Notes (unaudited)

Note 13 Capital Increases

Share capital increase

On 23 April 2008, the Annual General Meeting of shareholders (AGM) approved a proposal that the Group strengthen its shareholders' equity by way of an ordinary capital increase. The capital increase was effected by granting existing shareholders rights to subscribe to seven new shares for twenty old shares at a price of CHF 21 per share. The capital increase was fully underwritten and resulted in the issue of 760,295,181 new fully paid registered shares with a par value of CHF 0.10 each. Of the newly issued shares, 99.4% were taken up by existing and new shareholders. Net proceeds from the capital increase were approximately CHF 15.6 billion. The newly issued shares ranked pari passu in all respects with the existing registered shares immediately upon issue.

Mandatory Convertible Notes (MCN)

On 5 March 2008, UBS issued CHF 13 billion in Mandatory Convertible Notes to two investors. The MCN have a coupon of 9% per annum and are converted into UBS shares after two years, with earlier conversion options for the investors and UBS. The terms of the MCN linked conversion to the share price at the date of conversion, with the minimum conversion price set at CHF 51.48 and the maximum conversion price at CHF 60.23 per share. The ordinary capital increase with subscription rights issued to existing shareholders triggered anti-dilution adjustments that resulted in a reduction of the minimum conversion price to CHF 48.07 per share and the elimination of the maximum conversion price. The MCN will be converted into 270,438,942 shares. The issue of the MCN immediately strengthened UBS's regulatory capital base as the notes count as tier 1 capital from the date of issue.

As a result of the elimination of the maximum conversion price and the range within which the MCN would have been converted into a variable number of shares, the accounting for the MCN was changed. Under IFRS, the MCN was originally treated as a compound financial instrument that consisted of a debt host and an embedded equity component. A liability of CHF 14,642 million was carried on the balance sheet on 26 May 2008, the date immediately before the dilution adjustment was made. After the dilution adjustment the MCN is now treated as an equity instrument, which resulted in the reclassification of CHF 12,382 million from liabilities to equity. CHF 2,260 million remained classified as a liability representing the present value of the 9% coupon payments due on 5 March 2009 and 2010, respectively. Interest at a rate of 2.78% per annum continues to be accrued on the remaining liability resulting in interest expense of CHF 5.3 million per month until 5 March 2009 and CHF 2.7 million per month thereafter.