Capital structure

UBS is committed to capital management that is driven by shareholder value considerations. At the same time, UBS is dedicated to maintaining its strong capital position.

Capital

Under Swiss company law, shareholders have to approve in a shareholders' meeting any increase in the total number of issued shares, which may be an ordinary share capital increase or the creation of conditional or authorized capital. At year-end 2007, the ordinary share capital was CHF 207,354,734.40 (including shares issued out of conditional capital during 2007).

At the annual general meeting (AGM) on 18 April 2007, shareholders gave the Board of Directors (BoD) a mandate to continue a repurchase program during 2007-2010 for a maximum of 10% of the share capital (210,527,328 shares) over the next three-year period. As part of the measures announced in December 2007 to strengthen UBS's capital base, the BoD decided to rededicate the 36.4 million treasury shares held for cancellation.

Conditional share capital

At year-end 2007, total conditional share capital amounted to CHF 15,013,863.40, corresponding to a maximum of 150,138,634 shares.

Conditional capital was created in 2000 in connection with the acquisition of PaineWebber Group Inc. (PaineWebber) to cover option rights previously granted by PaineWebber to its employees. Additionally, at the 2006 AGM, shareholders approved conditional capital in the amount of 150 million UBS shares to be used for employee option grants limited to a period of three years. Options under both plans are exercisable at any time between their vesting and the expiry date. Shareholders' pre-emptive rights are excluded. In 2007, options with respect to 1,288,354 shares were exercised under the PaineWebber option plans, and 4,718 options expired without being exercised. Under the UBS employee stock option plans 5,704 options were exercised.

UBS shareholders also approved the creation of conditional capital at the extraordinary general meeting (EGM) on 27 February 2008, allowing the Government of Singapore Investment Corporation Pte. Ltd. (GIC) and an undisclosed financial investor in the Middle East to subscribe to an issue of CHF 13 billion of mandatory convertible notes (MCNs).

Authorized share capital

At the EGM on 27 February 2008, UBS shareholders approved the creation of authorized capital for a maximum amount of CHF 10,370,000, or 103, 700,000 new shares (approximately 5% of the issued share capital at year-end 2007). The issue price of new shares will be CHF 0.10. The authorized capital created will be used to replace the cash dividend for the 2007 financial year with a stock dividend. UBS shareholders will receive one tradable entitlement for each UBS share held on 25 April 2008. Entitlements will be tradable on SWX Europe (formerly known as virt-x) from 28 April to 9 May 2008. The maximum exchange ratio will be at least 20:1, i. e. no fewer than 20 entitlements will enable a holder to receive one new share for free. The exchange ratio will be determined by the BoD and communicated to shareholders on or by the day of the AGM on 23 April 2008.

Changes of shareholders' equity

According to International Financial Reporting Standards (IFRS), equity attributable to UBS shareholders amounted to CHF 35.5 billion on 31 December 2007.

Shares, participation and bonus certificates, capital securities

UBS shares are issued in registered form, traded and settled as so-called global registered shares. Each registered share has a par value of CHF 0.10 and carries one vote. Voting rights may, however, only be exercised if the holder expressly declares having acquired these shares in his or her own name and for his or her own account. Global registered shares provide direct and equal ownership for all shareholders, irrespective of the country and stock exchange they are traded at.

On 31 December 2007, 1,128,382,764 shares carried voting rights, 199,544,283 shares were entered in the share register without voting rights, and 745,620,297 shares were not registered. All 2,073,547,344 shares were fully paid up and ranked for dividends. There are no preferential rights for individual shareholders.

UBS has not issued any participation certificates or bonus certificates.

In 2007, UBS Capital Securities (Jersey) Ltd. raised EUR 600 million hybrid Tier 1 capital in the form of preferred shares. Additionally, UBS tapped the capital markets twice in 2007 and raised GBP 250 million with a coupon of 6.375% maturing in 2024 (and callable by the issuer in 2019) and CHF 350 million with a 4.125% coupon maturing in 2017. At year-end 2007, UBS had CHF 6,387 million in preferred shares outstanding which count as Tier 1 capital under regulatory rules. Outstanding Tier 2 capital securities accounted for CHF 13,770 million in eligible capital as of 31 December 2007.

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Limitation on transferability and nominee registration

UBS does not apply any restrictions or limitations on the transferability of its shares. Shares registered in the share register with voting rights according to the provisions of the "Articles of Association UBS AG" (which require an express declaration of beneficial ownership) may be voted without any limit in scope.

UBS has issued special provisions for the registration of fiduciaries / nominees. Fiduciaries / nominees are entered in the share register with voting rights up to a total of 5% of all shares issued, if they agree to disclose, upon request from the firm, beneficial owners holding 0.3% or more of all UBS shares. An exception to the 5% rule exists for securities clearing organizations such as The Depositary Trust Company in New York.

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Convertible bonds and options

On 31 December 2007, employee options outstanding amounted to 185,993,330, of which a total of 90,453,625 were exercisable. UBS satisfies share delivery obligations under its option-based participation plans either by purchasing UBS shares in the market on grant date or shortly thereafter or through the issuance of new shares out of conditional capital. At exercise, shares held in treasury or newly issued shares are delivered to the employee against receipt of the strike price. As of 31 December 2007, UBS was holding approximately 141 million shares in treasury and an additional 150 million unissued shares in conditional share capital which are available and can be used for future employee option exercises. The shares available cover all vested (i.e. exercisable) employee options.

The Investment Bank, acting as liquidity provider to the equity futures market and as a market-maker in UBS shares and derivatives, issued derivatives linked to UBS stock. Most of these instruments are classified as cash-settled derivatives and are held for trading purposes only. To hedge the economic exposure, a limited number of UBS shares are held by the Investment Bank.

UBS issued CHF 13 billion of MCNs following the EGM on 27 February 2008. The notes were placed with two financial investors (GIC and one other investor). The notes will pay a coupon of 9% until conversion into UBS shares, which must take place on or before a date two years after issuance.

The MCNs contain market-standard provisions allowing for early conversion at the option of either UBS or the MCN holders. Early conversion is only possible as from the date six months after issuance of the MCNs (expected earliest conversion date is 5 September 2008). The conversion of the MCNs, which will occur only after the stock dividend (see the paragraph titled "Authorized share capital" in this section), is expected to increase the number of shares in issue by between 9.9% and 11.6%, depending on the development of the UBS share price and in the absence of dilutitive events. The proceeds raised from the sale of the MCNs will support UBS's business and its long-term profit capacity. The terms of the MCNs contain standard market provisions for the adjustment of the conversion price if any dilutive events occur between issuance and maturity, such as capital increases at a discount, dividends in cash or in specie in excess of CHF 2.20 per share and per financial year, and similar events.