Item 1: Partial amendment of the Articles of Association
Item 1.1. Creation of Authorized Capital
The Board of Directors proposes that a maximum of CHF 380 million of Authorized Capital be created, amending the Articles of Association as follows:
Article 4b paragraph 1 (new)
In connection with the acquisition of PaineWebber, the Board of Directors shall increase the share capital, under exclusion of shareholders' preemptive rights, by a maximum of CHF 380 million, corresponding to a maximum of 38 million registered shares of CHF 10 par value each (which must be fully paid up). The Authorized Capital can be utilized until 30 June 2001, in part or in whole and on one or more dates. The exchange ratio has been fixed in the merger agreement. The Board of Directors will fix the issue price of the new shares. The new shares will carry dividends from the 4th quarter 2000. They are subject to the registration restrictions set out in Article 5 of the Articles of Association.
PaineWebber stockholders will receive, in the aggregate, 50% cash and 50% UBS shares in the merger. A maximum of 45 million UBS shares are needed for the non-cash portion of the merger consideration. The Board of Directors and the Group Executive Board are fully committed to keep the final number of new UBS shares issued as small as possible in order to avoid dilution of earnings and voting power, subject to maintaining a sound capitalization for the UBS Group. This will be achieved through issuance of approximately 7 million treasury shares and shares temporarily borrowed in the market. Any such borrowed shares will be replaced by purchases in the market or through the issuance of new UBS shares under the Authorized Capital above.
In order to provide as much flexibility as possible - in the interests of the shareholders - the Board of Directors proposes to create Authorized Capital, which will only be used as necessary.
Item 1.2. Grant of a Green Shoe Option" associated with the Authorized Capital
The Board of Directors proposes to be granted the right to issue additional portions of the approved Authorized Capital also after the completion of the PaineWebber acquisition ("Green Shoe Option"). The Articles of Association shall be amended as follows:
Article 4b paragraph 2 (new)
The Board of Directors may issue additional portions of the Authorized Capital, as approved under paragraph 1, within three months after the consummation of the merger. These shares will be used to meet delivery obligations vis-à-vis third parties resulting from transactions during the completion of the merger. Shareholders' preemptive rights are excluded in favour of the underwriter of the new shares who guarantees delivery to the rightful third parties.
As mentioned before, this provision is designed so that the number of new UBS shares issued can be kept as small as possible. In order to meet this goal, borrowed UBS shares will be used in the acquisition phase. Article 4b paragraph 2 provides the opportunity to issue additional shares from the approved Authorized Capital during a limited period in time after the completion of the merger (three months maximum), in case unfavourable market conditions prevent the purchase of sufficient shares in the market to cover such borrowings.
This Green Shoe Option" creates additional flexibility to manage the capital in the interests of shareholders.
Item 1.3. Creation of Conditional Capital
The Board of Directors proposes that a maximum of CHF 170 million Conditional Capital be created, amending the Articles of Association as follows:
Article 4a paragraph 3 (new)
Employee stock ownership plan of Paine Webber Group Inc., New York ("PaineWebber")
The share capital will be increased, under exclusion of shareholders' preemptive rights, by a maximum of CHF 170 million, corresponding to a maximum of 17 million registered shares of CHF 10 par value each (which must be fully paid up) through the exercise of option rights granted to employees of PaineWebber, which were rolled over according to the merger agreement of 12 July 2000. The subscription ratio, time limits and further details were determined by PaineWebber and taken over by UBS AG. The purchase of shares through the exercise of option rights as well as any subsequent transfer of the shares are subject to the registration restrictions set out in Article 5 of these Articles of Association.
The existing option plans for employees of PaineWebber will be taken over by UBS. If all options were rolled over into similar UBS instruments, a maximum of 17 million UBS shares would be needed. Depending on the number of options exercised prior to the completion of the merger, the necessary number of UBS shares needed in connection with option roll-overs will decrease accordingly.