange Act of 1934 as "the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise." For purposes of the proposed rule, a director, executive officer, partner, member, principal or designee of an affiliate also would be deemed to be an affiliate. Application to the Foundations Membership on the board of each of the Foundations would result in Supervisory Board members being deemed not independent under the Act only if the Foundations are "affiliates" of ASML, which would be the case if ASML "controls" the Foundations, if the Foundations "control" ASML or if ASML and the Foundations are under "common control." Application to the Priority Foundation ASML believes that the Priority Foundation should not be deemed to "control" the Company because its ownership of all of the Company's Priority Shares does not give it the power to direct or cause the direction of ASML's management and policies. Although we understand that the approval of the meeting of holders of Priority Shares is required prior to the Company taking a limited number of actions, those approval rights relate to a corporate actions which, in most instances, also require the approval of other shareholders. In addition, the meeting of holders of Priority Shares has very limited power to affirmatively cause the Company to take specific actions. Specifically the only affirmative powers of the meeting of the holders of Priority Shares are to determine the number of members of ASML's Supervisory Board and Board of Management and to submit non-binding proposals on other matters for consideration by a general meeting of ASML's shareholders. ASML believes these powers are not sufficient to constitute the "power to direct or cause the direction of the management and policies" of the Company and that the meeting of holders of Priority Shares (and therefore the Priority Share Foundation) does not fall within the ambit of affiliates intended to be covered by Section 301 of the Act or the proposed rules. ASML believes, however, that, as proposed, the rule is sufficiently ambiguous to support an interpretation that ASML controls the Priority Foundation since the members of the board of the Priority Foundation are, in practical (albeit indirect) effect, determined by ASML's Supervisory Board. In addition, the Company and the Priority Foundation could be viewed as being under "common control," since members of ASML's Supervisory Board who are also members of the board at the Priority Foundation could be said to "control" both the Company and the Foundation because three of the six members of ASML's Supervisory Board constitute a majority of the members of the Board of the Priority Foundation (three out of five members). ASML believes that the control structure between ASML and the Priority Foundation is analogous to that of a parent and a direct or indirect consolidated majority-owned subsidiary (although ASML does not hold any economic interest in the Priority Foundation). The Commission has proposed to exempt from the "affiliated person" requirement a committee member that sits on the board of directors of both a parent and a direct or indirect consolidated majority-owned subsidiary, if the committee member otherwise meets the independence requirements for both the parent and the subsidiary. Given that the Audit Committee members of ASML are otherwise independent, merely serving also on the board of the Priority Foundation should not adversely affect the Supervisory Board member's independence, assuming that the Supervisory Board member also would be considered independent of the Priority Foundation except for the Supervisory Board member's seat on the ASML's board. To resolve the ambiguity described above, ASML respectfully requests that the rule be modified to make clear that director participation in ordinary course corporate governance and protective measures, such as the Priority Shares, adopted by foreign private issuers, will not cause a director to cease to be "independent" for purposes of proposed Rule 10A(m)(1). Application to the Preference Foundation The Commission has consistently taken the view that for the purpose of determining whether control exists, it is sufficient that an entity has the power to exercise control, whether or not such control actually exists. Following that rationale, under the proposed rule, the Preference Foundation could be deemed to "control" ASML on the basis that it holds an option to acquire from the Company a number of Preference Shares equal to the then outstanding number of Ordinary Shares, which option, upon exercise, would effectively dilute the voting power of the outstanding Ordinary Shares by one-half (even though the option is unlikely to ever be exercised). Under the proposed rule, each member of the board of the Preference Foundation might also be deemed an "affiliate" of ASML. ASML believes that the independence requirements of the Euronext Amsterdam Listing Rules, with which the Company is in compliance, provide sufficient protection from any risk that the independent judgment of the members of ASML's Audit Committee would be compromised by membership on the board of the Preference Foundation. Accordingly, ASML believes that the Preference Share Foundation should be viewed in the context of ordinary course corporate governance schemes and protective measures applicable to Dutch companies and approved under Euronext Amsterdam Listing Rules and should be excluded from the definition of "affiliate" for purposes of the proposed rule. This request is made in light of the Commission's stated commitment to avoiding unintended consequences for foreign private issuers where features of the Audit Committee are appropriately tailored to their corporate governance structures and home country legal requirements. ASML requests that the Commission consider this request in light of the Commission's current intention, as indicated in the proposed rule, not to entertain exemptions or waivers on a case-by-case basis. * * * * Please contact Richard A. Ely at 011-44-20-7519-7171 or rely@skadden.com with any questions relating to this request.
cc: Robert Roelofs
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