This prospectus supplement relates to an
effective registration statement under the Securities Act of
1933, but is not complete. This prospectus supplement is not an
offer to sell these securities and is not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION
PROSPECTUS SUPPLEMENT
PRELIMINARY PROSPECTUS SUPPLEMENT DATED MAY 9, 2006
Each trust preferred security represents a corresponding amount
of the company preferred securities and related rights under the
UBS AG subordinated guarantee. Dividends and redemption and
liquidation payments paid by UBS Preferred Funding Company on
the company preferred securities will pass through UBS Preferred
Funding Trust to you as distributions and redemption and
liquidation payments on the trust preferred securities.
►
The company preferred securities will pay semi-annual
distributions
on and of
each year at a fixed rate per annum equal
to %
through the dividend payment date
in 2016
and thereafter will pay quarterly distributions
on , , and of
each year at a variable rate per annum equal
to %
above three-month LIBOR. UBS Preferred Funding Company may
redeem the company preferred securities on or after the dividend
payment date
in 2016.
►
The company preferred securities provide holders with rights to
distributions and redemption and liquidation payments that are
similar to those of the most senior ranking noncumulative
perpetual preferred shares that could be issued directly by UBS
AG with financial terms equivalent to those of the company
preferred securities.
►
UBS AG will guarantee, on a subordinated basis, dividend,
redemption and liquidation payment obligations under the company
preferred securities.
►
We have applied to list the trust preferred securities on the
New York Stock Exchange under the symbol “UBSTP.” If
approved, trading of the trust preferred securities on the New
York Stock Exchange is expected to commence within a
30-day period after
their initial delivery.
See “Risk Factors” beginning on
page S-11 for
risks related to an investment in the trust preferred
securities.
Proceeds to
Price to
Underwriting
UBS Preferred
Public(1)
Discount
Funding Trust
Per Trust Preferred Security
100%
(2)
100%
Total
$
(2)
$
(1)
Plus accrued dividends, if any, from the time of original
issue.
(2)
UBS AG will pay the underwriter’s compensation
of % per trust
preferred security and
$ in the
aggregate.
Neither the Securities and Exchange Commission nor any state
securities commission or other regulatory body has approved or
disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus supplement or the attached
prospectus. Any representation to the contrary is a criminal
offense.
The trust preferred securities are not deposit liabilities of
UBS AG and will not be insured by the United States Federal
Deposit Insurance Corporation or any other governmental agency
of the United States, Switzerland or any other jurisdiction.
This prospectus supplement and the attached prospectus may be
used in the initial sale of the trust preferred securities. In
addition, UBS AG, UBS Securities LLC, UBS Financial Services
Inc. or any other affiliate controlled by UBS AG may use this
prospectus supplement and the attached prospectus in a
market-making transaction involving the trust preferred
securities after the initial sale. These transactions may be
executed at negotiated prices that are related to market prices
at the time of purchase or sale, or at other prices. UBS AG and
its affiliates may act as principal or agent in these
transactions.
We anticipate that the trust preferred securities will be ready
for delivery in book-entry form through the facilities of
Depository Trust Company (or DTC) as well as through the
facilities of other clearing systems that participate in DTC,
including Clearstream Banking, société anonyme
(or Clearstream) or Euroclear Bank S.A./ N.V., as operator of
the Euroclear system (or Euroclear), as the case may be, on or
about ,
2006.
Limitations on Enforcement of U.S. Laws Against UBS AG, Its
Management and Others
7
Capitalization of UBS
7
UBS
8
The UBS Preferred Funding Trusts
10
The UBS Preferred Funding Companies
11
Use of Proceeds
17
Description of Trust Preferred Securities
18
Description of Company Preferred Securities
25
Book-Entry Issuance of Trust Preferred Securities
39
Description of UBS AG Subordinated Guarantees
44
Description of Subordinated Notes of UBS AG
49
U.S. Tax Considerations
52
Tax Considerations Under the Laws of Switzerland
59
ERISA Considerations
61
Plan of Distribution
63
Validity of the Securities
63
Experts
63
The information in this prospectus supplement summarizes
specific financial and other terms that apply to the trust
preferred securities, the company preferred securities, the
subordinated guarantee and certain other information in the
attached prospectus and should be read in conjunction with the
information contained in the attached prospectus. The terms and
other information described here supplement the terms and other
information described in the attached prospectus and, if the
terms and other information described in this prospectus
supplement are inconsistent with those described in the attached
prospectus, the terms and other information described in this
prospectus supplement are controlling.
CERTAIN TERMS
In this prospectus supplement, unless we specify otherwise or
the content otherwise requires:
•
when we refer to “UBS AG,” we mean UBS AG on a parent
only basis.
•
when we refer to “UBS,”“UBS Group,”“we,”“us,”“our” or similar
references, we mean UBS AG and its consolidated subsidiaries,
including UBS Preferred Funding Trust and UBS Preferred Funding
Company.
•
when we refer to the “trust preferred securities,” we
mean the %
Noncumulative Trust Preferred Securities issued by UBS Preferred
Funding Trust.
•
when we refer to the “company preferred securities,”
we mean the %
Noncumulative Company Preferred Securities issued by UBS
Preferred Funding Company to UBS Preferred Funding Trust in
connection with the offering of the trust preferred securities
by UBS Preferred Funding Trust.
•
when we refer to “UBS Preferred Funding Trust,” we
mean UBS Preferred Funding Trust V.
•
when we refer to “UBS Preferred Funding Company,” we
mean UBS Preferred Funding Company LLC V.
•
when we refer to “$” or “USD,” we mean
United States dollars.
•
when we refer to “CHF,” we mean Swiss francs.
S- 1
Summary
The following summary does not contain all the information
that may be important to you. You should read the entire
prospectus supplement, the attached prospectus and the documents
incorporated by reference into this prospectus supplement and
the attached prospectus before making an investment decision.
You should pay special attention to the “Risk Factors”
section of this prospectus supplement to determine whether an
investment in the trust preferred securities is appropriate for
you.
Introduction
Trust preferred securities will provide you with rights to
distributions and redemption and liquidation payments that are
similar to those to which you would be entitled if you had
purchased the most senior ranking noncumulative perpetual
preferred shares that could be issued directly by UBS AG with
financial terms equivalent to those of the related company
preferred securities. The diagram to the right outlines the
relationship among investors in trust preferred securities, UBS
Preferred Funding Trust, UBS Preferred Funding Company and UBS
AG following the completion of the offering.
UBS Preferred Funding Trust will pass through to you any
dividends, redemption payments or liquidation payments that it
receives from UBS Preferred Funding Company on the company
preferred securities.
UBS AG will guarantee, on a subordinated basis, dividend,
redemption and liquidation payment obligations under the company
preferred securities. UBS Preferred Funding Company will receive
payments under the subordinated notes issued by the Cayman
Islands branch of UBS AG and will pay dividends on the company
preferred securities that are similar to dividends that would be
paid on the most senior ranking noncumulative perpetual
preferred shares issued directly by UBS AG that have equivalent
financial terms.
The capital raised in this offering will qualify as consolidated
Tier 1 capital for UBS under the relevant regulatory
capital guidelines of the Swiss Federal Banking Commission.
UBS is a global, integrated investment services firm and the
leading bank in Switzerland. UBS shares are listed on the SWX
Swiss Exchange and traded through
virt-x (which is
majority owned by the SWX Swiss Exchange), and are listed on the
New York Stock Exchange and on the Tokyo Stock Exchange.
The principal executive offices of UBS AG are located at
Bahnhofstrasse 45, CH-8098 Zurich, Switzerland and
Aeschenvorstadt 1, CH-4051 Basel, Switzerland. Its
telephone numbers are
+41-44-234 11 11 and
+41-61-288 20 20.
UBS Preferred Funding Trust V
UBS Preferred Funding Trust V is a Delaware statutory
trust. UBS Preferred Funding Trust exists for the purpose of
issuing the trust preferred securities representing a
corresponding amount of the company preferred securities,
together with related rights under the UBS AG subordinated
guarantee. UBS Preferred Funding Trust will pass the dividends
it receives on the company preferred securities through to you
as distributions on the trust preferred securities.
UBS Preferred Funding Trust cannot engage in other activities.
The company preferred securities and the related rights under
the UBS AG subordinated guarantee will be the only assets of UBS
Preferred Funding Trust. UBS AG will pay all expenses and
liabilities of UBS Preferred Funding Trust.
We intend to treat UBS Preferred Funding Trust as a grantor
trust for United States federal income tax purposes. As a
result, you will be treated as a beneficial owner of interests
in the company preferred securities and the related rights under
the UBS AG subordinated guarantee for United States federal
income tax purposes.
The principal executive offices of UBS Preferred Funding Trust
are located at c/o Wilmington Trust Company, 1100 North
Market Street, Wilmington, Delaware19890. Its telephone number
is 302-636-6016.
UBS Preferred Funding Company LLC V
UBS Preferred Funding Company LLC V is a Delaware limited
liability company. UBS Preferred Funding Company exists for the
purposes of acquiring and holding the subordinated notes issued
by the Cayman Islands branch of UBS AG, or other eligible
investments, and issuing the company common securities and the
company preferred securities. UBS AG will purchase all of
the company common securities, which represent 100% of the
voting rights in UBS Preferred Funding Company, subject to your
limited right to elect additional directors as described below.
UBS Preferred Funding Company will apply the cash generated by
the subordinated notes and other eligible investments, if any,
to pay dividends to UBS Preferred Funding Trust, as holder of
the company preferred securities, and UBS AG, as holder of
the company common securities.
UBS Preferred Funding Company will be treated as a partnership
for United States federal income tax purposes.
UBS Preferred Funding Company will be managed by a board of
directors having not less than two and not more than five
members. If the aggregate of unpaid dividends equals or exceeds
an amount equal to three semi-annual or six quarterly
dividend payments, as applicable, you and the other holders of
trust preferred securities will have the right to elect two
additional directors. This right will continue either until all
unpaid definitive dividends (as defined below) have been paid in
full or until full dividends have been paid for two consecutive
semi-annual dividend periods or four consecutive quarterly
dividend periods (or, if any such dividend period
includes ,
2016, any number of consecutive
semi-annual or
quarterly dividend periods equal to one calender year).
S- 3
The principal executive offices of UBS Preferred Funding Company
are located at Corporation Service Company,
2711 Centerville Road, Suite 400, Wilmington, Delaware19808. Its telephone number is
800-927-9800.
The Offering
Securities Offered
Each trust preferred security represents a corresponding amount
of the company preferred securities and related rights under the
UBS AG subordinated guarantee. The trust preferred
securities will be issued in minimum denominations of USD75,000
liquidation amount and greater integral multiples of USD1,000,
and the company preferred securities will be issued in minimum
denominations of USD75,000 liquidation preference and greater
integral multiples of USD1,000. The aggregate liquidation amount
of the trust preferred securities is
USD and
the aggregate liquidation preference of the company preferred
securities is
USD .
Dividends
UBS Preferred Funding Trust will pass through the dividends it
receives on the company preferred securities as distributions on
the trust preferred securities.
UBS Preferred Funding Company will pay dividends on the company
preferred securities from the date of their initial issuance on
a noncumulative basis. These dividends will be payable on the
liquidation preference of the company preferred securities:
►
semi-annually in arrears on the first business day on or
after and of
each year at a fixed rate per annum equal
to %,
beginning 2006
and
ending 2016,
calculated on the basis of a
360-day year consisting
of twelve 30-day
months, and
►
thereafter, quarterly in arrears on the first business day on or
after , , and of
each year at a variable rate per annum equal
to % above three-month LIBOR,
calculated on the basis of the actual number of days elapsed in
a 360-day year.
UBS Preferred Funding Company’s obligation to pay dividends
is subject to provisions that generally require UBS Preferred
Funding Company to pay full or proportional dividends on the
company preferred securities when UBS AG pays dividends on
UBS AG ordinary shares or on other securities of
UBS AG that rank equally with or junior to the UBS AG
subordinated guarantee of the company preferred securities. As
described under “Description of Company Preferred
Securities— Dividends” in this prospectus supplement
and “Description of Trust Preferred Securities—
Distributions” and “Description of Company Preferred
Securities— Dividends” in the attached prospectus, UBS
Preferred Funding Company will be required to pay dividends on
the company preferred securities in some circumstances, will be
prohibited from paying dividends on the company preferred
securities in other circumstances, and, when not required to pay
or prohibited from paying dividends, will have discretion as to
whether to pay dividends on the company preferred securities.
The following questions outline the criteria for determining
whether and to what extent UBS Preferred Funding Company will be
required to pay dividends on the company preferred securities or
will be prohibited from paying dividends on the company
preferred securities:
Is there a capital limitation on UBS AG? Unless the
Swiss Federal Banking Commission expressly permits otherwise, if
on a dividend payment date UBS AG is not in compliance with
the Swiss Federal Banking Commission’s minimum capital
adequacy requirements applicable to UBS AG, or would not be
in compliance because of a distribution by UBS AG or any of
its subsidiaries of profits of UBS AG (including a payment
of dividends on the company preferred securities), UBS Preferred
Funding Company will not pay dividends on the company preferred
securities under any circumstances. For a discussion of
UBS’s capital resources relative to applicable guidelines,
see Item 5 of UBS AG’s Annual
S- 4
Report on
Form 20-F for the
year ended December 31, 2005, which is incorporated by
reference into the attached prospectus. We refer to this
restriction as a “capital limitation.”
Are dividends mandatory? Subject to having its own
legally available resources and the foregoing limitations, UBS
Preferred Funding Company will be required to pay full
dividends on the trust preferred securities in two
circumstances, as follows:
►
With respect to any dividend payment date, if UBS AG has
•
declared a dividend in respect of any UBS AG junior
obligations (as defined in the attached prospectus) at any
general meeting of shareholders occurring, or
•
paid dividends or made any other payment or distribution in
respect of UBS AG junior obligations at any time,
during the period from (and including) the date of the annual
general meeting of shareholders of UBS AG immediately
preceding that dividend payment date to that dividend payment
date, and provided that the capital limitation does not apply,
then UBS Preferred Funding Company will be required to pay
dividends on the company preferred securities on that dividend
payment date; and
►
If at any time during the six-month period prior to a dividend
payment date UBS AG or any of its subsidiaries redeems,
repurchases or otherwise acquires any UBS AG parity
securities (as defined in the attached prospectus) or
UBS AG junior obligations for any consideration, except by
conversion into or exchange for shares of UBS AG or
UBS AG junior obligations and provided that the capital
limitation does not apply, then UBS Preferred Funding Company
will be required to pay dividends on the company preferred
securities on that dividend payment date.
The payment of proportional dividends by UBS Preferred
Funding Company on the company preferred securities will be
mandatory on any date, whether or not a dividend payment date,
on which UBS AG or any of its subsidiaries pays a dividend or
makes any other payment or distribution on any shares or other
securities that, in a liquidation of UBS AG, rank equally with
the UBS AG subordinated guarantee of the company preferred
securities if, on the dividend payment dates leading up to the
payment or distribution on the equally ranking securities (for a
period of one year for any such shares that pay dividends less
frequently than semi-annually or for a period of six months
for any such shares that pay dividends more frequently than
semi-annually), dividends were paid on the company preferred
securities in a lower percentage than are being paid on the
equally ranking securities.
Proportional dividends are special dividends in an amount that,
when taken together with dividends previously paid on the
company preferred securities during the relevant period,
represents the same proportion of full dividends on such company
preferred securities for all dividend payment dates during the
relevant period that the dividend on UBS AG parity securities
paid during the relevant period bears to full dividends on such
UBS AG parity securities for that relevant period.
Unless there is a capital limitation, UBS Preferred Funding
Company will be required to pay dividends that are mandatory
whether or not:
►
UBS AG delivers a notice limiting dividends,
►
UBS AG has available distributable profits, or
►
interest is paid on the subordinated notes or other eligible
investments.
Does UBS AG have available distributable profits?
Available distributable profits are the pro rata proportion
(from among all shares and other securities issued by UBS AG
that rank equally with the UBS AG subordinated guarantee of the
company preferred securities) of profits that may be distributed
in accordance with Swiss law. Currently, distributable profits
include the total of current profit, profit brought forward and
freely available reserves as reflected in the most recent
audited unconsolidated balance sheet and statement of
appropriation of retained earnings of UBS AG. UBS AG’s
distributable profits as of December 31, 2005 exceeded
CHF 26,792 billion.
S- 5
Unless required to pay mandatory dividends, UBS Preferred
Funding Company will not pay dividends on the company preferred
securities in excess of UBS AG’s available distributable
profits.
When are dividends discretionary? The payment of
dividends by UBS Preferred Funding Company on the company
preferred securities is discretionary if the capital limitation
does not apply, dividends are not mandatory as described above,
and UBS AG has sufficient available distributable profits. In
that case, UBS Preferred Funding Company will pay dividends on
the company preferred securities at the specified rate unless,
on or before the tenth business day immediately preceding a
dividend payment date, UBS AG gives notice to UBS Preferred
Funding Company that UBS Preferred Funding Company must pay no
dividends or less than full dividends, in which case dividends
will be due and payable only in the amount specified in the
notice. UBS AG may deliver such a notice in its sole discretion
and for any reason, except that such a notice shall have no
effect where dividends are mandatory as described above.
When does the dividend preference shift from the company
preferred securities to the company common securities? The
company preferred securities ordinarily will rank senior to the
company common securities as to the payment of dividends.
However, the dividend preference of the company preferred
securities may, at UBS AG’s option, shift to the company
common securities on dividend payment dates to the extent that
the mandatory dividend payment amount that is then required to
be paid on the company preferred securities, if any, is less
than full dividends on the company preferred securities. If UBS
AG does this, the corresponding interest payments or other
income received by UBS Preferred Funding Company on the
subordinated notes or its other eligible investments may be
returned as dividends to UBS AG as holder of the company common
securities before any dividends are paid on the company
preferred securities.
Withholding Taxes
Generally, UBS Preferred Funding Company will pay additional
amounts on full or proportional mandatory dividends otherwise
due and payable so that the net amount received by you will not
be reduced by the withholding of certain taxes or other
government charges.
However, UBS Preferred Funding Company will not pay any
additional amounts if the taxes or governmental charges are
withheld because you:
►
are connected, other than as a holder of trust preferred
securities, to Switzerland or the Cayman Islands if it is the
jurisdiction that requires the withholding of the taxes or
charges, or
►
have not filed an appropriate declaration stating that you are
not a resident of and do not have a connection with Switzerland
or the Cayman Islands if it is the jurisdiction that requires
the withholding of the taxes or charges, or a similar claim for
exemption, if we have given you the opportunity to do so.
Redemption
UBS Preferred Funding Company may redeem the company preferred
securities, in whole or in part, on any dividend payment date on
or after the dividend payment date
in 2016.
In that case, you will receive a redemption price equal to:
►
100% of the liquidation preference of the company preferred
securities being redeemed, plus
►
an amount equal to unpaid dividends, if any, on the company
preferred securities with respect to the current dividend period
(whether or not declared) accrued on a daily basis to the date
fixed for redemption, plus
►
an amount equal to unpaid definitive dividends for any prior
dividend period, without interest and without accumulation of
unpaid nondefinitive dividends for any prior dividend period.
As used in this prospectus supplement, “definitive
dividends” means dividends that have become definitive
because UBS AG has sufficient available distributable
profits to pay out dividends and has
S- 6
not delivered to UBS Preferred Funding Company an instruction
not to pay dividends, and “nondefinitive dividends”
means dividends that are not definitive dividends.
UBS Preferred Funding Company may not redeem the company
preferred securities before the dividend payment date
in 2016,
unless an event occurs that results in an adverse consequence
for the tax or capital treatment of the company preferred
securities, or for the investment company status of UBS
Preferred Funding Company or UBS Preferred Funding Trust, in
which case, UBS Preferred Funding Company may redeem (in whole
but not in part) these company preferred securities, as
described in the following paragraphs.
If the circumstance giving rise to redemption arises out of a
change in tax law that results in the imposition of tax on
UBS Preferred Funding Trust or UBS Preferred Funding
Company or the imposition of withholding tax on payment of
dividends on the company preferred securities, distributions on
the trust preferred securities or interest on the subordinated
notes, then you will receive a redemption price as described
above. If the redemption arises from the other special events,
including adverse tax consequences not arising out of a change
in tax law, you will receive a redemption price equal to unpaid
mandatory dividends, other unpaid definitive dividends, current
accrued dividends (whether or not declared) and a make whole
amount equal to the greater of the liquidation preference and
the sum of the net present value of the liquidation preference
and the scheduled dividends accrued from the date of redemption
to the dividend payment date
in 2016.
UBS Preferred Funding Trust will pass through the redemption
payments it receives on the company preferred securities to
redeem a corresponding amount of the trust preferred securities.
Any redemption of the company preferred securities must comply
with applicable regulatory requirements, including the prior
approval of the Swiss Federal Banking Commission if then
required under applicable guidelines or policies of the Swiss
Federal Banking Commission. The Swiss Federal Banking Commission
in its discretion may impose conditions on its approval of any
proposed redemption of the company preferred securities.
You may not require redemption of the company preferred
securities at any time.
For a more detailed description of applicable redemption
provisions, see “Description of Company Preferred
Securities—Redemption” in this prospectus supplement
and in the attached prospectus.
Liquidation
If UBS AG is liquidated, UBS Preferred Funding Company will
be liquidated. So long as the company preferred securities are
outstanding, to the fullest extent permitted by law, UBS AG
will not cause UBS Preferred Funding Company to liquidate unless
UBS AG is also liquidating.
If UBS Preferred Funding Company is liquidated, you will be
entitled to receive an amount equal to unpaid mandatory
dividends, other unpaid definitive dividends, current accrued
dividends (whether or not declared) and the liquidation
preference of your company preferred securities. However, any
liquidating distributions that you receive will be substantially
the same as, but not greater than, those to which you would be
entitled if you had purchased the most senior ranking
noncumulative perpetual preferred shares issued directly by
UBS AG that have financial terms equivalent to those of the
company preferred securities.
Book-Entry Issuance of the Trust Preferred Securities
UBS Preferred Funding Trust will initially issue the trust
preferred securities only in book-entry form through DTC. The
trust preferred securities will be represented by a global
certificate which will be deposited with Wilmington Trust
Company, as the custodian for DTC, and registered in the name of
Cede & Co., as the nominee of DTC. You may elect to hold
interests in the global certificate through
S- 7
DTC, if you are a participant in DTC, or indirectly through
other clearing systems that are participants in DTC, including
through Clearstream or Euroclear.
You may withdraw the company preferred securities represented by
your trust preferred securities from UBS Preferred Funding Trust
and hold the company preferred securities directly. If you hold
the company preferred securities directly, you must hold the
company preferred securities in certificated form.
If you hold the company preferred securities directly, then you
may exercise directly the associated rights under the
UBS AG subordinated guarantee, and any rights under the
limited liability company agreement of UBS Preferred Funding
Company in respect of the company preferred securities,
including any rights to elect additional directors of UBS
Preferred Funding Company.
For a more detailed description of DTC, Clearstream and
Euroclear and their respective procedures, see “Book-Entry
Issuance of Trust Preferred Securities” in the attached
prospectus.
The UBS AG Subordinated Guarantee
UBS AG will unconditionally guarantee, on a subordinated
basis, the payment by UBS Preferred Funding Company of any
mandatory dividends on the company preferred securities and
definitive dividends.
UBS AG will also unconditionally guarantee, on a
subordinated basis, the redemption price payable with respect to
any company preferred securities called for redemption by UBS
Preferred Funding Company and the payment by UBS Preferred
Funding Company on its liquidation of an amount sufficient to
provide you with the distributions described under
“Liquidation” above. For a more detailed description
of the subordinated guarantees, see “Description of
UBS AG Subordinated Guarantees” in the attached
prospectus.
The Subordinated Notes
The subordinated notes are undated and will have an aggregate
principal amount of
USD .
The subordinated notes will be general unsecured debt
obligations of UBS AG and the Cayman Islands branch of
UBS AG and, in liquidation of UBS AG, will rank
subordinate and junior to all indebtedness of UBS AG except
for indebtedness that by its terms expressly ranks equally with
the subordinated notes. Interest payable under the subordinated
notes will be calculated at the same rate and payable on the
same dates as dividends payable under the company preferred
securities. UBS AG will not pay interest on the
subordinated notes if UBS AG is not solvent. For a more
detailed description of the subordinated notes, see
“Description of Subordinated Notes of UBS AG” in this
prospectus supplement and in the attached prospectus.
Use of Proceeds
►
UBS Preferred Funding Trust will use the net proceeds from the
sale of the trust preferred securities to purchase the company
preferred securities from UBS Preferred Funding Company.
►
UBS Preferred Funding Company will use the net proceeds from the
sale of the company preferred securities to purchase the
subordinated notes issued by the Cayman Islands branch of
UBS AG.
►
UBS AG will use the net proceeds from the sale of the
subordinated notes for general corporate purposes outside of
Switzerland, including paying certain expenses relating to the
offering.
Some of the sales of securities under this prospectus may be
market-making transactions—that is, transactions in which
UBS AG, UBS Securities LLC, UBS Financial Services Inc. or one
or more of UBS AG’s other affiliates resell securities that
the seller, or one of its affiliates, has previously bought from
another party. Only the entity that carries out a particular
market-making transaction will receive any of the proceeds from
the resale of the securities. In general, we expect that the
entity that resells any particular securities will retain the
proceeds of its market-making resales and will not pay the
proceeds to UBS Preferred Funding Trust, to UBS Preferred
Funding Company or, when the resales are not made by UBS AG, to
UBS AG.
S- 8
Risk Factors
You should carefully consider the information under “Risk
Factors” in this prospectus supplement, together with the
other information contained in this prospectus supplement and
the attached prospectus, before purchasing any trust preferred
securities.
Ratings
It is a condition to the issuance of the trust preferred
securities that Moody’s Investors Service, Inc. rates the
trust preferred securities A1, Standard & Poor’s
Rating Services rates the trust preferred securities AA- and
Fitch Ratings rates the trust preferred securities AA. Each of
these ratings will reflect only the view of the applicable
rating agency at the time the rating was issued, and any
explanation of the significance of a rating may be obtained only
from the rating agency. A credit rating is not a recommendation
to buy, sell or hold securities, and there is no assurance that
a credit rating will remain in effect for any given period of
time or that a rating will not be lowered, suspended or
withdrawn entirely by the applicable rating agency, if in that
rating agency’s judgment, circumstances so warrant.
Listing
We have applied to list the trust preferred securities on the
New York Stock Exchange under the symbol “UBSTP.”
Governing Law
The constituent documents of UBS Preferred Funding Trust and UBS
Preferred Funding Company, the trust preferred securities and
the company preferred securities will be governed by the laws of
the State of Delaware, United States of America. The
subordinated notes and the UBS AG subordinated guarantee
will be governed by the laws of the State of New York, United
States of America.
Underwriting
This prospectus supplement relates to the initial sale of and
any market-making transactions in the trust preferred securities
and, to the extent they are held separately, the company
preferred securities by UBS AG and its affiliates. The
affiliates that may engage in these transactions include, but
are not limited to, UBS Securities LLC and
UBS Financial Services Inc. These transactions may be
executed at negotiated prices that are related to prevailing
market prices at the time of sale, or at other prices.
UBS AG and its affiliates may act as principal or agent in
these transactions.
S- 9
Ratio of Earnings to Fixed Charges
The table below sets forth UBS AG’s ratio of earnings to
fixed charges for the periods indicated. Ratios of earnings to
combined fixed charges and preferred share dividend requirements
are not presented as there were no preferred share dividends in
any of the periods indicated.
For the
quarter
For the year ended
ended
CHF million, except for ratios
3/31/2006
12/31/2005
12/31/2004
12/31/2003
12/31/2002
12/31/2001
(unaudited)
IFRS 1
Pre-tax earnings from continuing
operations 2
3,941
12,354
9,821
6,836
3,459
5,823
Add: Fixed charges
17,422
50,588
28,302
28,629
30,297
45,090
Pre-tax earnings before fixed charges
21,363
62,942
38,123
35,465
33,756
50,913
Fixed charges:
Interest
17,196
49,758
27,484
27,784
29,417
44,236
Other 3
226
830
818
845
880
854
Total fixed charges
17,422
50,588
28,302
28,629
30,297
45,090
Ratio of earnings to fixed charges
1.23
1.24
1.35
1.24
1.11
1.13
US
GAAP 1
Pre-tax earnings from continuing
operations 2
—
11,541
10,419
7,960
4,983
4,376
Add: Fixed charges
—
50,396
28,073
28,476
30,195
44,931
Pre-tax earnings before fixed charges
—
61,937
38,492
36,436
35,178
49,307
Fixed charges:
Interest
—
49,588
27,245
27,628
29,334
44,096
Other 3
—
808
828
848
861
835
Total fixed charges
—
50,396
28,073
28,476
30,195
44,931
Ratio of earnings to fixed charges
—
1.23
1.37
1.28
1.17
1.10
1
Except for the quarter ended March 31, 2006, the ratio is
provided using both International Financial Reporting Standards
(IFRS) and US GAAP values, as the ratio is materially different
between the two accounting standards.
2
Pre-tax earnings from continuing operations includes the
elimination of subsidiary, associate and minority interest
income and the addition of dividends received from associates.
3
Other fixed charges relate to the interest component of rental
expense.
S- 10
Risk Factors
You should carefully consider the following information,
together with the other information contained in this prospectus
supplement and the attached prospectus, before purchasing any
trust preferred securities in this offering.
You may not receive dividends if UBS AG’s financial
condition were to deteriorate.
If UBS AG’s financial condition were to deteriorate,
UBS Preferred Funding Company and the holders of trust preferred
securities could suffer direct and materially adverse
consequences, including elimination or reduction of
noncumulative dividends on the company preferred securities (and
consequently elimination or reduction of the pass through of
such dividends as distributions on the trust preferred
securities) and, if UBS AG were liquidated (whether
voluntarily or involuntarily), loss by the holders of trust
preferred securities of their entire investment.
You may not receive dividends because UBS Preferred Funding
Company will be prohibited from paying dividends on the company
preferred securities under certain circumstances and will have
discretion as to whether to pay dividends on the company
preferred securities in other circumstances.
Unless the Swiss Federal Banking Commission expressly permits
otherwise, if on a dividend payment date UBS AG is not in
compliance with the Swiss Federal Banking Commission’s
capital adequacy requirements applicable to UBS AG, UBS
Preferred Funding Company will not pay dividends under any
circumstances (including whether or not funds subsequently
become available), even if a full or proportional dividend is
otherwise mandatory. For a discussion of UBS’s capital
resources relative to applicable guidelines, see Item 5 of
UBS AG’s Annual Report on
Form 20-F for the
year ended December 31, 2005, which is incorporated by
reference into the attached prospectus. UBS Preferred Funding
Company will not pay dividends exceeding UBS AG’s
available distributable profits, except for mandatory dividends.
Except when payment of full or proportional dividends is
mandatory or dividends are prohibited by a capital limitation or
prohibited or restricted because UBS AG does not have
available distributable profits, dividends on the company
preferred securities are payable at the discretion of
UBS AG and are noncumulative. If discretionary dividends on
the company preferred securities for any dividend period are not
paid, UBS Preferred Funding Trust, as holder of company
preferred securities (and, accordingly, investors in the trust
preferred securities), will not be entitled to receive dividends
whether or not funds are, or subsequently become, available.
In certain circumstances, you may not receive the full amount
of anticipated dividends.
The company preferred securities ordinarily will rank senior to
the company common securities as to the payment of dividends.
However, the dividend preference of the company preferred
securities may, at UBS AG’s option, shift to the
company common securities on dividend payment dates to the
extent that no mandatory dividend payment amount is then
required to be paid on the company preferred securities. If
UBS AG does this, the corresponding interest payments or
other income received by UBS Preferred Funding Company on the
subordinated notes or its other eligible investments may be
returned as dividends to UBS AG as holder of the company
common securities before any dividends are paid on the company
preferred securities. Because the funds of UBS Preferred Funding
Trust available for distribution to you as holders of trust
preferred securities will be limited to payments received from
UBS Preferred Funding Company, if UBS Preferred Funding Company
does not pay
S- 11
Risk Factors
dividends on the company preferred securities, you will not
receive distributions on the trust preferred securities you
hold. As a result, the corresponding interest payment received
by UBS Preferred Funding Company on the subordinated notes or
other eligible investments may be returned as dividends to
UBS AG, as holder of the company common securities, before
any dividends are paid on the company preferred securities. See
“Description of Trust Preferred
Securities—Distributions” and “Description of
Company Preferred Securities—Dividends” in the
attached prospectus.
UBS AG is not obligated to make payments under the
UBS AG subordinated guarantee unless it first makes other
required payments.
UBS AG’s obligations under the UBS AG
subordinated guarantee are unsecured and rank subordinate and
junior in right of payment to all of UBS AG’s other
liabilities, except for liabilities that rank equally with the
UBS AG subordinated guarantee. This means that if
UBS AG fails to pay any liability that is senior to the
UBS AG subordinated guarantee, it may not make payments on
the UBS AG subordinated guarantee. As of March 31,2006, UBS had CHF 173.557 billion of other debt
obligations that are senior to UBS AG’s obligations
under the UBS AG subordinated guarantee.
Also, if UBS AG is bankrupt or liquidates or dissolves,
UBS AG or its bankruptcy administrator or the Swiss Federal
Banking Commission will use assets of UBS AG to satisfy all
liabilities ranking senior to the UBS AG subordinated
guarantee before making payments on the UBS AG subordinated
guarantee. Parity obligations will share equally in payment with
the UBS AG subordinated guarantee if UBS AG does not
have sufficient funds to make full payments on all of them. The
entitlement of the holders of company preferred securities under
the UBS AG subordinated guarantee in a liquidation of
UBS AG will be substantially the same as, and no greater
than, the claim such holders would have been entitled to if they
had purchased the most senior ranking noncumulative perpetual
preferred shares that could be issued directly by UBS AG
with financial terms equivalent to those of the company
preferred securities.
UBS Preferred Funding Trust may redeem the trust preferred
securities if certain adverse consequences occur as a result of
the application of Swiss or U.S. regulations or tax or
investment company law and certain conditions are satisfied.
If certain consequences occur, which are more fully described in
this prospectus supplement under “Description of Company
Preferred Securities—Redemption” and in the attached
prospectus, as a result of application of Swiss or
U.S. regulations or tax or investment company law and
certain other conditions are satisfied, UBS Preferred Funding
Company could redeem the company preferred securities before the
dividend payment date
in 2016.
If the company preferred securities are redeemed, UBS Preferred
Funding Trust will redeem the trust preferred securities. The
redemption price is described below under “Description of
Company Preferred Securities—Redemption.” You may be
unable to reinvest the proceeds of a redemption at a yield
comparable to the yield you are receiving on the trust preferred
securities.
You could suffer adverse tax and liquidity consequences if
UBS AG liquidates UBS Preferred Funding Trust and
distributes the company preferred securities to you.
UBS AG has the right to liquidate UBS Preferred Funding
Trust in some circumstances. If UBS AG exercises this
right, the company preferred securities will be distributed to
you in an amount corresponding to the amount of trust preferred
securities you hold. If the company preferred securities are
distributed to you:
►
you will receive reports of your income in respect of the
company preferred securities on
Schedule K-1 of
the United States Internal Revenue Service,
►
the company preferred securities will be in definitive
certificated form and will not be eligible for trading through
DTC, Euroclear or Clearstream,
S- 12
Risk Factors
►
the trading value of the company preferred securities you
receive may be lower than the trading value of the trust
preferred securities, and, as a result, you may receive a lower
return upon the sale of the company preferred securities, and
►
you may incur an additional tax liability in excess of what you
originally contemplated. Under current U.S. federal income
tax law, a distribution of company preferred securities to you
on the dissolution of UBS Preferred Funding Trust should not be
a taxable event to you. However, if UBS Preferred Funding Trust
is characterized for U.S. federal income tax purposes as an
association taxable as a corporation at the time it is dissolved
or if there is a change in law, the distribution of company
preferred securities may be a taxable event to you.
You may not receive distributions or redemption payments if
the Swiss Federal Banking Commission restricts the operations of
UBS Preferred Funding Company.
The Swiss Federal Banking Commission could make determinations
in the future with respect to UBS AG that could adversely
affect UBS Preferred Funding Company’s ability to make
distributions to the holders of company preferred securities or
to redeem the company preferred securities. For example, the
Swiss Federal Banking Commission could impose regulatory capital
requirements that cause, or otherwise request or instruct UBS AG
to cause, UBS Preferred Funding Company not to pay dividends on
or redeem the company preferred securities at times when UBS
Preferred Funding Company otherwise is entitled to do so.
Because you have limited voting rights and UBS AG is involved
in virtually every aspect of UBS Preferred Funding
Company’s existence, UBS AG could act contrary to your
interests.
The company preferred securities will be non-voting, expect in
the limited cases described under “Description of Company
Preferred Securities—Voting Rights” in the attached
prospectus.
UBS AG is involved in virtually every aspect of UBS Preferred
Funding Company’s existence. UBS AG will be the sole
holder of the company common securities. As holder of all
outstanding company common securities, UBS AG will have the
right to elect all directors of UBS Preferred Funding Company
except for the situation where the holders of company preferred
securities have the right to elect two directors as described
under “Description of Company Preferred
Securities—Voting Rights” in the attached prospectus
and “Supplemental Information Regarding UBS Preferred
Funding Company LLC V.” The initial (and UBS Preferred
Funding Company anticipates that all future) directors of UBS
Preferred Funding Company will also be directors or employees of
UBS AG or its affiliates. Conflicts of interest may arise
between the discharge by such individuals of their duties as
directors of UBS Preferred Funding Company, on the one hand, and
as directors or employees of UBS AG and its affiliates, on the
other hand.
Decisions with respect to enforcement of the subordinated notes
issued by the Cayman Islands Branch of UBS AG and actions
to be taken by UBS Preferred Funding Company upon a default by
UBS AG under them will be made by the board of directors of
UBS Preferred Funding Company by majority vote. There can be no
assurance that, under any circumstances, enforcement action will
be taken by UBS Preferred Funding Company with respect to a
default under the subordinated notes. However,
UBS AG’s failure to perform its obligations under the
subordinated notes will not relieve it of its obligations under
the UBS AG subordinated guarantee. See “Description of
UBS AG Subordinated Guarantees” in the attached
prospectus.
UBS AG and its affiliates may have interests which are
different from those of UBS Preferred Funding Company. As a
result, conflicts of interest may arise with respect to
transactions, including UBS Preferred Funding Company’s
administration of the subordinated notes.
S- 13
Risk Factors
UBS Preferred Funding Company and UBS AG intend that any
agreements and transactions between UBS Preferred Funding
Company, on the one hand, and UBS AG or its affiliates, on
the other hand, be established in good faith and, to the extent
deemed advisable by UBS AG, reflect arm’s-length terms
for such types of transactions. The LLC Agreement of UBS
Preferred Funding Company requires that certain actions of UBS
Preferred Funding Company be approved by the holders of company
preferred securities; this requirement is also intended to
ensure fair dealings between UBS Preferred Funding Company and
UBS AG and its affiliates. However, there can be no
assurance that such agreements or transactions will be on terms
as favorable to UBS Preferred Funding Company as those that
could have been obtained from unaffiliated third parties.
We cannot give you any assurance as to the market prices for
the trust preferred securities or the company preferred
securities.
We are unable to predict how the trust preferred securities will
trade in the secondary market or whether that market will be
liquid or illiquid. There is currently no secondary market for
the trust preferred securities. Although we have applied to list
the trust preferred securities on the New York Stock Exchange
under the symbol “UBSTP,” we can give you no assurance
as to the liquidity of any market that may develop for the trust
preferred securities. In addition, because the trust preferred
securities are deeply subordinated securities and payment of
dividends on the company preferred securities may be limited by
the capital limitation or by lack of sufficient available
distributable profits, the market prices of the trust preferred
securities or company preferred securities, as applicable, may
be more volatile than other securities not having such
provisions.
Although the underwriters of the trust preferred securities have
informed UBS Preferred Funding Company and UBS AG they
intend to make a market in the trust preferred securities, no
underwriter is obligated to do so, and any such market making
activity will be subject to the limits imposed by applicable law
and may be interrupted or discontinued at any time. Finally, as
the trust preferred securities may only be held or transferred
in amounts having an aggregate liquidation amount of at least
$75,000 and greater integral multiples of $1,000, the trading
market for the trust preferred securities may be less active
than markets for securities that may be held or transferred in
smaller denominations and may be less liquid.
You will not be entitled to recover certain missed payments
because of the noncumulative nature of dividends on the company
preferred securities and related distributions on the trust
preferred securities.
If UBS Preferred Funding Company does not make a payment or only
makes a partial payment on a dividend payment date as a result
of a capital limitation, a lack of available distributable
profits or a properly delivered “no dividend
instruction,” you will not be entitled to recover that
missed payment.
The trust preferred securities are not deposit liabilities of
UBS AG and will not be insured by the United States Federal
Deposit Insurance Corporation or any other governmental agency
of the United States, Switzerland or any other jurisdiction.
The trust preferred securities are not deposit liabilities of
UBS AG and will not be insured by the United States Federal
Deposit Insurance Corporation or any other governmental agency
of the United States, Switzerland or any other jurisdiction. The
value of your investment will likely fluctuate and you may lose
your entire investment if UBS AG is liquidated.
S- 14
Risk Factors
The Securities Valuation Office (the “SVO”) of the
National Association of Insurance Commissioners
(“NAIC”) may classify the trust preferred securities
or company preferred securities in a manner that impacts the
market value of such securities.
Although the company preferred securities are intended to
provide holders with rights to distributions and redemption and
liquidation payments that are similar to those to which holders
would be entitled if they had purchased the most senior ranking
non-cumulative perpetual preferred shares that could be issued
directly by UBS AG with financial terms equivalent to those of
the company preferred securities, the NAIC may, in its
discretion, classify the trust preferred securities, company
preferred securities or similar securities issued by other
entities as debt, preferred equity or common equity instruments.
Any such classification directly affects U.S. insurance
company investors because the NAIC classification determines the
level of risk based capital (“RBC”) charges incurred
by insurance companies in connection with the investment. The
RBC required in respect of securities classified as common
equity carry RBC charges that can be significantly higher then
the RBC charges for debt or preferred equity.
None of UBS AG, UBS Preferred Funding Company, UBS Preferred
Funding Trust or the underwriters can (i) control whether or
when the NAIC may elect to classify the trust preferred
securities or (ii) predict the result if the NAIC does elect to
classify the trust preferred securities. In addition, the NAIC
has no obligation to inform any of UBS AG, UBS Preferred Funding
Company, UBS Preferred Funding Trust or the underwriters if it
has taken or will take any action to classify the trust
preferred securities, the company preferred securities or any
other securities that may be issued by third parties.
A determination by the NAIC to classify the trust preferred
securities, company preferred securities or similar securities
issued by other entities as common equity could adversely affect
the market value for the trust preferred securities or result in
greater volatility in the market prices for such securities than
other instruments which have not been so classified by the NAIC.
The market value of the trust preferred securities may be
influenced by unpredictable factors.
The market value of your trust preferred securities may
fluctuate between the date you purchase them and the date on
which you sell them or they are redeemed. Several factors, many
of which are beyond our control, will influence the market value
of the trust preferred securities. Factors that may influence
the market value of the trust preferred securities include:
►
the creditworthiness of UBS and the level of its regulatory
capital from time to time,
►
whether distributions have been and are likely to be paid on the
trust preferred securities from time to time,
►
supply and demand for the trust preferred securities, including
inventory positions with UBS Securities LLC or any other
securities dealer or as a result of regulatory classification
determinations relating to the trust preferred securities by the
NAIC, and
►
economic, financial, political, regulatory or judicial events
that affect UBS or the financial markets generally.
Accordingly, if you sell your trust preferred securities in the
secondary markets, you may not be able to obtain a price equal
to the liquidation amount of the trust preferred securities or
to the price that you paid for your trust preferred securities.
S- 15
Risk Factors
Incorporation of Information About UBS AG
The SEC allows us to “incorporate by reference” into
this prospectus the information that we file with them, which
means that:
•
The incorporated documents are considered part of this
prospectus.
•
We can disclose important information to you by referring you to
those documents.
•
Information that we file with the SEC from time to time will
automatically be considered to update and supersede the
information in this prospectus.
UBS AG’s Annual Report on
Form 20-F for the
year ended December 31, 2005, which UBS AG filed with the
SEC on March 21, 2006.
•
UBS AG’s submissions on Form 6-K, which UBS AG filed with
the SEC on March 29, 2006, April 11, 2006 and
May 4, 2006 (containing UBS AG’s First Quarter 2006
Report).
All subsequent reports that we file on
Form 20-F under
the Securities Exchange Act of 1934 prior to the termination of
this offering will also be deemed to be incorporated by
reference into this prospectus. We may also incorporate any
other Form 6-K that we submit to the SEC on or after the
date of this prospectus and prior to the termination of this
offering if the Form 6-K filing specifically states that it
is incorporated by reference into this prospectus.
Any statement in this prospectus contained in a document
incorporated or deemed to be incorporated by reference into this
prospectus will be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement in
this prospectus or in any later filed document modifies or
supercedes that statement. Any statement that is modified or
superseded in this manner will no longer be a part of this
prospectus, except as modified or superseded.
You may request a copy, at no cost, of any or all of the
documents that are incorporated by reference into this
prospectus, excluding exhibits (other than those that we
specifically incorporate by reference into the documents that
you request) by contacting us, orally or in writing, at the
following address:
UBS’s financial statements, which are incorporated by
reference into the attached prospectus, have been prepared in
accordance with International Financial Reporting Standards and
are denominated in Swiss francs, or “CHF,” the legal
tender of Switzerland.
The tables below set forth, for the periods and dates indicated,
information concerning the noon buying rate for the Swiss franc,
expressed in United States dollars or “USD,” per one
Swiss franc. The “noon buying rate” is the rate in New
York City for cable transfers in foreign currencies as certified
for customs purposes by the Federal Reserve Bank of New York. On
May , 2006 the noon buying
rate
was USD
per 1 CHF.
(USD per 1 CHF)
Year Ended 31 December
High
Low
Average Rate(1)
At Period End
2001
0.6331
0.5495
0.5910
0.5857
2002
0.7229
0.5817
0.6453
0.7229
2003
0.8189
0.7048
0.7493
0.8069
2004
0.8843
0.7601
0.8059
0.8712
2005
0.8721
0.7544
0.8039
0.7606
Month
High
Low
November 2005
0.7825
0.7544
December 2005
0.7820
0.7570
January 2006
0.7940
0.7729
February 2006
0.7788
0.7575
March 2006
0.7756
0.7575
April 2006
0.8057
0.7666
(1)
The average of the noon buying rates on the last business day
of each full month during the relevant period.
S- 17
Capitalization of UBS
The following table sets forth the consolidated capitalization
of UBS in accordance with International Financial Reporting
Standards and translated into U.S. dollars.
Includes Money Market Paper and Medium Term Notes as per
Balance Sheet position based on remaining maturities.
(2)
Includes trust preferred securities. Under IFRS, trust
preferred securities are equity instruments held by third
parties and are treated as minority interests, with dividends
paid also reported in equity attributable to minority interests.
Under US GAAP, these entities are not consolidated, and the
UBS-issued debt is recognized as a liability in the UBS Group
Financial Statements, with interest paid reported in interest
expense. See Note 41 to our Financial Report included in
our Annual Report on
Form 20-F for the
year ended December 31, 2005, incorporated by reference
into the attached prospectus.
Swiss franc (CHF) amounts have been translated into U.S.
dollars (USD) at the rate of
CHF 1 = USD 0.76632 (the rate as of
March 31, 2006).
The ratios measure capital adequacy by comparing UBS’s
eligible capital with total risk-weighted assets, which include
balance sheet assets, net positions in securities not held in
the trading portfolio, off-balance sheet transactions converted
into their credit equivalents at a weighted amount to reflect
their relative risk and market risk positions based on value at
risk, see Note 28d to our Financial Report included
in our Annual Report on
Form 20-F for the
year ended December 31, 2005, which is incorporated by
reference into the attached prospectus.
The calculation of capital requirements applicable to UBS under
Swiss Federal Banking Commission (SFBC) regulations differs
in certain respects from the calculations under the Basel
Capital Accord (“BIS guidelines”). Most importantly:
►
where BIS guidelines apply a maximum risk weight of 100%, the
SFBC applies risk weights above 100% to certain asset classes
(for example, real estate, bank premises, other fixed assets,
intangible assets excluding goodwill, equity securities and
unconsolidated equity investments).
►
where the BIS guidelines apply a 20% risk weight to the
obligations of OECD banks, the SFBC applies risk weights of 25%
to 75%, depending on maturity, to such obligations.
As a result of these differences, UBS’s risk-weighted
assets are higher, and its ratios of total capital and
Tier 1 capital are lower, when calculated under the SFBC
regulations than under the BIS guidelines. Nevertheless, UBS and
its predecessor banks have always had total capital and
Tier 1 capital in excess of the minimum requirements of
both the BIS and the SFBC since these regulations and guidelines
were first implemented in 1988.
S- 19
Supplemental Information Regarding UBS Preferred Funding
Trust V
UBS Preferred Funding Trust V is a Delaware statutory trust. UBS
Preferred Funding Trust exists for the purpose of issuing the
trust preferred securities representing a corresponding amount
of the company preferred securities, together with related
rights under the UBS AG subordinated guarantee. UBS Preferred
Funding Trust will pass the dividends it receives on the company
preferred securities through to you as distributions on the
trust preferred securities. UBS Preferred Funding Trust cannot
engage in other activities. The company preferred securities and
the related rights under the UBS AG subordinated guarantee will
be the only assets of UBS Preferred Funding Trust. UBS AG will
pay all expenses and liabilities of UBS Preferred Funding Trust.
We intend to treat UBS Preferred Funding Trust as a grantor
trust for United States federal income tax purposes. As a
result, you will be treated as a beneficial owner of interests
in the company preferred securities and the related rights under
the UBS AG subordinated guarantee for United States federal
income tax purposes.
The total pro forma capitalization of UBS Preferred Funding
Trust V, as adjusted to give effect to the offering of the
trust preferred securities (based on proceeds of
USD before
deduction of expenses) and the use of the proceeds from the
offering, is
USD .
Upon completion of the initial offering, the authorized and
issued capital of UBS Preferred Funding Trust V will
consist of trust preferred securities having an aggregate
liquidation amount of
USD ,
issuable in minimum denominations of USD75,000 liquidation
amount and greater integral multiples of USD1,000.
The principal executive offices of UBS Preferred Funding Trust
are located at c/ o Wilmington Trust Company, 1100 North
Market Street, Wilmington, Delaware19890. Its telephone number
is 302-636-6016.
S- 20
Supplemental Information Regarding UBS Preferred Funding Company
LLC V
General
UBS Preferred Funding Company LLC V is a Delaware limited
liability company. UBS Preferred Funding Company exists for the
purposes of acquiring and holding the subordinated notes issued
by the Cayman Islands branch of UBS AG, or other eligible
investments, and issuing the company common securities and the
company preferred securities. UBS AG will purchase all of the
company common securities, which represent 100% of the voting
rights in UBS Preferred Funding Company, subject to your limited
right to elect additional directors as described below. UBS
Preferred Funding Company will apply the cash generated by the
subordinated notes and other eligible investments, if any, to
pay dividends to UBS Preferred Funding Trust, as holder of the
company preferred securities, and UBS AG, as holder of the
company common securities. UBS Preferred Funding Company will be
treated as a partnership for United States federal income tax
purposes.
UBS Preferred Funding Company will be managed by a board of
directors having not less than two and not more than five
members. If the aggregate of unpaid dividends equals or exceeds
an amount equal to three semi-annual or six quarterly dividend
payments, as applicable, you and the other holders of trust
preferred securities will have the right to elect two additional
directors. This right will continue either until all unpaid
definitive dividends have been paid in full or until full
dividends have been paid for two consecutive semi-annual
dividend periods or four consecutive quarterly dividend periods
(or, if any such dividend period
includes ,
2016, any number of consecutive semi-annual or quarterly
dividend periods equal to one calendar year).
The principal executive offices of UBS Preferred Funding Company
are located at Corporation Service Company,
2711 Centerville Road, Suite 400, Wilmington, Delaware19808. Its telephone number is
800-927-9800.
Pro Forma Capitalization
The total pro forma capitalization of UBS Preferred Funding
Company LLC V, as adjusted to give effect to the offering
of the company preferred securities (based on proceeds of
USD before
deduction of expenses) and the use of proceeds from the offering
outside of Switzerland, is
USD .
Upon completion of the offering, the authorized and issued
capital of UBS Preferred Funding Company LLC V will
consist of company common securities representing
securityholder’s equity of
USD and
company preferred securities with an aggregate liquidation
preference of
USD ,
issuable in minimum denominations of USD75,000 liquidation
preference and greater integral multiples of USD1,000. UBS
Preferred Funding Company LLC V will have no outstanding debt
after giving effect to the initial offering and the use of the
proceeds from the initial offering.
UBS AG will purchase all of the company common securities for
USD2,000.
Directors and Executive Officers
The LLC Agreement of UBS Preferred Funding Company provides that
its board of directors will at all times include not less than
two and not more than five members. The board of directors
currently has two members. The directors will be designated as
“managers” of UBS Preferred Funding Company within the
meaning of the Delaware Limited Liability Company Act. The
directors will serve until their successors are duly elected and
qualified. UBS Preferred Funding Company has no present
intention to
S- 21
Supplemental Information Regarding UBS Preferred Funding
Company LLC V
alter the number of directors comprising the board of directors.
If the aggregate of unpaid dividends equals or exceeds an amount
equal to three semi-annual or six quarterly dividend payments,
as applicable, you and the other holders of trust preferred
securities will have the right to elect two additional
directors. This right will continue either until all unpaid
definitive dividends have been paid in full or until full
dividends have been paid for two consecutive semi-annual
dividend periods or four consecutive quarterly dividend periods
(or, if any such dividend period
includes ,
2016, any number of consecutive semi-annual or quarterly
dividend periods equal to one calendar year).
UBS Preferred Funding Company currently has two members of the
board of directors and twelve officers, who are identified below.
Name
Position and Offices Held
Board of Directors:
Claude Moser
Director
Per Dyrvik
Director
Officers:
Claude Moser
Chairman, President and Chief Executive Officer
Per Dyrvik
Managing Director and Treasurer
Louis Eber
Managing Director and Assistant Secretary
Anneliese Schwyter
Managing Director
Todd Tuckner
Managing Director and Assistant Treasurer
Laurence Nayman
Executive Director and Assistant Treasurer
Lauren Silfen
Executive Director
Niall O’Toole
Executive Director and Secretary
Robert Tuite
Executive Director
Brian Forschino
Executive Director and Assistant Secretary
Jane E. Nutson
Associate Director and Assistant Secretary
Cynthia M. Walshe
Associate Director and Assistant Secretary
Each of the initial directors and officers of UBS Preferred
Funding Company is an individual who is an officer or employee
of UBS AG or its affiliates. UBS Preferred Funding Company
currently anticipates that all officers of UBS Preferred Funding
Company will also be officers or employees of UBS AG or its
affiliates.
S- 22
Use of Proceeds
UBS Preferred Funding Trust will use the net proceeds of
USD from
the sale of the trust preferred securities to purchase the
company preferred securities from UBS Preferred Funding Company.
UBS Preferred Funding Company will use the net proceeds of
USD from
the sale of the company preferred securities to UBS Preferred
Funding Trust and the company common securities to UBS AG
to purchase
USD aggregate
principal amount of subordinated notes issued by the Cayman
Islands branch of UBS AG. See “The UBS Preferred
Funding Companies—Activities of UBS Preferred Funding
Companies” in the attached prospectus.
UBS AG will use the net proceeds of
USD from
the sale of the subordinated notes issued by its Cayman Island
branch for general corporate purposes outside of Switzerland,
including paying certain expenses relating to the offering.
Some of the sales of securities under this prospectus may be
market-making transactions—that is, transactions in which
UBS AG, UBS Securities LLC, UBS Financial Services Inc. or
one or more of UBS AG’s other affiliates resell
securities that the seller, or one of its affiliates, has
previously bought from another party. Only the entity that
carries out a particular market-making transaction will receive
any of the proceeds from the resale of the securities. In
general, we expect that the entity that resells any particular
securities will retain the proceeds of its market-making resales
and will not pay the proceeds to UBS Preferred Funding Trust, to
UBS Preferred Funding Company or, when the resales are not made
by UBS AG, to UBS AG.
S- 23
Description of Trust Preferred Securities
The following summary of certain terms and provisions of the
trust preferred securities supplements the description of the
terms and provisions of the trust preferred securities set forth
in the attached prospectus under the heading “Description
of Trust Preferred Securities.” This summary of certain
terms and provisions of the trust preferred securities, which
describes their material provisions, is not complete and is
subject to, and qualified in its entirety by reference to, the
Amended and Restated Trust Agreement, the Delaware Statutory
Trust Act and the Trust Indenture Act. We have filed a copy of a
form of Amended and Restated Trust Agreement as an exhibit to
the registration statement of which the attached prospectus
forms a part.
General
The trust preferred securities are certificates of beneficial
interest in the assets of UBS Preferred Funding Trust, the terms
of which are set forth in the Amended and Restated Trust
Agreement.
The trust preferred securities will be issued in minimum
denominations of USD75,000 liquidation amount and greater
integral multiples of USD1,000. The aggregate liquidation amount
of the trust preferred securities offered by this prospectus
supplement is
USD .
Each trust preferred security represents a corresponding amount
of the company preferred securities, together with related
rights under the UBS AG subordinated guarantee.
We have applied to list the trust preferred securities on the
New York Stock Exchange under the symbol “UBSTP.”
Distributions
Each trust preferred security represents a corresponding amount
of the company preferred securities, together with the related
rights under the UBS AG subordinated guarantee. UBS Preferred
Funding Trust will make semi-annual or quarterly distributions
or other mandatory distributions on the trust preferred
securities concurrently with, and in the same amount as, the
semi-annual or quarterly dividends or special dividends on the
company preferred securities. See “Description of Company
Preferred Securities—Dividends.” Accordingly, to the
extent that dividends are paid on the company preferred
securities, distributions on the trust preferred securities will
accrue from the date of original issue and be paid on the
liquidation amount of the trust preferred securities as follows:
►
semi-annually in arrears on the first business day on or
after and of
each year, at a fixed rate per annum equal
to %,
beginning 2006
and ending 2016, calculated on the
basis of a 360-day year
consisting of twelve
30-day months, and
►
thereafter, quarterly in arrears on the first business day on or
after , , and of
each year at a variable rate per annum equal
to % above three-month LIBOR,
calculated on the basis of the actual number of days elapsed in
a 360-day year.
For details on the calculation and payment of dividends, see
“Description of Company Preferred Securities—
Dividends.” Whenever, and to the extent, UBS Preferred
Funding Trust receives any cash payments representing a
semi-annual, quarterly or special dividend or redemption payment
on the company preferred securities, UBS Preferred Funding Trust
will distribute such amounts to the holders of trust preferred
securities in proportion to their liquidation amounts. Each
semi-annual, quarterly or special distribution or redemption
payment on the trust preferred securities will be payable to
holders of record as they appear on the securities register of
UBS Preferred Funding Trust on the corresponding record date.
The record dates for the trust preferred securities will be the
fifteenth day (whether or not a business day) prior to the
relevant semi-annual, quarterly or other distribution date.
S- 24
Description of Trust Preferred Securities
If any distribution would be payable on a day that is not a
business day, that distribution will instead be made on the next
business day. No interest or other payment will be due as a
result of any such delay.
If dividends are not payable on company preferred securities on
any dividend payment date for the reasons described in
“Description of Company Preferred
Securities—Dividends,” then the holders of trust
preferred securities will not be entitled to receive a
distribution on that date.
Nature of the Trading Market
The company preferred securities are not listed on any national
exchange or traded in any established market. We have applied to
list the trust preferred securities on the New York Stock
Exchange under the symbol “UBSTP.” If approved,
trading of the trust preferred securities on the New York Stock
Exchange is expected to commence within a
30-day period after
their initial delivery.
S- 25
Description of Company Preferred Securities
The following summary of certain terms and provisions of the
company preferred securities supplements the description of the
terms and provisions of the company preferred securities set
forth in the attached prospectus under the heading
“Description of Company Preferred Securities.” This
summary of certain terms and provisions of the company preferred
securities, which describes their material provisions, is not
complete and is subject to, and qualified in its entirety by
reference to, the Amended and Restated LLC Agreement of UBS
Preferred Funding Company, which we refer to as the “LLC
Agreement,” and the Delaware Limited Liability Company Act.
We have filed a form of the LLC Agreement for UBS Preferred
Funding Company as an exhibit to the registration statement of
which the attached prospectus forms a part.
General
The company preferred securities are preferred limited liability
company interests in UBS Preferred Funding Company, the terms of
which are set forth in UBS Preferred Funding Company’s LLC
Agreement.
The company preferred securities are intended to provide holders
with rights to distributions and redemption and liquidation
payments that are similar to those to which holders would be
entitled if they had purchased the most senior ranking
noncumulative perpetual preferred shares that could be issued
directly by UBS AG with financial terms equivalent to those of
the company preferred securities.
The company preferred securities will be issued in certificated
form only in minimum denominations of USD75,000 liquidation
preference and greater integral multiples of USD1,000. The
aggregate liquidation preference of the company preferred
securities offered pursuant to this prospectus supplement is
USD .
Dividends
General
Dividends on the company preferred securities will be payable
from the date of initial issuance on a noncumulative basis,
semi-annually in arrears, on the first business day on or
after and of
each year,
beginning 2006
and
ending 2016
and thereafter quarterly in arrears on the first business day on
or
after , , and of
each year (each a “dividend payment date”) for the
dividend period then ending, but only if UBS Preferred Funding
Company has legally available funds for such purpose and
satisfies the other qualifications described under
“Description of Company Preferred
Securities—Dividends” in the attached prospectus. Each
period from and including a dividend payment date or the date of
initial issuance, as applicable, to but not including the next
dividend payment date is a “dividend period.”
Dividends will be payable on the liquidation preference:
►
for each dividend period through the dividend period ending on
the dividend payment date
in 2016,
at a fixed rate per annum equal
to %, calculated on
the basis of a 360–day year of twelve
30-day months, and
►
for each dividend period commencing on such dividend payment
date and thereafter, at a variable rate per annum equal
to % above
three-month LIBOR, calculated on the basis of the actual number
of days elapsed in a
360-day year.
LIBOR, with respect to a determination date (as defined below),
means the rate (expressed as a percentage per annum) for
deposits in U.S. dollars for a three-month period
commencing on the second London banking day (as defined below)
immediately following that determination date that
S- 26
Description of Company Preferred Securities
appears on Telerate Page 3750 (as defined below) as of
11:00 a.m. (London time) on that determination date. If
such rate does not appear on Telerate Page 3750, LIBOR will
be determined on the basis of the rates at which deposits in
U.S. dollars for a three-month period commencing on the
second London banking day immediately following that
determination date and in a principal amount of not less than
USD1,000,000 are offered to prime banks in the London interbank
market by four major banks in the London interbank market
selected by the calculation agent (as defined below), after
consultation with UBS Preferred Funding Company, at
approximately 11:00 a.m., London time, on that
determination date.
The calculation agent will request the principal London office
of each of such banks to provide a quotation at its rate. If at
least two such quotations are provided, LIBOR with respect to
that determination date will be the arithmetic mean of such
quotations. If fewer than two quotations are provided, LIBOR
with respect to that determination date will be the arithmetic
mean of the rates quoted by three major money center banks in
New York City selected by the calculation agent, after
consultation with UBS Preferred Funding Company, at
approximately 11:00 a.m., New York City time, on that
determination date for loans in U.S. dollars to leading
European banks for a three-month period commencing on the second
London banking day immediately following that determination date
and in a principal amount of not less than USD1,000,000.
However, if the banks selected by the calculation agent to
provide quotations are not quoting as described in this
paragraph, LIBOR for the applicable period will be the same as
LIBOR as determined on the previous determination date.
As used in this prospectus supplement:
“business day” means a day on which commercial banks
and foreign exchange markets settle payments and are open for
general business (including dealings in foreign exchange and
foreign currency deposits) in U.S. dollars in New York and
London.
“calculation agent” means the London branch of UBS AG.
“determination date” for a dividend period or interest
period (as applicable) means two London banking days preceding
the first day of that dividend period or interest period (as
applicable).
“London banking day” means a day on which commercial
banks are open for general business (including dealings in
foreign exchange and foreign currency deposits) in London.
“Telerate Page 3750” means the display so
designated on the Moneyline/ Telerate Service (or such other
page as may replace that page) or such other service as may be
nominated as the information vendor, for the purpose of
displaying rates or prices comparable to London interbank
offered rates for U.S. dollar deposits.
All percentages resulting from any calculations on the company
preferred securities will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point, with five
one-millionths of a percentage point rounded upward (e.g.,
9.876545% (or .09876545) being rounded to 9.87655% (or
..0987655)), and all dollar amounts used in or resulting from
such calculation will be rounded to the nearest cent (with
one-half cent being rounded upward).
The calculation agent will notify the paying agent of the LIBOR
rate, the amount of dividends payable and the dividend payment
date relating to the relevant dividend period as soon as
possible after their determination but in no event later than
the fourth business day after their determination.
The calculation agent will be entitled to amend the LIBOR rate,
the amount of dividends payable and the dividend payment date
relating to the relevant dividend period or other information
(or to make appropriate arrangements by way of adjustment)
without notice in the event of an extension or shortening of the
relevant dividend period.
S- 27
Description of Company Preferred Securities
Mandatory Dividends
Subject to having its own legally available resources and the
foregoing limitations, UBS Preferred Funding Company will be
required to pay full dividends on the trust preferred securities
in two circumstances, as follows:
►
With respect to any dividend payment date, if UBS AG has
•
declared a dividend in respect of any UBS AG junior obligations
(as defined in the attached prospectus) at any general meeting
of shareholders occurring, or
•
paid dividends or made any other payment or distribution in
respect of UBS AG junior obligations at any time,
during the period from (and including) the date of the annual
general meeting of shareholders of UBS AG immediately
preceding that dividend payment date to that dividend payment
date, and provided that the capital limitation does not apply,
then UBS Preferred Funding Company will be required to pay
dividends on the company preferred securities on that dividend
payment date; and
►
If at any time during the six-month period prior to a dividend
payment date UBS AG or any of its subsidiaries redeems,
repurchases or otherwise acquires any UBS AG parity securities
(as defined in the attached prospectus) or UBS AG junior
obligations for any consideration, except by conversion into or
exchange for shares of UBS AG or UBS AG junior obligations and
provided that the capital limitation does not apply, then UBS
Preferred Funding Company will be required to pay dividends on
the company preferred securities on that dividend payment date.
Capital Limitation
The prohibition on the payment of dividends on the company
preferred securities as described below is called the
“capital limitation.”
Unless the Swiss Federal Banking Commission expressly permits
otherwise, UBS Preferred Funding Company will not pay dividends
on the company preferred securities on any dividend payment date
(whether or not it is a mandatory dividend payment date) if on
such date UBS AG is not in compliance, or because of a
distribution by UBS AG or any of its subsidiaries of
profits of UBS AG (including a payment of dividends on the
company preferred securities) would not be in compliance, with
the Swiss Federal Banking Commission’s minimum capital
adequacy requirements applicable to UBS AG as then in
effect.
For purposes of complying with the Swiss Federal Banking
Commission’s capital minimum adequacy requirements, bank
capital is divided into three main categories:
►
Core (or Tier 1) capital,
►
Supplementary (or Tier 2) capital, and
►
Additional (or Tier 3) capital.
Tier 1 capital primarily includes paid-in share capital,
reserves (defined to include retained earnings) and capital
participations of minority shareholders in fully consolidated
subsidiaries, and is reduced by, among other items, the
bank’s holdings of its own shares. Tier 1 capital is
supplemented, for capital adequacy purposes, by Tier 2
capital, which consists of, among other things, two categories
of subordinated debt instruments that may be issued by a bank,
and by Tier 3 capital, which consists of certain
subordinated debt obligations. The use of Tier 2 and
Tier 3 capital in complying with capital ratio requirements
is, however, subject to limitations.
S- 28
Description of Company Preferred Securities
Under Swiss law, a bank must maintain a minimum capital ratio of
8%, calculated by dividing adjusted core and supplementary
capital by aggregate risk-weighted assets. This standard must be
met on both a consolidated and an unconsolidated basis. UBS is
required to file a statement of its required and existing
capital resources, together with its annual statement of
condition and interim balance sheet, with both the Swiss Federal
Banking Commission and the Swiss National Bank.
For a discussion of UBS’s capital resources relative to
applicable guidelines, see Item 5 of UBS AG’s Annual
Report on
Form 20-F for the
year ended December 31, 2005, which is incorporated by
reference into the attached prospectus.
Redemption
The company preferred securities may not be redeemed before the
dividend payment date scheduled to occur
in 2016
unless a Tax Event, an Investment Company Act Event or a Capital
Event (each as defined below) occurs, in which case UBS
Preferred Funding Company may redeem the company preferred
securities in whole (but not in part) at any time on not less
than 30 nor more than 60 days’ notice. On or after the
dividend payment date
in 2016,
UBS Preferred Funding Company may redeem the company preferred
securities on any dividend payment date for cash, in whole or in
part, on not less than 30 nor more than 60 days’
notice.
The redemption price for such redemptions on or after the
dividend payment date
in 2016
will be:
►
100% of the liquidation preference of the company preferred
securities being redeemed, plus
►
an amount equal to unpaid dividends, if any, on the company
preferred securities with respect to the current dividend period
(whether or not declared) accrued on a daily basis to the date
fixed for redemption, plus
►
an amount equal to unpaid definitive dividends for any prior
dividend period, without interest and without accumulation of
unpaid nondefinitive dividends for any prior dividend period.
UBS Preferred Funding Company will also have the right to redeem
the company preferred securities in whole (but not in part) at
any time prior to the dividend payment date
in 2016,
upon the occurrence of a Tax Event, an Investment Company Act
Event or a Capital Event.
The redemption price for a redemption arising out of a Tax Event
resulting from a Change in Tax Law (as defined below) and
relating to the:
►
imposition of tax on UBS Preferred Funding Trust or UBS
Preferred Funding Company, or
►
the imposition of withholding tax on UBS Preferred Funding
Company’s payment of dividends on the company preferred
securities, on UBS Preferred Funding Trust’s payment of
dividends on the trust preferred securities, on UBS AG’s
payment of interest on the subordinated notes or on UBS
AG’s payment under the subordinated guarantee,
(which are the events described below in clauses (A),
(B) and (C) of the definition of “Tax
Event”) will be the redemption price described above for
optional redemptions. The redemption price for redemptions as a
result of other Tax Events, an Investment Company Act Event or a
Capital Event will be:
►
the Make Whole Amount (as defined below), plus
►
an amount equal to unpaid dividends, if any, on the company
preferred securities with respect to the current dividend period
(whether or not declared) accrued on a daily basis to the date
fixed for redemption, plus
S- 29
Description of Company Preferred Securities
►
an amount equal to unpaid definitive dividends for any prior
dividend period, without interest and without accumulation of
unpaid nondefinitive dividends for any prior dividend period.
UBS Preferred Funding Company will have until the dividend
payment date
in 2016
after the occurrence of a Tax Event, an Investment Company Act
Event or a Capital Event to exercise its right to redeem the
company preferred securities.
Any redemption of the company preferred securities must comply
with applicable regulatory requirements, including the prior
approval of the Swiss Federal Banking Commission if then
required under applicable guidelines or policies of the Swiss
Federal Banking Commission. The Swiss Federal Banking Commission
in its discretion may impose conditions on its approval of any
proposed redemption of the company preferred securities. If
dividends on any company preferred securities are unpaid, no
company preferred securities may be redeemed unless all
outstanding company preferred securities are redeemed, and UBS
Preferred Funding Company may not purchase or otherwise acquire
any company preferred securities, except pursuant to a purchase
or exchange offer made on the same terms to the holders of all
outstanding company preferred securities.
The company preferred securities will not be subject to any
sinking fund or mandatory redemption and will not be convertible
into any other securities of UBS Preferred Funding Company or
any securities of UBS AG.
As long as any company preferred securities are outstanding,
other company parity preferred securities may not be redeemed or
repurchased unless UBS Preferred Funding Company concurrently
redeems an approximately equal proportion of the aggregate
liquidation preference of the outstanding company preferred
securities or each rating agency then rating the company
preferred securities informs UBS Preferred Funding Company in
writing that the redemption or repurchase of such company parity
preferred securities would not result in a reduction or
withdrawal of the rating then assigned by that rating agency to
the company preferred securities.
If fewer than all outstanding company preferred securities are
to be redeemed, the amount of the company preferred securities
to be redeemed will be determined by the board of directors of
UBS Preferred Funding Company, and the securities to be redeemed
will be determined by lot or pro rata as the board of
directors in its sole discretion determines to be equitable. UBS
Preferred Funding Company will promptly notify the registrar and
transfer agent for the company preferred securities in writing
of the securities selected for redemption and, in the case of
any partial redemption, the liquidation preference to be
redeemed.
Any company preferred securities redeemed will be canceled.
There will be no prescription period in respect of uncollected
dividends on the company preferred securities.
As used in this prospectus supplement:
“administrative action”means any judicial
decision, official administrative pronouncement, published or
private ruling, regulatory procedure, notice or announcement
(including any notice or announcement of intent to adopt such
procedures or regulations) by any legislative body, court,
governmental authority or regulatory body having appropriate
jurisdiction.
“Capital Event”means the determination by
UBS AG after consultation with the Swiss Federal Banking
Commission that the company preferred securities cannot be
included in calculating the Tier 1 capital of UBS AG on a
consolidated basis.
“Change in Tax Law” means the receipt by UBS AG
of an opinion of a nationally recognized law firm or other tax
advisor (which may be an accounting firm) in Switzerland, the
United States or the Cayman Islands, as appropriate, experienced
in such matters to the effect that an event of the type
described in clause (A), (B) or (C) of the
definition of “Tax Event” has occurred or will occur
S- 30
Description of Company Preferred Securities
as a result of (i) any amendment to, clarification of, or
change (including any announced prospective change) in, the laws
or treaties (or any regulations under any laws or treaties) of
the United States, Switzerland or the Cayman Islands or any
political subdivision or taxing authority of or in the United
States, Switzerland or the Cayman Islands affecting taxation or
(ii) any administrative action or any amendment to,
clarification of, or change in the official position of or UBS
AG interpretation of any administrative action or any
interpretation or pronouncement that provides for a position
with respect to any administrative action that differs from the
previously generally accepted position, in each case, by any
legislative body, court, governmental authority or regulatory
body, regardless of the manner in which such amendment,
clarification, change, interpretation or pronouncement is made
known, which amendment, clarification, change or administrative
action is effective or which interpretation or pronouncement is
announced on or after the date of issuance of the company
preferred securities.
“Investment Company Act Event”means the
receipt by UBS AG of an opinion of a nationally recognized
law firm in the United States experienced in such matters to the
effect that there is more than an insubstantial risk that
UBS Preferred Funding Company or UBS Preferred Funding
Trust is an “investment company” within the meaning of
the Investment Company Act of 1940.
“Make Whole Amount”as applied to a redemption
of the company preferred securities means the greater of
(i) 100% of the liquidation preference of the company
preferred securities and (ii) as determined by a quotation
agent (as defined below), the sum of the present value of the
liquidation preference of the company preferred securities
together with the present values of scheduled payments of
dividends accrued from the date of redemption to the dividend
payment date
in 2016
(the “remaining life”), in each case discounted
to the date of redemption on a semi-annual basis (assuming a
360-day year consisting
of twelve 30-day
months) at the adjusted treasury rate.
For purposes of determining the Make Whole Amount:
“adjusted treasury rate”means, with respect to
any redemption date, the treasury rate plus
%.
“comparable treasury issue”means, with respect
to any redemption date, the United States Treasury security
selected by the quotation agent as having a maturity comparable
to the remaining life that would be utilized, at the time of
selection and in accordance with customary financial practice,
in pricing new issues of corporate debt securities of comparable
maturity to the remaining life. If no United States Treasury
security has a maturity that is within a period from three
months before to three months after the interest payment date
and dividend payment date in 2016, the two most closely
corresponding United States Treasury securities shall be used as
the comparable treasury issue, and the treasury rate shall be
interpolated or extrapolated on a straight-line basis, rounding
to the nearest month using such securities.
“comparable treasury price”means (i) the
average of five reference treasury dealer quotations for such
redemption date, after excluding the highest and lowest of such
reference treasury dealer quotations, or (ii) if the
quotation agent obtains fewer than five such reference treasury
dealer quotations, the average of all such quotations.
“quotation agent”means UBS Securities LLC
and its successors, except that if UBS Securities LLC
ceases to be a primary U.S. Government securities dealer in
New York City (a “primary treasury dealer”),
UBS Preferred Funding Company will designate another primary
treasury dealer.
S- 31
Description of Company Preferred Securities
“reference treasury dealer”means (i) the
quotation agent and (ii) any other primary treasury dealer
selected by the quotation agent after consultation with UBS
Preferred Funding Company.
“reference treasury dealer quotations”means,
with respect to each reference treasury dealer and any
redemption date, the average, as determined by the quotation
agent, of the bid and asked prices for the comparable treasury
issue (expressed in each case as a percentage of its principal
amount) quoted in writing to the quotation agent by such
reference treasury dealer at 5:00 p.m., New York City time,
on the third business day preceding such redemption date.
“treasury rate”means (i) the yield, under
the heading which represents the average for the week
immediately prior to the redemption date, appearing in the most
recently published statistical release designated
“H.15(519)” or any successor publication which is
published weekly by the Federal Reserve and which establishes
yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption “Treasury
Constant Maturities,” for the maturity corresponding to the
remaining life (or if no maturity is within three months before
or after the remaining life, yields for the two published
maturities most closely corresponding to the remaining life will
be determined and the treasury rate will be interpolated or
extrapolated from such yields on a straight-line basis, rounding
to the nearest month) or (ii) if such release (or any
successor release) is not published during the week preceding
the calculation date or does not contain such yields, the rate
per annum equal to the semi-annual equivalent yield to maturity
of the comparable treasury issue, calculated using a price for
the comparable treasury issue (expressed as a percentage of its
principal amount) equal to the comparable treasury price for
such redemption date. The treasury rate will be calculated on
the third business day preceding the redemption date.
“Tax Event”means the receipt by UBS AG of
an opinion of a nationally recognized law firm or other tax
advisor (which may be an accounting firm) in Switzerland, the
United States or the Cayman Islands, as appropriate, experienced
in such matters to the effect that there is more than an
insubstantial risk that (A) UBS Preferred Funding Company
or UBS Preferred Funding Trust is or will be subject to more
than a de minimis amount of additional taxes, duties or
other governmental charges, (B) UBS AG is or will be
required to pay any additional amounts in respect of any taxes,
duties or other governmental charges with respect to payments of
interest or principal on the subordinated notes and with respect
to any payments on the trust preferred securities, (C) UBS
Preferred Funding Company is or will be required to pay any
additional amounts in respect of any taxes, duties or other
governmental charges with respect to payments of dividends on
the company preferred securities or UBS Preferred Funding Trust
is or will be required to pay any additional amounts in respect
of any taxes, duties or other governmental charges with respect
to distributions on the trust preferred securities, or
(D) the treatment of any of UBS Preferred Funding
Company’s items of income, gain, loss, deduction or
expense, or the treatment of any item of income, gain, loss,
deduction or expense of UBS AG related to the subordinated
notes or its ownership of UBS Preferred Funding Company, in each
case as reflected on the tax returns (including estimated
returns) filed (or to be filed) by UBS Preferred Funding Company
or UBS AG, will not be respected by a taxing authority, as
a result of which UBS Preferred Funding Company or UBS AG
is or will be subject to more than a de minimis amount of
additional taxes, duties or other governmental charges or civil
liabilities, the effect of which cannot be avoided by UBS
Preferred Funding Company or UBS AG taking reasonable
measures available to it without any adverse effect on or
material cost to UBS AG or UBS Preferred Funding Company
(as determined by UBS AG in its sole discretion).
S- 32
Description of Subordinated Notes of UBS AG
The following summary of certain terms and provisions of the
subordinated notes supplements the description of the terms and
provisions of the subordinated notes set forth in the attached
prospectus under the heading “Description of Subordinated
Notes of UBS AG.” This summary of certain terms and
provisions of the subordinated notes, which describes their
material provisions, is not complete and is subject to, and
qualified in its entirety by reference to, the terms and
provisions of the subordinated notes. We have filed a form of
subordinated note as an exhibit to the registration statement of
which the attached prospectus forms a part.
General
UBS Preferred Funding Company will apply the proceeds of the
company preferred securities and company common securities to
purchase from the Cayman Islands branch of UBS AG newly
issued subordinated notes of the Cayman Islands branch
represented by a single definitive note in registered form (the
“subordinated notes”). The subordinated notes are
perpetual obligations of UBS AG, acting through the Cayman
Islands branch, and will have an aggregate principal amount of
USD .
Interest on the subordinated notes will be payable from the date
of initial issuance, semi-annually in arrears
on and of
each year
through 2016
and thereafter, quarterly in arrears
on , , and of
each year (or, if any such day is not a business day, the next
business day, but without any additional interest or other
payment in respect of such delay) (each an “interest
payment date” and the period from and including an interest
payment date, or the date of initial issuance, as applicable, to
but not including the next interest payment date, an
“interest period”) as follows:
►
for each interest period through the interest period ending on
the interest payment date
in 2016,
at a fixed rate per annum equal
to %,
calculated on the basis of a
360-day year consisting
of twelve 30-day
months, and
►
for each interest period ending
after ,
at a variable rate per annum equal
to %
above three-month LIBOR, calculated on the basis of the actual
number of days elapsed in a
360-day year.
The calculation of LIBOR is described under “Description of
Company Preferred Securities—Dividends.”
Redemption
The subordinated notes are redeemable with the consent of the
Swiss Federal Banking Commission and at the option of the Cayman
Islands branch of UBS AG:
►
on the interest payment date
in 2016
or any interest payment date occurring after that date, in whole
or in part, at a redemption price equal to 100% of their
principal amount plus interest accrued but unpaid to the
date fixed for redemption, and
►
prior to the interest payment date
in 2016,
in whole but not in part, if a Tax Event resulting from a Change
in Tax Law (and relating to an event described in
clauses (A), (B) or (C) of the definition of “Tax
Event”) occurs, at a redemption price equal to 100% of
their principal amount plus interest accrued but unpaid
to the date fixed for redemption, or
►
prior to the interest payment date
in 2016,
in whole but not in part, if a Tax Event not resulting from a
Change in Tax Law relating to an event described in
clause (A), (B) or (C) of the definition of “Tax
Event”, an Investment Company Act Event or a Capital Event
occurs, at a redemption price equal to interest accrued but
unpaid to the date fixed for redemption plus a make
S- 33
Description of Subordinated Notes of UBS AG
whole amount calculated in substantially the same manner as the
Make Whole Amount applicable to the company preferred securities.
A “Tax Event,”“Change in Tax Law,”“Investment Company Act Event,”“Capital
Event” and “Make Whole Amount” are described
under “Description of Company Preferred
Securities—Redemption.”
S- 34
Description of Subordinated Notes of UBS AG
ERISA Considerations
If you are a fiduciary of a pension, profit-sharing or other
employee benefit plan subject to the Employee Retirement Income
Security Act (“ERISA”), you should review the
fiduciary standards of ERISA and the plan’s particular
circumstances before deciding to invest in the trust preferred
securities. You should consider whether the investment would
satisfy the prudence and diversification requirements of ERISA
and whether the investment would be consistent with the terms of
the plan and the other agreements which apply to plan
investments.
A fiduciary of a plan subject to ERISA, as well as a person
investing on behalf of an individual retirement account or a
pension or profit-sharing plan for one or more self-employed
persons, should also consider whether an investment in the trust
preferred securities could result in a prohibited transaction.
ERISA and the Internal Revenue Code of 1986, as amended,
prohibit plans and individual retirement accounts from engaging
in certain transactions involving plan assets with persons who
are parties in interest under ERISA or disqualified persons
under the Internal Revenue Code of 1986, as amended, with
respect to the plan or individual retirement account. A
violation of these rules may result in a substantial excise tax
under the Internal Revenue Code of 1986, as amended, and other
liabilities under ERISA. Employee benefit plans that are
governmental plans, foreign plans or church plans generally are
not subject to the prohibited transaction rules or the fiduciary
standards of ERISA.
For a further description of certain ERISA considerations, see
the attached prospectus.
S- 35
Underwriting
Subject to the terms and conditions set forth in an underwriting
agreement, dated as of the date of this prospectus supplement,
among UBS AG, UBS Preferred Funding Company, UBS Preferred
Funding Trust and UBS Securities LLC, UBS AG and UBS
Preferred Funding Company have agreed that UBS Preferred Funding
Company will cause UBS Preferred Funding Trust to issue, and
each underwriter has severally agreed to underwrite, the
respective liquidation amount of the trust preferred securities
set forth opposite its name below:
Trust
Underwriters
Preferred Securities
(by liquidation amount)
UBS Securities LLC
Total
Under the terms and conditions of the underwriting agreement,
the underwriters are committed to take and pay for all the trust
preferred securities offered hereby, if any are taken. The
underwriting agreement entitles the underwriters to terminate
the underwriting agreement in certain circumstances before
payment is made to UBS Preferred Funding Trust.
The purchase price for the trust preferred securities will be
the initial offering price set forth on the cover page of this
prospectus supplement. UBS AG will pay the underwriters a
commission of
USD for
each trust preferred security. The underwriting agreement
provides that UBS AG will reimburse the underwriters for
certain expenses of the offering. UBS AG’s offering
expenses, not including underwriting discounts and commissions,
are estimated to be approximately
USD .
The underwriters propose to offer the trust preferred securities
at the offering price. The underwriters may also offer the trust
preferred securities to securities dealers at a price that
represents a concession not in excess of
USD per
trust preferred security. After the trust preferred securities
are released for sale, the offering price and other selling
terms may be varied from time to time by the underwriters.
During a period of 30 days from the date of this prospectus
supplement, neither UBS Preferred Funding Trust nor UBS
Preferred Funding Company nor any other subsidiary of
UBS AG that is similar to UBS Preferred Funding Trust or
UBS Preferred Funding Company will, without the prior written
consent of UBS Securities LLC, as representative for the
underwriters, directly or indirectly, sell, offer to sell, grant
any option for sale of, or otherwise dispose of, any trust
preferred securities or any company preferred securities or any
security convertible into or exchangeable into or exercisable
for the trust preferred securities or the company preferred
securities.
Prior to this offering, there has been no public market for the
trust preferred securities. We have applied to list the trust
preferred securities on the New York Stock Exchange under the
symbol “UBSTP.” If approved, trading of the trust
preferred securities on the New York Stock Exchange is expected
to commence within a
30-day period after
their initial delivery.
In connection with the offering, the underwriters and/or their
affiliates may purchase and sell the trust preferred securities
in the open market. These transactions may include stabilizing
transactions and
S- 36
Underwriting
purchases to cover short positions created by the underwriters,
and the imposition of a penalty bid, in connection with the
offering. Stabilizing transactions consist of certain bids or
purchases for the purpose of preventing or retarding a decline
in the market price of the trust preferred securities; and short
positions created by the underwriters involve the sale by the
underwriters of a greater number of the trust preferred
securities than they are required to purchase from UBS Preferred
Funding Trust in the offering. The underwriters also may impose
a penalty bid, whereby selling concessions allowed to
broker-dealers in respect of the trust preferred securities sold
in the offering may be reclaimed by a underwriter if such trust
preferred securities are repurchased by such underwriter in
stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the
trust preferred securities, which may be higher than the price
that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These
transactions may be effected in the over-the-counter market or
otherwise.
Each underwriter has agreed that:
►
it has complied and will comply with all the applicable
provisions of the Financial Services and Markets Act 2000, or
FSMA, of Great Britain with respect to anything done by it in
relation to the trust preferred securities in, from or otherwise
involving the United Kingdom; and it has only communicated or
caused to be communicated and will only communicate or cause to
be communicated any invitation or inducement to engage in
investment activity (within the meaning of Section 21 of
the FSMA) received by it in connection with the issue or sale of
the trust preferred securities or any investments representing
the trust preferred securities in circumstances in which
Section 21(1) of the FSMA does not apply to UBS Preferred
Funding Trust;
►
in relation to each Member State of the European Economic Area
which has implemented EU Directive 2003/71/EC (each a
“Relevant Member State”) on the prospectus to be
published when securities are offered to the public or admitted
to trading (the “Prospectus Directive”), with effect
from and including the date on which the Prospectus Directive is
implemented in that Relevant Member State (the “Relevant
Implementation Date”), it has not made and will not make an
offer of the trust preferred securities to the public in that
Relevant Member State, except that it may, with effect from and
including the Relevant Implementation Date, make an offer of the
trust preferred securities to the public in that Relevant Member
State:
•
at any time in (or in Germany, where the offer starts within)
the period beginning on the date of publication of a prospectus
in relation to the trust preferred securities, which has been
approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the Prospectus Directive,
and ending on the date which is 12 months after the date of
such publication;
•
at any time to legal entities that are authorized or regulated
to operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
•
at any time to legal entities that has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
€43 million;
and (3) an annual net turnover of more than
€
50 million, as shown in its last annual or
consolidated accounts; or
•
at any time in any other circumstances that do not require the
publication by UBS of a prospectus pursuant to Article 3 of
the Prospectus Directive;
for the purposes of this paragraph, the expression an
“offer of the trust preferred securities to the
public” in relation to any of the trust preferred
securities in any Relevant Member State means the communication
to persons in any form and by any means of sufficient
information on the terms
S- 37
Underwriting
of the offer and the trust preferred securities to be offered so
as to enable an investor to decide to purchase or subscribe for
the trust preferred securities, as the same may be varied in
that Relevant Member State by any measure implementing the
Prospectus Directive in that Relevant Member State;
►
each underwriter understands that the trust preferred securities
have not been and will not be registered under the Securities
and Exchange Law of Japan (the “Securities and Exchange
Law”) and each underwriter represents and agrees that the
trust preferred securities may not be offered or sold, directly
or indirectly, in Japan or to, or for the benefit of, any
resident of Japan (which term as used herein means any person
resident in Japan, including any corporation or other entity
organised under the laws of Japan) or to others for re-offering
or resale, directly or indirectly, in Japan or to a resident of
Japan, except pursuant to any exemption from the registration
requirements of, and otherwise in compliance with, the
Securities and Exchange Law and any other applicable laws,
regulations and ministerial guidelines of Japan; and
►
that with respect to any other jurisdiction outside the United
States, it has not offered or sold and will not offer or sell
any of the trust preferred securities in any jurisdiction,
except under circumstances that resulted or will result in
compliance with the applicable rules and regulations of such
jurisdiction.
UBS Securities LLC has agreed to
purchase %
of the trust preferred securities offered in the offering. If
any of the trust preferred securities underwritten by UBS
Securities LLC are sold by it at a price less than the initial
public offering price, the net proceeds from the offerings to
UBS AG on a consolidated basis will be reduced because UBS
Securities LLC and UBS AG are accounted for on a consolidated
basis.
Following the initial distribution of the trust preferred
securities, UBS Securities LLC and UBS Financial Services Inc.
may offer and sell the trust preferred securities in the course
of their business as broker-dealers, subject to obtaining any
necessary approvals for any such offers and sales. UBS
Securities LLC and UBS Financial Services Inc. may act as
principals or agents in these transactions. This prospectus may
be used by UBS Securities LLC or UBS Financial Services Inc. in
connection with these transactions. These sales, if any, will be
made at varying prices related to prevailing market prices at
the time of sale or otherwise. Neither UBS Securities LLC nor
UBS Financial Services Inc. is obligated to make a market in the
trust preferred securities and may discontinue market-making at
any time without notice. No assurance can be given as to the
liquidity of the trading market for the trust preferred
securities. UBS AG does not expect that UBS Securities LLC
or UBS Financial Services Inc. will pay any proceeds from these
market-making resales to UBS AG. Unless UBS AG or an
agent informs you in your confirmation of sale that your trust
preferred security is being purchased in its original offering
and sale, you may assume that you are purchasing your trust
preferred security in a market-making transaction.
Because the National Association of Securities Dealers, Inc.
(the “NASD”) views trust preferred securities as a
“direct participation program,” any offering of trust
preferred securities will be subject to Rule 2810 of the
Conduct Rules of the NASD.
UBS Securities LLC and UBS Financial Services Inc. are
affiliates of UBS. Rule 2720 of the Conduct Rules of the
NASD imposes certain requirements when an NASD member such as
UBS Securities LLC or UBS Financial Services Inc. distributes an
affiliated company’s securities. UBS Securities LLC
and UBS Financial Services Inc. have advised UBS that this
offering will comply with the applicable requirements of
Rule 2720.
S- 38
Underwriting
UBS Preferred Funding Company and UBS AG have agreed to
indemnify each underwriter against, or contribute to payments
that such underwriter may be required to make in respect of,
certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
Certain underwriters and/or their affiliates have provided
investment banking, commercial banking and financial advisory
services to UBS AG or its affiliates in the past, for which
they have received customary compensation and expense
reimbursement, and may do so again in the future.
S- 39
Validity of the Securities
Certain matters of Delaware law relating to the validity of any
trust preferred securities and related company preferred
securities will be passed upon by Richards, Layton &
Finger, P.A., special Delaware counsel to UBS AG, UBS
Preferred Funding Trust and UBS Preferred Funding Company. The
validity of the subordinated notes and the UBS AG Subordinated
Guarantee Agreement will be passed upon for UBS AG, UBS
Preferred Funding Trust and UBS Preferred Funding Company by
Sullivan & Cromwell LLP and for the underwriter by
Davis Polk & Wardwell. Sullivan & Cromwell LLP
and Davis Polk & Wardwell will rely upon the opinion of
Richards, Layton & Finger, P.A., as to matters of
Delaware law, and the opinion of Homburger, Swiss counsel to
UBS AG, as to matters of Swiss law. Certain matters
relating to United States federal income tax considerations will
be passed upon for UBS AG, UBS Preferred Funding Trust and
UBS Preferred Funding Company by Sullivan & Cromwell
LLP.
Experts
The consolidated balance sheets of UBS at December 31, 2005
and 2004 and the related consolidated statements of income, cash
flows and changes in shareholders’ equity for each of the
three years in the period ended December 31, 2005incorporated by reference into the attached prospectus have been
audited by Ernst & Young Ltd., independent auditors, as
set forth in their report thereon incorporated by reference into
the attached prospectus, and are included in reliance upon such
report given upon the authority of such firm as experts in
accounting and auditing.
S- 40
PROSPECTUS
[UBS AG LOGO]
UBS Preferred Funding Trust V
UBS Preferred Funding Trust VI
UBS Preferred Funding Trust VII
UBS Preferred Funding Trust VIII
UBS Preferred Funding Trust IX
Noncumulative Trust Preferred Securities
representing a corresponding amount of
Noncumulative Company Preferred Securities
of
UBS Preferred Funding Company LLC V
UBS Preferred Funding Company LLC VI
UBS Preferred Funding Company LLC VII
UBS Preferred Funding Company LLC VIII
UBS Preferred Funding Company LLC IX
guaranteed on a subordinated basis by
UBS AG
UBS Preferred Funding Trust V, UBS Preferred Funding
Trust VI, UBS Preferred Funding Trust VII, UBS
Preferred Funding Trust VIII and UBS Preferred Funding
Trust IX (each, a “UBS Preferred Funding Trust”
and together, the “UBS Preferred Funding Trusts”) from
time to time may severally offer to sell trust preferred
securities representing a corresponding amount of related
company preferred securities and related rights under
subordinated guarantees by UBS AG.
(continued on next page)
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The trust preferred securities will not be deposit liabilities
of UBS AG and will not be insured by the United States Federal
Deposit Insurance Corporation or any other governmental agency
of the United States, Switzerland or any other jurisdiction.
UBS AG may offer and sell the trust preferred securities to or
through one or more underwriters, dealers and agents, including
the firms named below, or directly to purchasers, on a delayed
or continued basis.
This prospectus may be used in the initial sale of the trust
preferred securities. In addition, UBS AG, UBS Securities LLC,
UBS Financial Services Inc. or any other affiliate controlled by
UBS AG may use this prospectus in a market-making transaction
involving the trust preferred securities after the initial sale.
These transactions may be executed at negotiated prices that are
related to market prices at the time of purchase or sale, or at
other prices. UBS AG and its affiliates may act as principal or
agent in these transactions. Unless UBS AG or its agent informs
you otherwise in the confirmation of sale, this prospectus is
being used in a market making transaction.
UBS Preferred Funding Company LLC V, UBS Preferred Funding
Company LLC VI, UBS Preferred Funding Company LLC VII,
UBS Preferred Funding Company LLC VIII and UBS Preferred
Funding Company LLC IX (each, a “UBS Preferred
Funding Company” and together, the “UBS Preferred
Funding Companies”) will issue company preferred
securities. Any company preferred securities which may be issued
by a UBS Preferred Funding Company will provide holders with
rights to distributions and redemption and liquidation payments
that are similar to those of the most senior ranking
noncumulative perpetual preferred shares issued directly by UBS
AG that have financial terms equivalent to those of such company
preferred securities.
Each UBS Preferred Funding Trust will use the proceeds from the
sale of its trust preferred securities to purchase company
preferred securities (the “related company preferred
securities”) from a UBS Preferred Funding Company (the
“related UBS Preferred Funding Company”). The related
UBS Preferred Funding Company will use the proceeds from the
sale of the related company preferred securities to the UBS
Preferred Funding Trust (the “related UBS Preferred Funding
Trust”) and from the sale of company common securities to
UBS AG to acquire subordinated notes (the “related
subordinated notes”) issued by the Cayman Islands branch of
UBS AG. The trust preferred securities, the related company
preferred securities and the related subordinated notes that
will be issued in any particular offering will have
corresponding terms. Dividends and redemption and liquidation
payments paid by the related UBS Preferred Funding Company on
the related company preferred securities will pass through the
related UBS Preferred Funding Trust to you as distributions and
redemption and liquidation payments on your trust preferred
securities.
UBS AG will guarantee, on a subordinated basis, dividend,
redemption and liquidation payment obligations under any company
preferred securities.
This prospectus describes the general terms that may apply to
any trust preferred securities and the corresponding company
preferred securities and the general manner in which trust
preferred securities may be offered. The specific terms of any
trust preferred securities to be offered, and the specific
manner in which they may be offered and the terms of any related
company preferred securities, may be different from those
described in this prospectus and will be described in the
applicable supplement to this prospectus.
Limitations on Enforcement of U.S. Laws Against UBS AG, Its
Management and Others
7
Capitalization of UBS
7
UBS
8
The UBS Preferred Funding Trusts
10
The UBS Preferred Funding Companies
11
Use of Proceeds
17
Description of Trust Preferred Securities
18
Description of Company Preferred Securities
25
Book-Entry Issuance of Trust Preferred Securities
39
Description of UBS AG Subordinated Guarantees
44
Description of Subordinated Notes of UBS AG
49
U.S. Tax Considerations
52
Tax Considerations Under the Laws of Switzerland
59
ERISA Considerations
61
Plan of Distribution
63
Validity of the Securities
63
Experts
63
CERTAIN TERMS
In this prospectus:
•
when we refer to “UBS AG,” we mean UBS AG on
a parent only basis.
•
when we refer to “UBS” or “UBS Group,” we
mean UBS AG and its consolidated subsidiaries.
•
when we refer to “USD,” we mean United States dollars.
•
when we refer to “CHF,” we mean Swiss francs.
Introduction
Trust preferred securities will provide you with rights to
distributions and redemption and liquidation payments that are
similar to those to which you would be entitled if you had
purchased the most senior ranking noncumulative perpetual
preferred shares issued directly by UBS AG that have financial
terms equivalent to those of the related company preferred
securities. The diagram to the right outlines the relationship
among investors in trust preferred securities, the relevant UBS
Preferred Funding Trust, the related UBS Preferred Funding
Company and UBS AG following the completion of an offering.
Each UBS Preferred Funding Trust will pass through to you any
dividends, redemption payments or liquidation payments that it
receives from the related UBS Preferred Funding Company on
related company preferred securities.
UBS AG will guarantee, on a subordinated basis, dividend,
redemption and liquidation payment obligations under any company
preferred securities.
The UBS Preferred Funding Companies will receive payments under
related subordinated notes issued by the Cayman Islands branch
of UBS AG and will pay dividends on their company preferred
securities that are similar to dividends that would be paid on
the most senior ranking noncumulative perpetual preferred shares
issued directly by UBS AG that have equivalent financial terms.
The capital raised in any offering will qualify as consolidated
Tier 1 capital for UBS under the relevant regulatory capital
guidelines of the Swiss Federal Banking Commission.
[FLOW CHART DESCRIBING THE ABOVE FLOW OF FUNDS BETWEEN THE UBS
AG, THE UBS PREFERRED FUNDING COMPANIES AND UBS PREFERRED
FUNDING TRUST AND RELATIONSHIP BETWEEN THE ABOVE SECURITIES]
This prospectus contains or incorporates statements that
constitute “forward-looking statements” within the
meaning of Section 21E of the United States Securities
Exchange Act of 1934, as amended. The Private Securities
Litigation Reform Act of 1995 provides a “safe harbor”
for forward-looking information to encourage companies to
provide prospective information about themselves without fear of
litigation so long as the information is identified as forward
looking and is accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to
differ materially from those projected in the information. The
words “anticipate”, “believe”,
“expect”, “estimate”, “intend”,
“plan”, “should”, “could”,
“may” and other similar expressions are used in
connection with forward-looking statements. In this prospectus
and the incorporated documents, forward-looking statements may,
without limitation, relate to:
•
The implementation of strategic initiatives, such as the
implementation of the European wealth management strategy and
our plans to continue to expand our corporate finance business.
•
The development of revenues overall and within specific business
areas.
•
The development of operating expenses.
•
The anticipated level of capital expenditures and associated
depreciation expense.
•
The expected impact of the risks that affect UBS’s
business, including the risk of loss resulting from the default
of an obligor or counterparty.
•
Expected credit losses based upon UBS’s credit review.
•
Other statements relating to UBS’s future business
development and economic performance.
There can be no assurance that forward-looking statements will
approximate actual experience. Several important factors exist
that could cause UBS’s actual results to differ materially
from expected results as described in the forward-looking
statements. Those factors include:
•
General economic conditions, including prevailing interest rates
and performance of financial markets, which may affect demand
for products and services and the value of our assets.
•
Changes in UBS’s expenses associated with acquisitions and
dispositions.
•
General competitive factors, locally, nationally, regionally and
globally.
•
Industry consolidation and competition.
•
Changes affecting the banking industry generally and UBS’s
banking operations specifically, including asset quality.
•
Developments in technology.
•
Credit ratings and the financial position of obligors and
counterparties.
•
UBS’s ability to control risk in its businesses.
•
Changes in tax laws in the countries in which UBS operates,
which could adversely affect the tax advantages of certain of
UBS’s products or subject it to increased taxation.
2
•
Changes in accounting standards applicable to UBS, as more fully
described in this prospectus and the incorporated documents.
•
Changes in investor confidence in the future performance of
financial markets, affecting the level of transactions they
undertake, and hence the levels of transaction-based fees UBS
earns.
•
Changes in the market value of securities held by UBS’s
clients, affecting the level of asset based fees UBS can earn on
the services it provides.
•
Changes in currency exchange rates, including the exchange rate
for the Swiss franc into U.S. dollars.
You should also consider other risks and uncertainties discussed
in the documents that are incorporated by reference into this
prospectus.
UBS is not under any obligation to (and expressly disclaims any
such obligation to) update or alter its forward-looking
statements, whether as a result of new information, future
events or otherwise.
3
Incorporation of Information About UBS AG
The SEC allows us to “incorporate by reference” into
this prospectus the information that we file with them, which
means that:
•
The incorporated documents are considered part of this
prospectus.
•
We can disclose important information to you by referring you to
those documents.
•
Information that we file with the SEC from time to time will
automatically be considered to update and supersede the
information in this prospectus.
UBS AG’s Annual Report on
Form 20-F for the
year ended December 31, 2005, which UBS AG filed with the
SEC on March 21, 2006.
All subsequent reports that we file on
Form 20-F under
the Securities Exchange Act of 1934 prior to the termination of
this offering will also be deemed to be incorporated by
reference into this prospectus. We may also incorporate any
other Form 6-K that we submit to the SEC on or after the
date of this prospectus and prior to the termination of this
offering if the Form 6-K filing specifically states that it
is incorporated by reference into this prospectus.
Any statement in this prospectus contained in a document
incorporated or deemed to be incorporated by reference into this
prospectus will be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement in
this prospectus or in any later filed document modifies or
supercedes that statement. Any statement that is modified or
superseded in this manner will no longer be a part of this
prospectus, except as modified or superseded.
You may request a copy, at no cost, of any or all of the
documents that are incorporated by reference into this
prospectus, excluding exhibits (other than those that we
specifically incorporate by reference into the documents that
you request) by contacting us, orally or in writing, at the
following address:
UBS AG files periodic reports and other information with
the United States Securities and Exchange Commission. You may
read and copy any document that UBS AG files with the SEC
at the SEC’s public reference room at 100 F Street,
N.E., Room 1580, Washington, D.C. 20549. Please call
the SEC at
1-800-SEC-0330 for
further information on the operation of its public reference
room. The SEC also maintains an internet site at
http://www.sec.gov that contains reports, proxy and
information statements, and other information about issuers like
UBS AG that file electronically with the SEC. You may also
inspect UBS AG’s SEC reports and other information at
the New York Stock Exchange, Inc., 20 Broad Street, NewYork, New York10005 and at the American Stock Exchange LLC,
86 Trinity Place, New York, New York10006.
We have filed a registration statement under the Securities Act
of 1933 on
Form F-3 with the
SEC covering the securities. For further information about the
securities and UBS, you should review our registration
statement, its exhibits and the documents incorporated by
reference into this prospectus. This prospectus summarizes
material provisions of the contracts and other documents that we
refer you to. Since this prospectus may not contain all the
information that you may find important, you should review the
full text of these documents. We have included copies of these
documents as exhibits to our registration statement.
5
Presentation of Financial Information
UBS’s financial statements, which are incorporated by
reference into this prospectus, have been prepared in accordance
with International Financial Reporting Standards and are
denominated in Swiss francs, or “CHF,” the legal
tender of Switzerland.
The tables below set forth, for the periods and dates indicated,
information concerning the noon buying rate for the Swiss franc,
expressed in United States dollars or “USD,” per one
Swiss franc. The “noon buying rate” is the rate in New
York City for cable transfers in foreign currencies as certified
for customs purposes by the Federal Reserve Bank of New York. On
March 24, 2006 the noon buying rate was 0.7634 USD per
1 CHF.
(USD per 1 CHF)
Year Ended 31 December
High
Low
Average Rate(1)
At Period End
2001
0.6331
0.5495
0.5910
0.5857
2002
0.7229
0.5817
0.6453
0.7229
2003
0.8189
0.7048
0.7493
0.8069
2004
0.8843
0.7601
0.8059
0.8712
2005
0.8721
0.7544
0.8039
0.7606
Month
High
Low
September 2005
0.8139
0.7712
October 2005
0.7855
0.7679
November 2005
0.7825
0.7544
December 2005
0.7820
0.7570
January 2005
0.7940
0.7729
February 2005
0.7788
0.7575
(1)
The average of the noon buying rates on the last business day
of each full month during the relevant period.
6
Limitations on Enforcement of U.S. Laws Against UBS AG,
Its Management and Others
UBS AG is a Swiss bank. Many of its directors and executive
officers, including the majority of the persons who signed the
registration statement of which this prospectus is a part, and
certain experts named in this prospectus, are resident outside
the United States, and all or a substantial portion of our
assets and the assets of those persons are located outside the
United States. As a result, it may be difficult for you to serve
legal process on UBS AG or its management or have any of
them appear in a U.S. court. We have been advised by UBS
internal counsel, that there is doubt as to the enforceability
in Switzerland, in original actions or in actions for
enforcement of judgments of U.S. courts, of liabilities based
solely on the federal securities laws of the United States.
Capitalization of UBS
The following table sets forth the consolidated capitalization
of UBS in accordance with International Financial Reporting
Standards (IFRS) and translated into U.S. dollars.
Includes Money Market Paper and Medium Term Notes as per
Balance Sheet position.
(2)
Includes Trust Preferred Securities. Under IFRS, trust
preferred securities are equity instruments held by third
parties and are treated as minority interests, with dividends
paid also reported in equity attributable to minority interests.
Under US GAAP, these entities are not consolidated, and the
UBS-issued debt is recognized as a liability in the UBS Group
Financial Statements, with interest paid reported in interest
expense. See Note 41 to our Financial Report included in
our Annual Report on
Form 20-F for the
year ended December 31, 2005, incorporated by reference
into this prospectus.
Swiss franc (CHF) amounts have been translated into
U.S. dollars (USD) at the rate of
CHF 1 = USD 0.76049.
7
UBS
OVERVIEW
UBS is one of the world’s leading financial firms, serving
a discerning global client base. As an organization, it combines
financial strength with a culture that embraces change. As an
integrated firm, UBS creates added value for clients by drawing
on the combined resources and expertise of all its businesses.
UBS is the world’s leading wealth management business, a
global investment banking and securities firm with a strong
institutional and corporate client franchise, a key asset
manager and the market leader in Swiss corporate and individual
client banking.
On December 31, 2005, UBS employed more than 69,500 people.
With headquarters in Zurich, Switzerland and Basel, Switzerland,
UBS operates in 50 countries and from all major financial
centers worldwide.
UBS is managed through three Business Groups and its Corporate
Center, each of which is summarized below.
For further information about UBS, including more detailed
descriptions of the Business Groups and Corporate Center, see
“Where You Can Find More Information.”
Global Wealth Management & Business Banking
With more than 140 years of experience, our global wealth
management business provides a comprehensive range of products
and services individually tailored for wealthy clients around
the world. With roughly 4,154 client advisors and more than
CHF 1.7 trillion in invested assets, the business
consistently delivers high-quality, individually tailored
solutions through a global network of 111 offices in Switzerland
and 72 offices worldwide. In the United States, it is one of the
top wealth managers.
Business Banking Switzerland is the market leader in
Switzerland, providing a complete set of banking and securities
services for individual and corporate clients. It has around
2.6 million individual clients through more than
3 million accounts, mortgages and other financial
relationships, and relationships with around some 136,500
corporate clients, including institutional investors, public
entities and foundations, as well as 3,000 financial
institutions worldwide.
Global Asset Management
The Global Asset Management business is one of the world’s
leading asset managers, providing traditional and alternative
investment solutions to financial intermediaries and
institutional investors. The breadth, depth and scope of its
varied investment capabilities enable it to offer innovative
solutions in nearly every asset class. Invested assets totaled
over CHF 750 billion on December 31, 2005, making
it one of the largest global institutional asset managers, the
second largest mutual fund manager in Europe, and the largest
mutual fund manager in Switzerland.
Investment Bank
UBS’s Investment Bank is one of the world’s leading
firms in the investment banking and securities business,
providing a full spectrum of services to institutional and
corporate clients, governments and financial intermediaries. Its
salespeople, research analysts and investment bankers provide
products and services to the world’s key institutional
investors, intermediaries, banks, insurance companies,
8
UBS
corporations, sovereign governments, supranational organizations
and private investors. For both its own corporate and
institutional clients and the individual clients of other parts
of UBS, the Investment Bank provides product innovation,
research and advice, and comprehensive access to the
world’s capital markets.
Corporate Center
Corporate Center creates sustainable value for shareholders and
stakeholders by partnering with the Business Groups to ensure
that the firm operates as an effective and integrated whole with
a common vision and set of values.
Industrial Holdings
Industrial Holdings comprises UBS’s private equity
investments and the firm’s majority stake in
Motor-Columbus, a financial holding company whose only
significant asset is an interest in the Atel Group (Aare-Tessin
Ltd. for Electricity). In late September 2005, UBS announced
that it would sell its 55.6% stake in Motor-Columbus to a
consortium of Atel’s Swiss minority shareholders, EOS
Holding and Atel, as well as to French utility Electricité
de France (EDF), after corresponding agreements to that effect
were signed. At the end of February, the European Commission and
the Swiss Competition Commission have cleared the acquisition of
the participation held by UBS. At the date of the print order of
this Annual Report (8 March 2006), the transaction is
expected to be completed as soon as all contractual conditions
have been met and the boards of the buyers have passed the
appropriate revolutions.
Corporate Information
The legal and commercial name of the company is UBS AG. The
company was incorporated under the name SBC AG on
February 28, 1978 for an unlimited duration and entered in
the Commercial Register of Canton Basle-City on that day. On
December 8, 1997, the Company changed its name to UBS AG.
The company in its present form was created on June 29,1998 by the merger of Union Bank of Switzerland (founded 1862)
and Swiss Bank Corporation (founded 1872). UBS AG is entered in
the Commercial Registers of Canton Zurich and Canton Basle-City.
The registration number is
CH-270.3.004.646-4.
UBS AG is incorporated and domiciled in Switzerland and operates
under Swiss Company Law and Swiss Federal Banking Law as an
Aktiengesellschaft, a corporation that has issued shares of
common stock to investors.
The address and telephone number of UBS’s two registered
offices and principal places of business are: Bahnhofstrasse 45,
CH-8098 Zurich,
Switzerland, telephone +41-44-234 11 11; and
Aeschenvorstadt 1, CH-4051 Basel, Switzerland, telephone
+41-61-288 20 20.
UBS shares are listed on the SWX Swiss Exchange and traded
through virt-x, which is majority owned by the SWX Swiss
Exchange. They are also listed on the New York Stock Exchange
and on the Tokyo Stock Exchange.
9
UBS
The UBS Preferred Funding Trusts
Each UBS Preferred Funding Trust is a statutory trust that UBS
AG created under the Delaware Statutory Trust Act pursuant to an
initial trust agreement entered into by UBS AG and by the filing
of a certificate of trust with the Secretary of State of the
State of Delaware. Before trust preferred securities are issued,
the trust agreement for the relevant Issuer Trust will be
amended and restated in its entirety substantially in the form
filed with our SEC registration statement. We will qualify the
Amended and Restated Trust Agreements as indentures under the
Trust Indenture Act of 1939, as amended. We intend to treat each
UBS Preferred Funding Trust as a grantor trust for United States
federal income tax purposes, meaning that investors in trust
preferred securities will generally be treated as if they owned
their proportionate shares of the related company preferred
securities owned by the relevant UBS Preferred Funding Trust.
UBS AG formed each UBS Preferred Funding Trust for the exclusive
purpose of:
•
issuing trust preferred securities,
•
investing the proceeds of such trust preferred securities in
related company preferred securities, which benefit from a
related UBS AG subordinated guarantee, and
•
engaging in any necessary or incidental activities.
The only assets of each UBS Preferred Funding Trust will be
company preferred securities and the related rights of the
relevant UBS Preferred Funding Trust under the related UBS AG
subordinated guarantee. The Amended and Restated Trust
Agreements will not permit any UBS Preferred Funding Trust to
acquire any other assets, issue any other equity securities or
any debt securities, or engage in any other activities. All
expenses and liabilities of each UBS Preferred Funding Trust
will be paid by the Stamford branch of UBS AG, except that if
the trustee of any UBS Preferred Funding Trust incurs fees,
charges or expenses at the request of a holder of its trust
preferred securities or other person for which such UBS
Preferred Funding Trust is not otherwise liable under its
Amended and Restated Trust Agreement, that holder or other
person will be liable for such fees, charges and expenses.
The total pro forma capitalization of each UBS Preferred Funding
Trust, as adjusted to give effect to a particular offering of
trust preferred securities and the use of the proceeds from such
offering, will be set forth in the applicable prospectus
supplement.
The Amended and Restated Trust Agreements will provide that, to
the fullest extent permitted by law, without the need for any
other action of any person, including the trustees or any other
holder of trust preferred securities, each holder of trust
preferred securities will be entitled to enforce, in the name of
the relevant UBS Preferred Funding Trust, the rights of such UBS
Preferred Funding Trust under the related company preferred
securities and the related UBS AG subordinated guarantee
represented by the trust preferred securities held by such
holder. A holder of trust preferred securities may at any time
upon written notice withdraw and hold directly the related
company preferred securities represented by such trust preferred
securities, in which case such holder will be entitled to
directly enforce its rights under the related UBS AG
subordinated guarantee.
The principal executive offices of each UBS Preferred Funding
Trust is located at c/o Wilmington Trust Company, 1100 North
Market Street, Wilmington, Delaware19890.
10
The UBS Preferred Funding Companies
Introduction
Each UBS Preferred Funding Company is a limited liability
company that UBS AG formed under the Delaware Limited Liability
Company Act pursuant to an initial limited liability company
agreement entered into by UBS AG and by filing a certificate of
formation with the Secretary of State of the State of Delaware.
We will continue each UBS Preferred Funding Company pursuant to
Amended and Restated Limited Liability Company Agreements, which
we sometimes refer to as the LLC Agreements. Each UBS Preferred
Funding Company will be treated as a partnership for U.S.
federal income tax purposes.
UBS AG formed each UBS Preferred Funding Company for the
exclusive purpose of:
•
issuing its company common securities to UBS AG,
•
issuing its company preferred securities, initially to the
related UBS Preferred Funding Trust,
•
investing the proceeds of the company common securities and the
company preferred securities in (1) initially, related
subordinated notes issued by the Cayman Islands branch of UBS AG
with an aggregate principal amount which, for each UBS Preferred
Funding Company, will be set forth in the applicable prospectus
supplement and (2) other securities issued by UBS AG acting
through a branch, agency or other office located outside of the
United States or by a non-U.S. branch of a non-U.S. subsidiary
of UBS AG (together, “eligible investments”), and
•
engaging in any related or incidental activities.
The total pro forma capitalization of each UBS Preferred Funding
Company, as adjusted to give effect to the offering of its
company preferred securities, will be set forth in the
applicable prospectus supplement.
Each UBS Preferred Funding Company will apply the income
generated by the related subordinated notes and other eligible
investments to pay dividends to the related UBS Preferred
Funding Trust, as holder of its company preferred securities,
and UBS AG, as holder of its company common securities. The
related UBS Preferred Funding Trust will then pass the dividends
it receives on the company preferred securities through to the
holders of its trust preferred securities as distributions on
its trust preferred securities.
UBS AG will purchase all of the company common securities of
each UBS Preferred Funding Company for an amount which will be
set forth in the applicable prospectus supplement. We intend to
treat the company preferred securities as Tier 1 capital
for purposes of the relevant regulatory capital guidelines of
the Swiss Federal Banking Commission. We will agree with each
UBS Preferred Funding Company in the LLC Agreement that, as long
as any company preferred securities are outstanding, UBS AG will
continue to own, directly or indirectly, 100% of the outstanding
company common securities of each such UBS Preferred Funding
Company. Each UBS Preferred Funding Company will also covenant
to maintain “UBS” as part of its name for as long as
any trust preferred securities of the related UBS Preferred
Funding Trust remain outstanding unless, because of a merger or
other business combination involving UBS AG or a change by UBS
AG of its own name, inclusion of “UBS” as part of any
UBS Preferred Funding Company’s name is no longer
appropriate.
We will also agree in the LLC Agreements that it will from time
to time either (i) contribute (or cause others, including
the Stamford branch of UBS AG, to contribute) to each UBS
Preferred Funding Company such additional funds as are necessary
in order to enable such UBS Preferred Funding Company to pay its
operating expenses on or before any date when any such operating
expenses are
11
The UBS Preferred Funding Companies
due or (ii) directly pay such UBS Preferred Funding
Company’s operating expenses then due and payable and not
otherwise paid. “Operating expenses” generally means
all expenses and obligations of the relevant UBS Preferred
Funding Company, but does not include any payments on its
company preferred securities or company common securities.
The principal executive offices of each UBS Preferred Funding
Company is located at Corporation Service Company,
2711 Centerville Road, Wilmington, Delaware19808.
Activities of the UBS Preferred Funding Companies
General
Each UBS Preferred Funding Company’s principal business
objective is to acquire and hold eligible investments, which
will include:
•
initially, subordinated notes issued by the Cayman Islands
branch of UBS AG with an aggregate principal amount as set forth
in the applicable prospectus supplement, and
•
other securities issued by us acting through a branch, agency or
other office located outside of the United States or by a
non-U.S. branch of a
non-U.S. subsidiary of
ours.
Each UBS Preferred Funding Company will apply the net
income generated by the subordinated notes and other eligible
investments to pay dividends to the related UBS Preferred
Funding Trust, as holder of company preferred securities, and
us, as holder of the company common securities. The related UBS
Preferred Funding Trust will then pass through the dividends it
receives on the related company preferred securities to the
holders of its trust preferred securities as distributions on
its trust preferred securities. Each UBS Preferred Funding
Company may (with the consent of the holders of two-thirds
(based on the aggregate liquidation preference) of its company
preferred securities and company parity preferred securities,
voting together as a single class) issue additional preferred
securities as described under “Description of Company
Preferred Securities.”
Dividends
We currently expect each UBS Preferred Funding Company to pay an
aggregate amount of dividends with respect to its outstanding
company common securities and company preferred securities equal
to approximately 100% of the interest and other income it
receives on the subordinated notes and any other eligible
investments.
The LLC Agreement of each UBS Preferred Funding Company will:
•
preclude each UBS Preferred Funding Company from incurring
any indebtedness for borrowed money, and
•
require the approval of the holders of at least
662/3
% of each UBS Preferred Funding Company’s
outstanding company preferred securities and any outstanding
company parity preferred securities (based on the aggregate
liquidation preference), voting together as a single class,
before dividends on its company preferred securities can be paid
out of any source other than interest income received on the
subordinated notes or interest or dividend income received on
its other eligible investments.
Under the Delaware Limited Liability Company Act, no UBS
Preferred Funding Company may pay dividends or other
distributions on its company common securities or company
preferred securities—even if such payments are
“mandatory”—if, after making the distributions,
such UBS Preferred Funding Company’s liabilities would
exceed the fair value of its assets. However, no UBS Preferred
Funding Company is expected to have any material liabilities, so
this restriction is unlikely to affect the ability of any UBS
preferred funding company to pay dividends on its company
preferred securities.
12
The UBS Preferred Funding Companies
Dividends on company preferred securities will in any event be
required to be paid up to the mandatory dividend payment amount
on any mandatory dividend payment date, unless there is a
capital limitation on such date. See “Description of
Company Preferred Securities— Dividends— Mandatory
Dividends.”
Investment Policies
Each UBS Preferred Funding Company’s initial
investment policies will be established pursuant to its
respective LLC Agreement. Under these investment policies,
no UBS Preferred Funding Company may hold or invest in any
securities other than eligible investments as described above
under “—Introduction.”
The investment policies will require that:
•
the terms of any eligible investments other than subordinated
notes purchased by any UBS Preferred Funding Company be
established in good faith and, to the extent deemed advisable by
UBS AG, reflect arm’s-length terms at the time of
purchase, and the purchase by any UBS Preferred Funding
Company of such eligible investments be approved by the
affirmative vote of a majority of its entire board of directors,
and
•
each UBS Preferred Funding Company maintain its assets in a
manner that will not require such UBS Preferred Funding
Company to be registered as an investment company under the
Investment Company Act of 1940.
The investment policies of any UBS Preferred Funding
Company may be amended only by the affirmative vote of the
holders of at least
662/3
% of its outstanding company preferred securities and any
of its outstanding company parity preferred securities (based on
the aggregate liquidation preference), voting together as a
single class. Although we do not anticipate that any
UBS Preferred Funding Company will sell subordinated notes
(and no market for them is expected to develop), were any
UBS Preferred Funding Company to do so, such
UBS Preferred Funding Company would be required to invest
the proceeds of the sale in accordance with such
UBS Preferred Funding Company’s investment policies as
they exist at the time of such sale.
Administration Agreements
Before issuing company preferred securities, each
UBS Preferred Funding Company will enter into an
administration agreement with the Stamford branch of
UBS AG, under which the Stamford branch will provide (or
causes others to provide) accounting, legal, tax and other
support services to each UBS Preferred Funding Company,
assists each such UBS Preferred Funding Company in complying
with pertinent U.S. and Swiss local, state and federal laws, and
provides administrative, record keeping and secretarial services
to each such UBS Preferred Funding Company. Under the
administration agreement, each UBS Preferred Funding
Company will agree to reimburse the provider of these services
for the value of services provided by such provider to such
UBS Preferred Funding Company on an arm’s-length basis.
Each UBS Preferred Funding Company will maintain company
records that are separate from those of UBS AG or any of
its affiliates. None of the officers, employees or directors of
any UBS Preferred Funding Company will have any direct or
indirect pecuniary interest in any security to be acquired or
disposed of by such UBS Preferred Funding Company or in any
transaction in which such UBS Preferred Funding Company has
an interest.
13
The UBS Preferred Funding Companies
Management of the UBS Preferred Funding Companies
Directors and Executive Officers
The initial LLC Agreement of each UBS Preferred Funding
Company provides that its board of directors will at all times
include not less than two and not more than five members. The
board of directors will initially have two members. The
directors will be designated as “managers” of the
UBS Preferred Funding Company within the meaning of the
Delaware Limited Liability Company Act. The directors will serve
until their successors are duly elected and qualified.
Each UBS Preferred Funding Company will have at least three
officers. The names of the initial directors and executive
officers of each UBS Preferred Funding Company will be set
forth in the applicable prospectus supplement.
It is anticipated all of the officers of each UBS Preferred
Funding Company will also be officers or employees of UBS AG or
its affiliates.
Additional Directors
If at any time the aggregate of unpaid dividends on the company
preferred securities or any company parity preferred securities
of any UBS Preferred Funding Company equals or exceeds an
amount equal to a certain number of regularly scheduled dividend
payments specified in the applicable prospectus supplement, the
holders of its company preferred securities and any company
parity preferred securities, voting together as a single class,
will have the exclusive right to elect two additional directors.
Holders of a majority (based on the aggregate liquidation
preference) of its company preferred securities and company
parity preferred securities may exercise this right by written
consent or at a meeting of such holders called for such purpose.
The LLC Agreement of each UBS Preferred Funding
Company provides that this meeting may be called at the request
of holders of 25% (based on the aggregate liquidation
preference) of its company preferred securities or company
parity preferred securities. This right will continue either
until all unpaid dividends have been paid in full or until full
dividends have been paid on its company preferred securities for
the number of consecutive dividend periods specified in the
applicable prospectus supplement. While this right continues,
any vacancy in the office of the additional directors may be
filled only by the holders of company preferred securities and
company parity preferred securities voting as described above.
Indemnification and Insurance for Directors
The LLC Agreement of each UBS Preferred Funding Company will
provide that:
•
its directors have no personal liability to the
UBS Preferred Funding Company or the holders of its company
common securities or company preferred securities for monetary
damages (i) for voting not to take enforcement action with
respect to the subordinated notes or any other eligible
investments owned by the UBS Preferred Funding Company, or
(ii) at any time for breach of any such director’s
fiduciary duty, if any, except for such director’s gross
negligence or willful misconduct,
•
the UBS Preferred Funding Company will indemnify any
director or officer for any liability and related expenses,
including reasonable counsel’s fees, arising out of such
director’s or officer’s status as a director or
officer of the UBS Preferred Funding Company, except for
liability determined by a court of competent jurisdiction to
have arisen out of such director’s or officer’s gross
negligence or willful misconduct,
•
the right to indemnification is a contract right and the
LLC Agreement will set forth certain procedural and
evidentiary standards applicable to the enforcement of a claim
under the LLC Agreement of the UBS Preferred Funding Company, and
14
The UBS Preferred Funding Companies
•
the UBS Preferred Funding Company may purchase and maintain
insurance to protect any director or officer against any
liability asserted against, or incurred by, him or her, arising
out of his or her status as a director or officer.
Common Securities of the UBS Preferred Funding Companies
Holders of company common securities of a UBS Preferred
Funding Company will receive dividends out of interest payments
received by such UBS Preferred Funding Company on the
subordinated notes and its other eligible investments, if any,
not required to be applied to fund dividends with respect to its
company preferred securities or expenses of such
UBS Preferred Funding Company. However, as long as any
company preferred securities or company parity preferred
securities of such UBS Preferred Funding Company are
outstanding, no dividends or other distributions (including
redemptions and purchases) may be made with respect to its
company common securities unless full dividends on all series of
its company preferred securities have been paid (except as
otherwise described under “Description of Company Preferred
Securities—Ranking and Liquidation Preference”). See
“Description of Company Preferred
Securities—Dividends.”
Subject to the rights, if any, of the holders of company
preferred securities (to the limited extent described herein)
and any other series of company parity preferred securities, all
voting rights will be vested in the company common securities.
Holders of company common securities will be entitled to vote in
proportion to the stated amounts represented by their company
common securities. All issued and outstanding shares of company
common securities are and will be held by UBS AG.
If any UBS Preferred Funding Company dissolves, liquidates
or winds up (whether voluntary or involuntary) after all debts
and liabilities of such UBS Preferred Funding Company have
been satisfied and there have been paid or set aside for the
holders of its company preferred securities the full
preferential amounts to which such holders are entitled, the
holders of its company common securities will be entitled to
share equally and ratably in any assets remaining.
Preferred Securities of the UBS Preferred Funding
Companies
Subject to limitations prescribed by Delaware law and each
UBS Preferred Funding Company’s LLC Agreement, the
board of directors of each UBS Preferred Funding Company
or, if then constituted, a duly authorized committee of the
board of directors is authorized to issue (with the consent of
the holders of two-thirds (based on the aggregate liquidation
preference) of its company preferred securities and company
parity preferred securities, voting together as a single class),
from the authorized but unissued capital shares of the
UBS Preferred Funding Company, additional series of
preferred securities of the UBS Preferred Funding Company
ranking on a parity with its company preferred securities in
such series as the board of directors (or committee) may
determine and to establish, from time to time, the number or
amount by aggregate liquidation preference of shares (if
applicable) of such series to be included in any such series and
to fix the designation and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption
of the securities of any such series, and such other subjects or
matters as may be fixed by resolution of the board of directors.
However, each UBS Preferred Funding Company’s
LLC Agreement will preclude:
•
the issuance of any other classes or series of equity securities
that are senior to its company preferred securities, either as
to dividends or as to rights upon dissolution, liquidation or
winding up of the UBS Preferred Funding Company, without
the approval of each holder of its company preferred securities,
and
•
the issuance of any company parity preferred securities without
the approval of
662/3
% of the holders of its company preferred securities and
unless the related UBS AG subordinated
15
The UBS Preferred Funding Companies
guarantee is amended so that such additional company parity
preferred securities benefit from the related UBS AG
subordinated guarantee in substantially the same manner as its
company preferred securities without any adverse effect on the
holders of its company preferred securities. See
“Description of Company Preferred Securities—Voting
Rights.”
No additional payments will be required pursuant to the Delaware
Limited Liability Company Act for any company parity preferred
securities to represent limited liability company interests in
any UBS Preferred Funding Company upon issuance against
full payment of the purchase price for such company parity
preferred securities. The specific terms of a particular series
of company parity preferred securities will be described in the
certificate of designation (as defined in each
UBS Preferred Funding Company’s LLC Agreement) to
be incorporated into each UBS Preferred Funding
Company’s LLC Agreement relating to that series,
except in the case of shares of company preferred securities
where the terms thereof will be set forth in each
UBS Preferred Funding Company’s LLC Agreement.
16
Use of Proceeds
Each UBS Preferred Funding Trust will use the proceeds from the
sale of its trust preferred securities to purchase the related
company preferred securities from the related UBS Preferred
Funding Company.
The related UBS Preferred Funding Company will use the proceeds
from the sale of its company preferred securities to the related
UBS Preferred Funding Trust and from the sale of its company
common securities to UBS AG to acquire the related subordinated
notes issued by the Cayman Islands branch of UBS AG and to pay
certain expenses related to the particular offering. See
“The UBS Preferred Funding Companies—Activities of the
UBS Preferred Funding Companies.”
Unless the applicable prospectus supplement states otherwise,
UBS AG will use the proceeds from the sale of subordinated notes
issued by its Cayman Islands branch for general corporate
purposes outside of Switzerland.
17
Description of Trust Preferred Securities
Each UBS Preferred Funding Trust will issue its trust
preferred securities under the terms of its Amended and Restated
Trust Agreement. We will qualify the Amended and Restated Trust
Agreements as indentures under the Trust Indenture Act. The
terms of any trust preferred securities will include both those
stated in the relevant Amended and Restated Trust Agreement and
the Delaware Statutory Trust Act and those made part of the
relevant Amended and Restated Trust Agreement by the Trust
Indenture Act. The following summary of the material terms and
provisions of the trust preferred securities is not complete and
is subject to, and qualified in its entirety by reference to,
the Amended and Restated Trust Agreements of each UBS Preferred
Funding Trust, the Delaware Statutory Trust Act and the Trust
Indenture Act. We have filed a copy of a form of Amended and
Restated Trust Agreement applicable for each UBS Preferred
Funding Trust as an exhibit to the registration statement of
which this prospectus is a part, which may be modified or
otherwise amended as described in the applicable prospectus
supplement.
General
Any trust preferred securities will be certificates of
beneficial interest in the assets of the relevant UBS Preferred
Funding Trust, the terms of which are set forth in the
applicable Amended and Restated Trust Agreement and applicable
prospectus supplement.
Unless otherwise specified in the applicable prospectus
supplement, any trust preferred securities will be issued in
denominations of USD25 in the case of an offering of trust
preferred securities to retail investors or USD1000 or a larger
denomination in the case of an offering of trust preferred
securities to institutional investors, liquidation amount and
whole-number multiples of USD25 or USD1000, as the case may be.
The aggregate liquidation amount of the trust preferred
securities to be offered will be specified in the applicable
prospectus supplement. Each trust preferred security will
represent a corresponding amount of related company preferred
securities, together with related rights under a UBS AG
subordinated guarantee.
The trustee of each UBS Preferred Funding Trust will hold the
related company preferred securities and the related rights
under the relevant UBS AG subordinated guarantee deposited in
each such UBS Preferred Funding Trust for the benefit of the
holders of the trust preferred securities. Each Amended and
Restated Trust Agreement provides that, to the fullest extent
permitted by law, without the need for any other action of any
person, including the trustee or any other holder of trust
preferred securities, each holder of trust preferred securities
will be entitled to enforce, in the name of the relevant UBS
Preferred Funding Trust, the rights of such UBS Preferred
Funding Trust under the related company preferred securities and
the related rights under the relevant UBS AG subordinated
guarantee represented by the trust preferred securities held by
such holder. Trust preferred securities may be exchanged for the
related company preferred securities as described under
“—Withdrawal of Company Preferred Securities.”
The funds of any UBS Preferred Funding Trust available for
distribution to the holders of its trust preferred securities
will be limited to payments received from the related UBS
Preferred Funding Company as dividends, redemption payments and
liquidation payments on the related company preferred securities
and to payments received from UBS AG pursuant to the related UBS
AG subordinated guarantee of those payments. See
“Description of Company Preferred Securities.” Each
UBS Preferred Funding Trust will distribute such payments, upon
their receipt, to the holders of its trust preferred securities
on a pro rata basis. If any UBS Preferred Funding Company
does not pay any regularly scheduled dividend on its company
preferred securities when it is required to and UBS AG does not
perform its obligations under the related UBS AG subordinated
guarantee, the related UBS Preferred Funding Trust will not have
sufficient funds to make the related regularly scheduled
distribution payment on its trust preferred securities.
18
Description of Trust Preferred Securities
The trust preferred securities may be listed on one or more
securities exchanges (including the New York Stock Exchange and
the Luxembourg Stock Exchange) or on no securities exchange, as
specified in the applicable prospectus supplement.
Distributions
Each trust preferred security will represent a corresponding
amount of related company preferred securities, together with
the related rights under the relevant UBS AG subordinated
guarantee. Each UBS Preferred Funding Trust will make regularly
scheduled distributions or other mandatory distributions on its
trust preferred securities concurrently with, and in the same
amount as, the regularly scheduled dividends or special
dividends on the related company preferred securities. See
“Description of Company Preferred
Securities—Dividends.” Accordingly, to the extent that
dividends are paid on the related company preferred securities,
distributions on trust preferred securities will accrue from the
date of original issue and be paid on the liquidation amount of
the relevant trust preferred securities in arrears on the
dividend payment dates regularly scheduled to occur on the dates
and at the rate specified in the applicable prospectus
supplement.
For details on the calculation and payment of dividends, see
“Description of Company Preferred
Securities—Dividends” and the applicable prospectus
supplement. Whenever, and to the extent, any UBS Preferred
Funding Trust receives any cash payments representing a
regularly scheduled dividend, special dividend or redemption
payment on the related company preferred securities, such UBS
Preferred Funding Trust will distribute such amounts to the
holders of its trust preferred securities in proportion to their
liquidation amounts. Each regularly scheduled or special
distribution on any trust preferred securities will be payable
to holders of record as they appear on the securities register
of the relevant UBS Preferred Funding Trust on the corresponding
record date. The record dates for trust preferred securities
will be the fifteenth day (whether or not a business day) prior
to the relevant regularly scheduled or other distribution date.
If any distribution would be payable on a day that is not a
business day, that distribution will instead be made on the next
business day. No interest or other payment will be due as a
result of any such delay.
If dividends are not payable on the related company preferred
securities on any dividend payment date for the reasons
described in “Description of Company Preferred
Securities—Dividends,” then the holders of trust
preferred securities will not be entitled to receive a
distribution on that date.
Redemption
Trust preferred securities will be redeemable only upon
redemption of the related company preferred securities.
If any UBS Preferred Funding Company redeems its company
preferred securities in accordance with its LLC Agreement as
described under “Description of Company Preferred
Securities—Redemption,” then such UBS Preferred
Funding Company must give the trustee of the related UBS
Preferred Funding Trust at least 30 days’ prior notice
before doing so. The trustee will mail the notice of redemption
not less than 25 days prior to the date fixed for
redemption of the related company preferred securities to the
holders of its trust preferred securities as provided under
“—Notices.”
On the date of redemption of any company preferred securities,
so long as the relevant UBS Preferred Funding Company or UBS AG
has deposited with Wilmington Trust Company, the paying agent,
on behalf of the related UBS Preferred Funding Trust the
aggregate amount payable upon redemption of all its company
preferred securities held by such UBS Preferred Funding Trust to
be redeemed, the paying agent on behalf of such UBS Preferred
Funding Trust will irrevocably deposit with The
19
Description of Trust Preferred Securities
Depository Trust Company (“DTC”) funds sufficient to
pay the redemption price and give DTC irrevocable instructions
to pay the redemption price to the holders of the trust
preferred securities to be redeemed. See “Book-Entry
Issuance of Trust Preferred Securities.” Once the paying
agent has received this deposit, all rights of the holders of
the trust preferred securities called for redemption will end,
except their right to receive the redemption price, without
interest. If any date fixed for redemption of any trust
preferred securities is not a business day, then the redemption
price will instead be paid on the next business day, except that
if that business day falls in the next calendar year, the
redemption price will be paid on the preceding business day. No
interest or other payment will be due as a result of any such
adjustment.
If only some of the outstanding trust preferred securities of a
UBS Preferred Funding Trust are to be redeemed, the trust
preferred securities to be redeemed will be selected in
accordance with DTC’s procedures. See “Book-Entry
Issuance of Trust Preferred Securities—DTC’s
Procedures for Notices, Voting and Payments.” If any trust
preferred securities do not remain registered in the name of DTC
or its nominee and only some of the outstanding trust preferred
securities of a UBS Preferred Funding Trust are to be redeemed,
the trust preferred securities will be redeemed proportionately
or, if applicable, selected for redemption pursuant to the rules
of any securities exchange on which such trust preferred
securities are listed at that time. Each UBS Preferred Funding
Company will promptly notify the registrar and transfer agent
for its trust preferred securities, in writing, of the trust
preferred securities selected for redemption. In addition, for
so long as the rules of any securities exchange on which the
relevant trust preferred securities are listed so require,
notice will be given to such securities exchange of trust
preferred securities selected for redemption and published as
required by such securities exchange. If any trust preferred
securities are listed on the Luxembourg Stock exchange, for as
long as the rules of the Luxembourg Stock Exchange so require,
notice will be given to the Luxembourg Stock Exchange of any
such trust preferred securities selected for redemption and
published in a daily newspaper of general circulation in
Luxembourg (which is expected to be the Luxemburger Wort).
Withdrawal of Company Preferred Securities
Any beneficial owner of trust preferred securities will be able
to withdraw all, but not less than all, of the related company
preferred securities represented by such trust preferred
securities by providing a written notice to the trustee, with
evidence of beneficial ownership in form satisfactory to the
trustee and providing to the related UBS Preferred Funding
Company such documents or information as such UBS Preferred
Funding Company may request for tax reporting purposes. The
holder’s notice will also be deemed to be such beneficial
owner’s agreement to be subject to the terms of the
relevant UBS Preferred Funding Company’s LLC Agreement
applicable to the rights of the holders of its company preferred
securities.
Within a reasonable period after such a request has been
properly made, any trustee must instruct DTC to reduce the
amount of trust preferred securities represented by the relevant
global certificate by the corresponding amount of related
company preferred securities to be so withdrawn by the
withdrawing owner. The related UBS Preferred Funding Company
will issue to the withdrawing owner a certificate representing
the amount of related company preferred securities withdrawn,
and the trustee will reduce the amount of trust preferred
securities represented by the relevant global certificate
accordingly. Company preferred securities will be issued only in
certificated fully-registered form and will not be eligible to
be held through DTC, Euroclear or Clearstream. Under current
U.S. tax reporting rules, holders of company preferred
securities will thereafter receive an annual
Form K-1 instead
of the Form 1099 that holders of trust preferred securities
will receive. See “U.S. Tax Considerations—Information
Reporting and Backup Withholding Tax.”
Any holder of company preferred securities may redeposit
withdrawn company preferred securities by delivering to the
relevant trustee the certificates for the company preferred
securities to be deposited,
20
Description of Trust Preferred Securities
which are (i) if required by the trustee, properly endorsed
or accompanied by a properly executed instrument of transfer or
endorsement in form satisfactory to the trustee and in
compliance with the terms of the relevant UBS Preferred Funding
Company’s LLC Agreement and (ii) accompanied by all
such certifications as may be required by the trustee in its
sole discretion and in accordance with the provisions of the
relevant Amended and Restated Trust Agreement. Within a
reasonable period after such deposit is properly made, the
trustee will instruct DTC to increase the amount of the related
trust preferred securities represented by the relevant global
certificate accordingly.
Voting Rights
If at any time the holders of any company preferred securities
are entitled to vote under any UBS Preferred Funding
Company’s LLC Agreement, the trustee will:
•
notify the holders of the related trust preferred securities of
such right,
•
request specific direction from each holder of the related trust
preferred securities as to the vote with respect to the company
preferred securities represented by such trust preferred
securities, and
•
vote the relevant company preferred securities only in
accordance with such specific direction.
Upon receiving notice of any meeting at which the holders of any
company preferred securities are entitled to vote, the relevant
trustee will, as soon as practicable, mail to the holders of the
related trust preferred securities a notice as provided under
“—Notices.” Each UBS Preferred Funding Company
will provide the form of notice to the trustee of the related
UBS Preferred Funding Trust to be forwarded to the holders of
the related trust preferred securities. The notice will contain:
•
all the information that is contained in the notice announcing
the meeting of the holders of the company preferred securities,
•
a statement that the holders of the related trust preferred
securities will be entitled, subject to any applicable provision
of law, to direct the trustee specifically as to the exercise of
the voting rights pertaining to the number of related company
preferred securities represented by their respective trust
preferred securities, and
•
a brief description of the manner in which the holders may give
such specific directions.
If any UBS Preferred Funding Trust receives a written direction
from a holder of its trust preferred securities, its trustee
will vote, or cause to be voted, the amount of related company
preferred securities represented by such trust preferred
securities in accordance with the instructions set forth in the
direction. If the trustee does not receive specific instructions
from the holder of any trust preferred securities, the trustee
will abstain from voting the related company preferred
securities represented by those trust preferred securities.
Any UBS Preferred Funding Company and the trustee of the related
UBS Preferred Funding Trust may, without the consent of the
holders of the trust preferred securities of the related UBS
Preferred Funding Trust, enter into one or more agreements
supplemental to the relevant Amended and Restated Trust
Agreement, in form satisfactory to the trustee, for any of the
following purposes:
•
to evidence the succession of another partnership, corporation
or other entity to such UBS Preferred Funding Company and the
assumption by any such successor of the covenants of such UBS
Preferred Funding Company under the relevant Amended and
Restated Trust Agreement,
•
to add to the covenants of such UBS Preferred Funding Company
for the benefit of the holders of related trust preferred
securities, or to surrender any right or power herein conferred
upon such UBS Preferred Funding Company,
21
Description of Trust Preferred Securities
•
to correct or supplement any provision of the relevant Amended
and Restated Trust Agreement which may be defective or
inconsistent with any other provision therein,
•
to make any other provisions with respect to matters or
questions arising under the relevant Amended and Restated Trust
Agreement, provided that any such action does not materially
adversely affect the interests of the holders of trust preferred
securities, or
•
to cure any ambiguity or correct any mistake.
Any other amendment or agreement supplemental to any Amended and
Restated Trust Agreement must be in writing and approved by the
holders of
662/3
% of the then outstanding trust preferred securities of
the relevant UBS Preferred Funding Trust.
Transfer and Issue of Definitive Trust Preferred
Securities
Transfer, Issue and Delivery
If trust preferred securities are issued in definitive form
(“definitive trust preferred securities”) in the
limited circumstances described in “Book-Entry Issuance of
Trust Preferred Securities—Termination of and Changes to
Depositary Arrangements,” those trust preferred securities
may be transferred in any whole-number multiples of USD25, or
USD1000, as the case may be, or in such other denominations as
may be specified in the applicable prospectus supplement, by
surrendering the definitive trust preferred securities
certificates together with the form of transfer endorsed on it,
duly completed and executed at the office of the transfer agent.
The initial transfer agent for all trust preferred securities
will be the Wilmington Trust Company. If only part of a
definitive trust preferred securities certificate is
transferred, a new definitive trust preferred securities
certificate representing the securities that are not transferred
will be issued to the transferor within three business days
after the transfer agent receives the certificate. The new
certificate representing the trust preferred securities that
were not transferred will be delivered to the transferor by
uninsured mail at the risk of the transferor, to the address of
the transferor that appears in the records of the relevant UBS
Preferred Funding Trust. The new certificate representing the
trust preferred securities that were transferred will be sent to
the transferee within three business days after the relevant
trustee receives the certificate transferred, by uninsured mail
at the risk of the holder entitled to the trust preferred
securities represented by the certificate, to the address
specified in the form of transfer.
Formalities Free of Charge
Registration of transfers of definitive trust preferred
securities will be made without charge by any UBS Preferred
Funding Trust, but the transferor must pay any tax or other
governmental charges that may be imposed in relation to the
transfer, together with any indemnity that the relevant UBS
Preferred Funding Trust, UBS AG or the transfer agent may
require.
Closed Periods
No holder may require the transfer of any trust preferred
securities to be registered during the period of 15 days
ending on the due date for any payment of principal on such
trust preferred securities.
No UBS Preferred Funding Trust will be required to register, or
cause others to register, the transfer of any trust preferred
securities after such trust preferred securities have been
called for redemption.
Regulations Concerning Transfer and Registration
All transfers of definitive trust preferred securities and
entries must be made as provided in the agency agreement
relating to such trust preferred securities. The provisions of
these agreements that govern transfers may be changed by each
UBS Preferred Funding Trust with the prior written approval of
its trustee.
22
Description of Trust Preferred Securities
Registrar and Transfer Agent
Wilmington Trust Company will act as registrar and transfer
agent for all trust preferred securities. If and for as long as
the trust preferred securities are listed on the Luxembourg
Stock Exchange, UBS Preferred Funding Trust will also maintain a
transfer agent in Luxembourg. The initial Luxembourg transfer
agent will be as specified in the applicable prospectus
supplement.
Payments and Paying Agent
As long as trust preferred securities are in book-entry form,
payments of interest and principal on such trust preferred
securities will be made to DTC, which will credit the relevant
accounts at DTC on the scheduled payment dates. The payments of
interest and principal will be distributed to participants,
indirect participants and beneficial owners of such trust
preferred securities as described under “Book-Entry
Issuance of Trust Preferred Securities—DTC’s
Procedures for Notices, Voting and Payments.”
If definitive trust preferred securities are issued in the
limited circumstances described above, payments of interest and
principal on such trust preferred securities will be made by
check mailed to the address of the holder entitled to receive
the payment, as the address appears in the relevant UBS
Preferred Funding Trust’s register.
Each UBS Preferred Funding Trust will maintain a paying agent
with respect to its trust preferred securities which will
initially be the Wilmington Trust Company. The paying agent will
be permitted to resign as paying agent upon 30 days’
written notice to the relevant trustee. If Wilmington Trust
Company resigns as paying agent, the relevant trustee will
appoint another bank or trust company to act as paying agent. If
and for as long as the trust preferred securities are listed on
the Luxembourg Stock Exchange, UBS Preferred Funding Trust will
also maintain a paying agent in Luxembourg. The initial
Luxembourg paying agent will be as specified in the applicable
prospectus supplement.
Termination of the Amended and Restated Trust Agreements
The Amended and Restated Trust Agreement of each UBS Preferred
Funding Trust will terminate upon the earliest to occur of the
redemption of all of the trust preferred securities of such UBS
Preferred Funding Trust, the delivery of a final distribution of
the related company preferred securities to the holders of its
trust preferred securities, withdrawal of all related company
preferred securities from the UBS Preferred Funding Trust (as
described under “—Withdrawal of Company Preferred
Securities”) or dissolution of the UBS Preferred Funding
Trust as described in the following paragraph.
Each UBS Preferred Funding Company may instruct the trustee of
the related UBS Preferred Funding Trust to dissolve such UBS
Preferred Funding Trust and to distribute its company preferred
securities on a pro rata basis to the holders of trust
preferred securities of such UBS Preferred Funding Trust in the
case of either a Tax Event as to the related UBS Preferred
Funding Trust or an Investment Company Act Event as to the
related UBS Preferred Funding Trust, as each is defined under
“Description of Company Preferred
Securities—Redemption.”
Any company preferred securities held in definitive fully
registered form will not be eligible to be held through DTC,
Euroclear or Clearstream.
Expenses of the UBS Preferred Funding Trusts
All charges or expenses of each UBS Preferred Funding Trust,
including the charges and expenses of the relevant trustees,
will be paid by the Stamford branch of UBS AG, except that, if a
trustee incurs fees, charges or expenses, for which it is not
otherwise liable under the relevant Amended and Restated Trust
Agreement, at the request of a holder of trust preferred
securities or other person, such holder or other person will be
liable for such fees, charges and expenses.
23
Description of Trust Preferred Securities
Resignation and Removal of Trustee
Each UBS Preferred Funding Trust will at all times have a
trustee that is a bank that has its principal place of business
in the State of Delaware and a combined capital and surplus of
USD50,000,000. If a trustee ceases to be eligible, it must
resign.
The trustee of any UBS Preferred Funding Company may resign as
trustee under the relevant Amended and Restated Trust Agreement
at any time by giving notice of its resignation to the related
UBS Preferred Funding Company. Each trustee may be removed by
the related UBS Preferred Funding Company at any time by notice
of such removal delivered to the relevant trustee. Any
resignation or removal of a trustee will take effect upon the
appointment of a qualified successor trustee and the
successor’s acceptance of such appointment.
If the trustee of any UBS Preferred Funding Trust shall resign
or be removed, the related UBS Preferred Funding Company shall,
within 45 days after the delivery of the notice of
resignation or removal, as the case may be, appoint a successor
trustee, which shall be a bank or trust company, or an affiliate
of a bank or trust company, having its principal office in the
State of Delaware and having a combined capital and surplus of
at least USD50,000,000.
Information Concerning the Trustee
Wilmington Trust Company is the trustee of each UBS Preferred
Funding Trust. The trustee is required to perform only those
duties that are specifically set forth in the relevant Amended
and Restated Trust Agreement, except when a default has occurred
and is continuing with respect to the relevant trust preferred
securities. After a default, the trustee must exercise the same
degree of care a prudent person would exercise under the
circumstances in the conduct of his or her own affairs. Subject
to these requirements, the trustee is under no obligation to
exercise any of the powers vested in it by the relevant Amended
and Restated Trust Agreement at the request of any holder of
relevant trust preferred securities, unless the holder offers
the trustee reasonable indemnity against the costs, expenses and
liabilities that might be incurred by exercising those powers.
Notices
Notices to the holders of trust preferred securities will be
given by delivery of the relevant notice to DTC, Euroclear,
Clearstream and any other relevant securities clearing system
for communication by each of them to entitled participants, and,
as long as the trust preferred securities of any UBS Preferred
Funding Trust are listed on one or more stock exchanges and the
rules of such stock exchange(s) so require, notices will also be
published in the manner that the rules of such stock exchange(s)
may require. In addition, if any trust preferred securities are
listed on the Luxembourg Stock Exchange and for as long as the
rules of the Luxembourg Stock Exchange so require, notices will
be published in a daily newspaper of general circulation in
Luxembourg (which is expected to be the Luxemburger Wort).
If any trust preferred securities are no longer held in the name
of DTC or its nominee, notice to the holders of such trust
preferred securities will also be mailed by first-class mail,
postage prepaid, to the holders’ addresses appearing in the
records of the relevant UBS Preferred Funding Trust.
Governing Law
Unless stated otherwise in the applicable prospectus supplement,
the Amended and Restated Trust Agreements and any trust
preferred securities will be governed by the laws of the State
of Delaware.
24
Description of Company Preferred Securities
Each UBS Preferred Funding Company will issue its company
preferred securities under the terms of its Amended and Restated
Limited Liability Company Agreement. The following summary of
the material terms and provisions of the company preferred
securities is not complete and is subject to and qualified in
its entirety by reference to the LLC Agreement of each UBS
Preferred Funding Company and the Delaware Limited Liability
Company Act. We have filed a copy of a form of the LLC Agreement
applicable for each UBS Preferred Funding Company as an exhibit
to the registration statement of which this prospectus is a
part, which may be modified or otherwise amended as described in
the applicable prospectus supplement.
General
The company preferred securities will be preferred limited
liability company interests in a UBS Preferred Funding Company,
the terms of which will be set forth in the applicable UBS
Preferred Funding Company’s LLC Agreement and the
applicable prospectus supplement.
The company preferred securities are intended to provide holders
with rights to distributions and redemption and liquidation
payments that are similar to those to which holders would be
entitled if they had purchased the most senior ranking
noncumulative perpetual preferred shares issued directly by UBS
AG that have financial terms equivalent to those of their
company preferred securities.
The company preferred securities will be validly issued, and no
additional payments will be required for such securities to
represent limited liability company interests in the relevant
UBS Preferred Funding Company. Holders of company preferred
securities will have no preemptive rights with respect to any
other securities of the relevant UBS Preferred Funding Company.
The company preferred securities will not be convertible into
company common securities or any other interests in the relevant
UBS Preferred Funding Company and will not be subject to any
sinking fund or other obligation of the relevant UBS Preferred
Funding Company for their repurchase or retirement.
Unless otherwise specified in the applicable prospectus
supplement, the company preferred securities will be issued in
certificated form only in denominations of USD25 in the case of
an offering of trust preferred securities to retail investors
and USD1000 or a larger denomination in the case of an offering
of trust preferred securities to institutional investors,
liquidation preference and whole-number multiples of USD25 or
USD1000, as the case may be. The aggregate liquidation
preference of all company preferred securities offered will be
specified in the applicable prospectus supplement.
Each UBS Preferred Funding Company has the power to create and
issue additional preferred limited liability company interests
(i) that are junior to its company preferred securities as
to payment of dividends and payments of amounts upon
dissolution, liquidation or winding up of such UBS Preferred
Funding Company (“company junior securities”) or
(ii) that are on a parity with its company preferred
securities as to those payments (“company parity preferred
securities”). As long as any company preferred securities
of a UBS Preferred Funding Company remain outstanding, no
company parity preferred securities may be issued by such UBS
Preferred Funding Company unless the holders of at least
662/3
% of the outstanding company preferred securities and
company parity preferred securities, if any (based on the
aggregate liquidation preference), voting together as a single
class, approve or unless the related UBS AG subordinated
guarantee is amended so that such company parity preferred
securities benefit from the related UBS AG subordinated
guarantee in the same manner as the company preferred securities
without any adverse effect on the holders of company preferred
securities. See “—Voting Rights.”
The LLC Agreement of each UBS Preferred Funding Company will
preclude each UBS Preferred Funding Company from issuing,
without the consent of each holder of its company preferred
25
Description of Company Preferred Securities
securities, any company parity preferred securities or any other
classes or series of equity securities that are senior to its
company preferred securities as to dividend rights or rights
upon dissolution, liquidation or winding up of such UBS
Preferred Funding Company.
Dividends
General
Dividends on company preferred securities will be payable from
the date of initial issuance on a noncumulative basis, regularly
on the dates specified in the applicable prospectus supplement
(each a “dividend payment date”) for the dividend
period ending on each such dividend payment date and commencing
on the date specified in the applicable prospectus supplement,
but only if the relevant UBS Preferred Funding Company has
legally available funds for such purpose and satisfies the other
qualifications described below. Each period from and including a
dividend payment date or the date of initial issuance, as
applicable, to but not including the next dividend payment date
is a “dividend period.”
Dividends will be payable on the liquidation preference, for
each dividend period, at a fixed or floating rate, as specified
in the applicable prospectus supplement.
Dividends will be mandatorily due and payable on a dividend
payment date with respect to the related dividend period and
special dividends will be mandatorily due and payable on other
dates in the circumstances described under “—Mandatory
Dividends,” except that dividends will never be mandatorily
due and payable or be paid when the capital limitation
(described below under “—Capital Limitation”)
applies. If dividends are neither mandatorily due and payable on
a dividend payment date nor prohibited by application of the
capital limitation, then:
•
payment of dividends on company preferred securities will be
limited by UBS AG’s available distributable profits
(see “—Distributable Profits Limitation”), and
•
if UBS AG delivers, on or before the tenth business day
immediately preceding a dividend payment date, an instruction (a
“no dividend instruction”) to a UBS Preferred
Funding Company not to pay dividends on that dividend payment
date or to pay less than full dividends on that dividend payment
date, dividends payable on the related dividend payment date
will be limited as provided in the no dividend instruction (see
“—No Dividend Instruction”).
If any dividends will be payable on company preferred securities
on a day that is not a business day, those dividends will
instead be paid on the next business day. No interest or other
payment will be due as a result of any such adjustment.
To the extent relevant to any issuance of trust preferred
securities, LIBOR shall have the meaning as specified in the
applicable prospectus supplement.
All percentages resulting from any calculations on the company
preferred securities will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point, with five
one-millionths of a percentage point rounded upward (e.g.,
9.876545% (or .09876545) being rounded to 9.87655%
(or .0987655)), and all dollar amounts used in or resulting
from such calculation will be rounded to the nearest cent (with
one-half cent being rounded upward).
Mandatory Dividends
Each UBS Preferred Funding Company will be required to pay
dividends on its company preferred securities in three
circumstances, as follows:
(i)
If UBS AG declares or pays dividends or makes any other
payment or distribution on any UBS AG junior obligations,
and provided that the capital limitation does not apply, then
each UBS Preferred Funding Company will be required to pay
full dividends on its company
26
Description of Company Preferred Securities
preferred securities during the one-year period beginning on and
including the earlier of the date on which such dividend was
declared or the date on which such dividend or other payment was
made.
(ii)
If UBS AG or any of its subsidiaries redeems, repurchases
or otherwise acquires any UBS AG parity securities or
UBS AG junior obligations for any consideration, except by
conversion into or exchange for shares of UBS AG or
UBS AG junior obligations and except as described below
(and provided that the capital limitation does not apply), then
each UBS Preferred Funding Company will be required to pay
dividends on its company preferred securities during the
one-year period beginning on and including the date on which
such redemption, repurchase or other acquisition occurred.
(iii)
If (x) UBS AG or any of its subsidiaries pays any
dividends or makes any other payment or distribution on any
UBS AG parity securities on any date and (y) during
the relevant period (as defined below) ending on and including
that date there occurred a dividend payment date as to which any
UBS Preferred Funding Company paid no dividends or less
than full dividends on its company preferred securities, and
provided that the capital limitation does not apply, then on
that date such UBS Preferred Funding Company will be
required to pay a special dividend on its company preferred
securities. The special dividend will be payable on that date
whether or not that date is otherwise a dividend payment date
and, if it is a dividend payment date, will be in addition to
any other dividends required to be paid on that dividend payment
date. The special dividend will be in an amount that, when taken
together with dividends previously paid on the relevant company
preferred securities during the relevant period, represents the
same proportion of full dividends on such company preferred
securities for all dividend payment dates during the relevant
period that the dividend on UBS AG parity securities paid
during that relevant period bears to full dividends on such
UBS AG parity securities for that relevant period.
Notwithstanding paragraph (ii) above, no UBS Preferred
Funding Company will be required to pay dividends solely as a
result of:
•
repurchases, redemptions or other acquisitions of UBS AG
parity securities or UBS AG junior obligations in
connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection
with a dividend reinvestment or shareholder share purchase plan
or in connection with the issuance of UBS AG parity
securities or UBS AG junior obligations (or securities
convertible into or exercisable for such UBS AG parity
securities or UBS AG junior obligations) as consideration
in an acquisition transaction,
•
market-making in the UBS AG parity securities or
UBS AG junior obligations as part of the securities
business of UBS AG or any of its subsidiaries,
•
the purchase of fractional interests in UBS AG parity
securities or UBS AG junior obligations pursuant to the
conversion or exchange provisions of such UBS AG parity
securities or UBS AG junior obligations or the security
being converted or exchanged,
•
any declaration of a dividend in connection with any
shareholder’s rights plan, or the issuance of rights,
shares or other property under any shareholder’s rights
plan, or the redemption or repurchase of rights pursuant to any
such plan, or
•
any dividend in the form of shares, warrants, options or other
rights where the dividend shares or the shares issuable upon
exercise of such warrants, options or other rights are the same
shares as that on which the dividend is being paid or ranks
equally with or junior to such shares.
27
Description of Company Preferred Securities
Any dividend payment date or other date on which dividends on
any company preferred securities are required to be paid as
described in clause (i), (ii) or (iii) above is a
“mandatory dividend payment date.” The amount of
dividends required to be paid on any mandatory dividend payment
date (after giving effect to the capital limitation, if
applicable) is called the “mandatory dividend payment
amount.” If a dividend payment date or other date is a
mandatory dividend payment date, each UBS Preferred Funding
Company will be required to pay the mandatory dividend payment
amount as dividends on that date whether or not there are
available distributable profits and whether or not interest is
paid on the subordinated notes.
For purposes of this prospectus:
“UBS AG junior obligations”means
(i) ordinary shares of UBS AG, (ii) each class of
preferred or preference shares or similar securities of
UBS AG that ranks junior to the most senior ranking
preferred or preference shares or similar securities of
UBS AG, and (iii) any indebtedness, guarantee or
support agreement or similar undertaking of UBS AG in
respect of any subsidiary securities that rank junior to the
UBS AG subordinated guarantee.
“UBS AG parity securities”means (i) each
class of preferred or preference shares or similar securities of
UBS AG that ranks equally with the most senior ranking
preferred or preference shares or similar securities of
UBS AG and (ii) any securities issued by any
subsidiaries of UBS AG and entitled to the benefit of any
guarantee or support agreement or similar undertaking of
UBS AG that ranks equally with the UBS AG subordinated
guarantee. UBS AG parity securities include the
USD1,500,000,000 8.622% Noncumulative Trust Preferred Securities
of UBS Preferred Funding Trust I initially issued in
October 2000 and representing a corresponding amount of 8.622%
Noncumulative Company Preferred Securities of UBS Preferred
Funding Company LLC I, guaranteed on a subordinated basis
by UBS AG, the USD500,000,000 7.247% Noncumulative Trust
Preferred Securities of UBS Preferred Funding Trust II
issued in June 2001 and representing a corresponding amount of
7.247% Noncumulative Company Preferred Securities of
UBS Preferred Funding Company LLC II, guaranteed on a
subordinate basis by UBS AG, the USD300,000,000 7.25%
Noncumulative Trust Preferred Securities of UBS Preferred
Funding Trust III issued in June 2001 and representing a
corresponding amount of 7.25% Noncumulative Company Preferred
Securities of UBS Preferred Funding Company LLC III,
guaranteed on a subordinate basis by UBS AG and the
USD300,000,000 floating rate Noncumulative Trust Preferred
Securities of UBS Preferred Funding Trust IV issued in May
2003 and representing a corresponding amount of floating rate
Noncumulative Company Preferred Securities of UBS Preferred
Funding Company LLC IV, guaranteed on a subordinate basis
by UBS AG.
“relevant period”means (i) in the case of
UBS AG parity securities that pay dividends less frequently
than semi-annually, one year and (ii) in the case of
UBS AG parity securities that pay dividends semi-annually
or more frequently than semi-annually, six months (in each case
ending on or including the date on which the related dividend on
a parity security is paid but not including the corresponding
day in the month that is twelve or six months prior thereto).
Capital Limitation
The prohibition on the payment of dividends on company preferred
securities as described below is called the “capital
limitation.”
Unless the Swiss Federal Banking Commission expressly permits
otherwise, no UBS Preferred Funding Company will pay
dividends on its company preferred securities on any dividend
payment date (whether or not it is a mandatory dividend payment
date) if on such date UBS AG is not in compliance, or
because of a distribution by UBS AG or any of its
subsidiaries of profits of UBS AG (including a payment of
dividends on company preferred securities) would not be in
compliance, with
28
Description of Company Preferred Securities
the Swiss Federal Banking Commission’s minimum capital
adequacy requirements applicable to UBS AG as then in
effect.
For purposes of complying with the Swiss Federal Banking
Commission’s capital minimum adequacy requirements, bank
capital is divided into three main categories:
•
Core (or Tier 1) capital,
•
Supplementary (or Tier 2) capital, and
•
Additional (or Tier 3) capital.
Tier 1 capital primarily includes
paid-in share capital,
reserves (defined to include retained earnings) and capital
participations of minority shareholders in fully consolidated
subsidiaries, and is reduced by, among other items, the
bank’s holdings of its own shares. Tier 1 capital is
supplemented, for capital adequacy purposes, by Tier 2
capital, which consists of, among other things, two categories
of subordinated debt instruments that may be issued by a bank,
and by Tier 3 capital, which consists of certain
subordinated debt obligations. The use of Tier 2 and
Tier 3 capital in complying with capital ratio requirements
is, however, subject to limitations.
Under Swiss law, a bank must maintain a minimum capital ratio of
8%, calculated by dividing adjusted core and supplementary
capital by aggregate risk-weighted assets. This standard must be
met on both a consolidated and an unconsolidated basis. UBS is
required to file a statement of its required and existing
capital resources, together with its annual statement of
condition and interim balance sheet, with both the Swiss Federal
Banking Commission and the Swiss National Bank.
For a discussion of UBS’s capital resources relative to
applicable guidelines, see Item 5 of UBS AG’s
Annual Report on
Form 20-F for the
year ended 31 December 2005, which is incorporated by
reference into this prospectus.
Distributable Profits Limitation
The limitation or prohibition on the payment of dividends on
company preferred securities as described below is called the
“distributable profits limitation.” The distributable
profits limitation will not limit or prohibit payment of
mandatory dividends on a mandatory dividend payment date. The
effect of the distributable profits limitation is to limit the
amount of non-mandatory dividends that any UBS Preferred Funding
Company may pay on its company preferred securities to the
amount of dividends that UBS AG would have been legally able to
pay on such securities had they been issued directly by UBS AG
as non-cumulative preference shares of UBS AG.
Except as otherwise stated in the applicable prospectus
supplement, on or before the first dividend payment date of each
year, UBS AG will deliver a certificate to each UBS
Preferred Funding Company (a “distributable profits
limitation certificate”) specifying:
•
the distributable profits (as defined below) of UBS AG for
the financial year ending on the preceding 31 December, and
•
the available distributable profits (as defined below) for
payment of dividends on company preferred securities on the
dividend payment dates in the then current year.
Unless a UBS Preferred Funding Company is required to pay
mandatory dividends:
•
the aggregate amount of dividends on company preferred
securities that such UBS Preferred Funding Company may pay
on the first dividend payment of the current year may not exceed
the lesser of full dividends and the available distributable
profits set forth in such distributable profits limitation
certificate, and
29
Description of Company Preferred Securities
•
the aggregate amount of dividends on company preferred
securities that such UBS Preferred Funding Company may pay
on any subsequent dividend payment date in the current year may
not exceed the lesser of full dividends and the remaining amount
of such available distributable profits (after giving effect to
the payment of dividends pursuant to this bullet point or the
bullet point immediately above).
For purposes of this prospectus:
“distributable profits”means, for any
financial year of UBS AG, profit that may be distributed in
accordance with Swiss law then applicable. Currently, for any
financial year of UBS AG, distributable profits are equal
to profit brought forward, plus profit for the period,
minus appropriation to general statutory reserve, plus
other reserves, each as shown in the audited unconsolidated
balance sheet and statement of appropriation of retained
earnings of UBS AG and as determined in accordance with
accounting standards applicable under Swiss law. The
“appropriation to general statutory reserve” is equal
to up to 5% of annual profit to the extent the general reserves
of UBS AG do not equal 20% of the
paid-in share capital
plus 10% of the amount distributed as a dividend from
profit for the period in excess of 5% of the par value of the
UBS common shares. UBS AG’s distributable profits for 2005
were approximately CHF 26.792 billion.
“available distributable profits”means, for
any financial year of UBS AG:
•
if there are no UBS AG parity securities outstanding,
distributable profits for the immediately preceding financial
year of UBS AG, and
•
if there are UBS AG parity securities outstanding, then an
amount determined as the product of:
(x)
distributable profits for the immediately preceding financial
year of UBS AG, and
(y)
a ratio (I) the numerator of which is the aggregate amount
of full dividends on the company preferred securities to be paid
on the dividend payment dates that occur during the then current
financial year (not including dividends paid in any preceding
dividend payment date during of the current year and including
dividends to be paid in the corresponding dividend payment date
of the following year) and (II) the denominator of which is
equal to the amount determined pursuant to clause (I) plus
the aggregate amount of full dividends on the UBS AG parity
securities to be paid on dividend payment dates which occur
during the then current financial year.
No Dividend Instruction
Except for the mandatory dividend payment amounts required to be
paid on mandatory dividend payment dates:
•
dividends on company preferred securities will not be payable on
a dividend payment date if, on or before the tenth business day
immediately preceding such dividend payment date, UBS AG
delivers a no dividend instruction to the relevant UBS Preferred
Funding Company instructing it not to pay dividends on that
dividend payment date, and
•
if, on or before the tenth business day immediately preceding
such dividend payment date, UBS AG delivers a no dividend
instruction to a UBS Preferred Funding Company limiting but not
prohibiting the payment of dividends on such dividend payment
date, dividends on such UBS Preferred Funding Company’s
company preferred securities will be payable on that dividend
payment date only to the extent permitted by such no dividend
instruction.
If a no dividend instruction is given to a UBS Preferred Funding
Company, then such UBS Preferred Funding Company must promptly
give notice to the holders of its company preferred securities
in the
30
Description of Company Preferred Securities
manner described under “—Notices” of the fact
that it has received a no dividend instruction and the amount of
dividends, if any, that will be paid on the related dividend
payment date.
Additional Amounts
If any UBS Preferred Funding Company or UBS Preferred
Funding Trust is required to withhold any taxes, duties or other
governmental charges with respect to any dividend payment on its
trust preferred securities or company preferred securities, the
relevant UBS Preferred Funding Company will be required to pay,
as additional amounts included in the dividend payment (and
UBS AG will be required to include in any related payment
made by it under the UBS AG subordinated guarantee), an
amount sufficient that the net amount received by the holder of
such company preferred securities or trust preferred securities,
as applicable, after the withholding, will not be less than the
dividend payment amount. However, no UBS Preferred Funding
Company will be required to pay any such additional amounts to
the extent that the taxes, duties or other governmental charges
are imposed or levied by Switzerland or the Cayman Islands
because the holder or beneficial owner of any trust preferred
securities or company preferred securities:
•
has some connection with Switzerland or the Cayman Islands, as
applicable, other than being a holder or beneficial owner of
those trust preferred securities or company preferred
securities, or
•
has not made a declaration of non-residence in, or other lack of
connection with, Switzerland or the Cayman Islands, as
applicable, or any similar claim for exemption, if the relevant
UBS Preferred Funding Company has given the beneficial
owner of those trust preferred securities or company preferred
securities or its nominee at least 60 days’ prior
notice of an opportunity to make the declaration or claim.
Ranking and Liquidation Preference
The company preferred securities of any UBS Preferred Funding
Company ordinarily will rank senior to its company common
securities as to the payment of dividends. However, UBS AG
has the right to shift the dividend preference of company
preferred securities to the company common securities on any
dividend payment date to the extent that the mandatory dividend
payment amount then required to be paid as dividends on the
company preferred securities (if any) is less than full
dividends on the company preferred securities. If UBS AG shifts
the dividend preference to the company common securities, the
interest payment received by a UBS Preferred Funding Company on
the related subordinated notes will be returned as dividends to
UBS AG, as the holder of its company common securities, before
any dividends are paid on its company preferred securities.
As long as any company preferred securities of a UBS Preferred
Funding Company are outstanding, UBS AG will agree in such UBS
Preferred Funding Company’s LLC Agreement that it will take
no voluntary action to cause the UBS Preferred Funding Company
to dissolve or liquidate unless UBS AG also liquidates. Each UBS
Preferred Funding Company’s LLC Agreement will provide that
the UBS Preferred Funding Company will be liquidated if UBS AG
is liquidated.
If any UBS Preferred Funding Company dissolves, liquidates or
winds up, then after the claims of any creditors of such UBS
Preferred Funding Company are satisfied, the holders of its
company preferred securities will be entitled to receive, before
any distribution of assets is made to the holders of its company
common securities or any other class of shares ranking junior to
the company preferred
31
Description of Company Preferred Securities
securities upon liquidation, liquidating distributions in
respect of such company preferred securities in the amount of:
•
the liquidation preference of the company preferred securities,
plus
•
an amount equal to unpaid dividends, if any, on the company
preferred securities with respect to the current dividend period
accrued on a daily basis to the date of liquidation, plus
•
an amount equal to unpaid definitive dividends for any prior
dividend period, without interest and without accumulation of
unpaid nondefinitive dividends for any prior dividend period.
For purposes of this prospectus:
“definitive dividends”means, as to a dividend
payment date and related dividend period, dividends that are due
and payable because (i) they are not limited by the capital
limitation and (ii) either (x) they are mandatory
dividends or (y) a no dividend instruction was not
delivered and they are not limited by the distributable profit
limitation.
“nondefinitive dividends”means, as to a
dividend payment date and related dividend period, dividends
that are not definitive dividends.
If UBS AG is liquidated, whether voluntarily or involuntarily,
(i) each UBS Preferred Funding Company will be liquidated
and (ii) under each UBS AG Subordinated Guarantee
Agreement, the holders of related company preferred securities
(whether through a UBS Preferred Funding Trust or as direct
holders who have withdrawn their company preferred securities
from a UBS Preferred Funding Trust) will have a claim entitling
them to substantially the same liquidating distributions in the
liquidation of UBS AG that they would have been entitled to if
they had purchased preferred shares of UBS AG having an
aggregate liquidation preference equal to the aggregate
liquidation preference of their company preferred securities and
bearing dividends at the rate of dividends applicable to such
company preferred securities. Each UBS AG Subordinated Guarantee
Agreement and the related UBS Preferred Funding Company’s
LLC Agreement, taken together, provide that the holders of
company preferred securities may not receive liquidating
distributions in a liquidation of the relevant UBS Preferred
Funding Company and payments under the UBS AG subordinated
guarantee that, taken together, exceed the liquidating
distributions to which they would have been entitled had they
instead owned preferred shares of UBS AG with equivalent terms
as described above.
Voting Rights
Except as expressly required by applicable law, or except as
indicated below, the holders of company preferred securities
will not be entitled to vote. Unless otherwise specified in the
applicable prospectus supplement, if the holders of company
preferred securities of any UBS Preferred Funding Company are
entitled to vote as indicated below, each USD25 or USD1000, as
the case may be, liquidation preference of company preferred
securities will be entitled to one vote on matters on which the
holders of such company preferred securities are entitled to
vote. If at any time the aggregate of unpaid dividends for any
UBS Preferred Funding Company equals or exceeds the number of
regularly scheduled dividend payments, specified in the
applicable prospectus supplement, the holders of company
preferred securities and any company parity preferred securities
of such UBS Preferred Funding Company, voting together as a
single class, will have the exclusive right to elect two
additional directors of their choosing. Holders of a majority
(based on the aggregate liquidation preference) of company
preferred securities and any company parity preferred securities
of such UBS Preferred Funding Company may exercise this right by
written consent or at a meeting of such holders called for such
purpose. This right will continue either until all unpaid
dividends have been paid in full or until full dividends have
been paid on the relevant company preferred securities for the
number of consecutive dividend periods specified in the
prospectus supplement. While this right continues, any
32
Description of Company Preferred Securities
vacancy in the office of the additional directors may be filled
only by the holders of company preferred securities and company
parity preferred securities voting as described above.
Each UBS Preferred Funding Company’s LLC Agreement will
provide that a meeting will be called at the request of holders
of 25% (based on the aggregate liquidation preference) of its
company preferred securities and any company parity preferred
securities.
As long as any of its company preferred securities are
outstanding, no UBS Preferred Funding Company may, without the
consent or vote of holders of at least
662/3
% of its outstanding company preferred securities and
company parity preferred securities, if any (based on the
aggregate liquidation preference), voting together as a single
class:
•
change or remove any provision of such UBS Preferred Funding
Company’s LLC Agreement (including the terms of its company
preferred securities), issue any company parity preferred
securities, redeem or repurchase any company common securities,
or consent to a change in the booking location of the issuance
of the related subordinated notes to a branch or other office of
UBS AG other than the Cayman Islands branch of UBS AG, in each
case, if such action would materially and adversely affect the
rights, preferences, powers or privileges of its company
preferred securities and such company parity preferred
securities,
•
to the fullest extent permitted by law, liquidate, dissolve or
terminate such UBS Preferred Funding Company without the
concurrent liquidation of UBS AG,
•
amend or modify such UBS Preferred Funding Company’s
investment policies, or
•
merge, convert, consolidate, reorganize or effect any other
business combination involving such UBS Preferred Funding
Company, unless the resulting entity will have no class or
series of equity securities either authorized or outstanding
that ranks ahead of its company preferred securities as to
dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, except the same number of shares of
such equity securities with the same preferences, conversion or
other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications or terms or
conditions or redemption as the shares of equity securities of
such UBS Preferred Funding Company that are authorized and
outstanding immediately prior to such transaction, and each
holder of its company preferred securities immediately prior to
such transaction shall receive securities with the same
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions or
redemption of the resulting entity as the company preferred
securities held by such holder immediately prior to the
transaction.
As long as any of its company preferred securities are
outstanding, no UBS Preferred Funding Company will be permitted,
without the consent of the holders of each outstanding company
preferred security, authorize, create or increase the authorized
amount of, or issue any class or series of, any equity
securities of such UBS Preferred Funding Company, or any
warrants, options or other rights convertible or exchangeable
into any class or series of any equity securities of such UBS
Preferred Funding Company, ranking prior to its company
preferred securities, either as to dividend rights or rights on
dissolution, liquidation or winding up of such UBS Preferred
Funding Company.
Notwithstanding any of the foregoing, without consent of any
holder of company preferred securities, UBS AG will be permitted
to amend or supplement the UBS AG Subordinated Guarantee
Agreements to correct or supplement any provision in the UBS AG
Subordinated Guarantee Agreements which may be defective or
inconsistent with any other provision therein, or to make any
other provisions with respect to matters or questions arising
under the UBS AG Subordinated Guarantee Agreements, so long as
any such action shall not materially adversely affect the
interests of the holders of the related company preferred
securities. See “Description of UBS AG Subordinated
Guarantees—Amendments.”
33
Description of Company Preferred Securities
Notwithstanding the foregoing, without the consent of any holder
of company preferred securities, UBS AG will be permitted to
amend or supplement any UBS Preferred Funding Company’s LLC
Agreement:
•
to correct or supplement any provision in a UBS Preferred
Funding Company’s LLC Agreement which may be defective or
inconsistent with any other provision therein, or to make any
other provisions with respect to matters or questions arising
under a UBS Preferred Funding Company’s LLC Agreement, so
long as any such action shall not materially adversely affect
the interests of the holders of company preferred securities of
such UBS Preferred Funding Company, or
•
to cure any ambiguity or correct any mistake.
Redemption
No company preferred securities will be redeemable before the
date specified in the applicable prospectus supplement unless a
Tax Event, an Investment Company Act Event or a Capital Event
occurs, in which case each UBS Preferred Funding Company may
redeem its company preferred securities in whole (but not in
part) at any time on not less than 30 nor more than
60 days’ notice. On or after the date specified in the
applicable prospectus supplement, any UBS Preferred Funding
Company will be permitted to redeem its company preferred
securities for cash, in whole or in part, on not less than 30
nor more than 60 days’ notice.
Unless otherwise stated in the applicable prospectus supplement,
the redemption price for such optional redemptions on or after
the date specified in the applicable prospectus supplement and
for redemptions arising from a Tax Event, an Investment Company
Act Event or a Capital Event will be:
•
100% of the liquidation preference of the company preferred
securities being redeemed, plus
•
an amount equal to unpaid dividends, if any, on the company
preferred securities with respect to the current dividend period
(whether or not declared) accrued on a daily basis to the date
fixed for redemption, plus
•
an amount equal to unpaid definitive dividends for any prior
dividend period, without interest and without accumulation of
unpaid nondefinitive dividends for any prior dividend period.
The applicable prospectus supplement may provide that the
redemption price for a redemption arising out of a Tax Event
resulting from a Change in Tax Law (as defined below) and
relating to the:
•
imposition of tax on UBS Preferred Funding Trust or UBS Funding
Company, or
•
the imposition of withholding tax on UBS Preferred Funding
Company’s payment of dividends on the company preferred
securities, on UBS Preferred Funding Trust’s payment of
dividends on the trust preferred securities, on UBS AG’s
payment of interest on the subordinated notes or on UBS
AG’s payment under the subordinated guarantee
(which are the events described in clauses (A), (B) and (C)
of the definition of “Tax Event”) will be the
redemption price described above and that the redemption price
for all other redemptions arising out of a Tax Event resulting
from a Change in Tax Law will be:
•
the Make Whole Amount (as defined below), plus
•
an amount equal to unpaid dividends, if any, on the company
preferred securities with respect to the current dividend period
(whether or not declared) accrued on a daily basis to the date
fixed for redemption, plus
34
Description of Company Preferred Securities
•
an amount equal to unpaid definitive dividends for any prior
dividend period, without interest and without accumulation of
unpaid nondefinitive dividends for any prior dividend period.
To the extent provided for in the applicable prospectus
supplement, UBS Preferred Funding Company will have, until the
dividend payment date specified in the applicable prospectus
supplement after the occurrence of a Tax Event, an Investment
Company Act Event or a Capital Event, the right to redeem the
company preferred securities.
Any redemption of company preferred securities will have to
comply with applicable regulatory requirements, including the
prior approval of the Swiss Federal Banking Commission if then
required under applicable guidelines or policies of the Swiss
Federal Banking Commission. The Swiss Federal Banking Commission
in its discretion may impose conditions on its approval of any
proposed redemption of company preferred securities. If
dividends on any company preferred securities of a UBS Preferred
Funding Company are unpaid, no company preferred securities of
such UBS Preferred Funding Company may be redeemed unless all
its outstanding company preferred securities are redeemed, and
no UBS Preferred Funding Company may purchase or otherwise
acquire any of its company preferred securities, except pursuant
to a purchase or exchange offer made on the same terms to the
holders of all of its outstanding company preferred securities.
Company preferred securities will not be subject to any sinking
fund or mandatory redemption and will not be convertible into
any other securities of the relevant UBS Preferred Funding
Company or any securities of UBS AG.
“Change in Tax Law” means the receipt by UBS AG
of an opinion of a nationally recognized law firm or other tax
advisor (which may be an accounting firm) in Switzerland, the
United States or the Cayman Islands, as appropriate, experienced
in such matters to the effect that an event of the type descried
in clause (A), (B) or (C) of the definition of “Tax
Event” has occurred or will occur as a result of
(i) any amendment to, clarification of, or change
(including any announced prospective change) in, the laws or
treaties (or any regulations under any laws or treaties) of the
United States, Switzerland or the Cayman Islands or any
political subdivision or taxing authority of or in the United
States, Switzerland or the Cayman Islands affecting taxation or
(ii) any administrative action or any amendment to,
clarification of, or change in the official position of or UBS
AG interpretation of any administrative action or any
interpretation or pronouncement that provides for a position
with respect to any administrative action or any interpretation
or pronouncement that provides for a position with respect to
any administrative action that differs from the previously
generally accepted position, in each case, by any legislative
body, court, governmental authority or regulatory body,
regardless of the manner in which such amendment, clarification,
change, interpretation or pronouncement is made known, which
amendment, clarification, change or administrative action is
effective or which interpretation or pronouncement is announced
on or after the date of issuance of the company preferred
securities.
“Make Whole Amount” as applied to a redemption
of the company preferred securities means the greater of
(i) 100% of the liquidation preference of the company
preferred securities and (ii) as determined by a quotation
agent (as defined below), the sum of the present value of the
liquidation preference of the company preferred securities
together with the present values of scheduled payments of
dividends accrued from the date of redemption to the dividend
payment date specified in the applicable prospectus supplement
(the “remaining life”), in each case discounted to the
date of redemption on a semi-annual basis (assuming a
360-day consisting of
twelve 30-day months)
at the adjusted treasury rate.
35
Description of Company Preferred Securities
For purposes of determining the Make Whole Amount:
“adjusted treasury rate” means, with respect to
any redemption date, the treasury rate plus a spread as
described in the applicable prospectus supplement.
As long as any company preferred securities of a UBS Preferred
Funding Company are outstanding, other company parity preferred
securities of such UBS Preferred Funding Company may not be
redeemed or repurchased unless such UBS Preferred Funding
Company concurrently redeems an approximately equal proportion
of the aggregate liquidation preference of its outstanding
company preferred securities or each rating agency then rating
its company preferred securities informs such UBS Preferred
Funding Company in writing that the redemption or repurchase of
such company parity preferred securities would not result in a
reduction or withdrawal of the rating then assigned by that
rating agency to its company preferred securities.
If fewer than all outstanding company preferred securities of a
UBS Preferred Funding Company are to be redeemed, the amount of
the company preferred securities of such UBS Preferred Funding
Company to be redeemed will be determined by the board of
directors of such UBS Preferred Funding Company, and the
securities to be redeemed will be determined by lot or pro
rata as the board of directors in its sole discretion
determines to be equitable. The relevant UBS Preferred Funding
Company will promptly notify the registrar and transfer agent
for its company preferred securities in writing of the
securities selected for redemption and, in the case of any
partial redemption, the liquidation preference to be redeemed.
Any company preferred securities redeemed will be canceled.
There will be no prescription period in respect of uncollected
dividends on company preferred securities.
As used in this prospectus:
“Administrative action”means any judicial
decision, official administrative pronouncement, published or
private ruling, regulatory procedure, notice or announcement
(including any notice or announcement of intent to adopt such
procedures or regulations) by any legislative body, court,
governmental authority or regulatory body having appropriate
jurisdiction.
“Capital Event”means, with respect to any UBS
Preferred Funding Company, the determination by UBS AG after
consultation with the Swiss Federal Banking Commission that its
company preferred securities cannot be included in calculating
the Tier 1 capital of UBS AG on a consolidated basis.
“Comparable Treasury Issue”means with respect
to any redemption date the United States Treasury security
selected by the quotation agent as having a maturity comparable
to the remaining life that would be utilized, at the time of
selection and in accordance with customary financial practice,
in pricing new issues of corporate debt securities of comparable
maturity to the remaining life. If no United States Treasury
security has a maturity that is within a period from three
months before to three months after the interest payment date
and dividend payment date specified in the applicable prospectus
supplement, the two most closely corresponding United States
Treasury securities will be used as the comparable treasury
issue, and the treasury rate will be interpolated or
extrapolated on a straight-line basis, rounding to the nearest
month using such securities.
“Comparable Treasury Price”means (A) the
average of five reference treasury dealer quotations for such
redemption date, after excluding the highest and lowest of such
reference treasury dealer quotations, or (B) if the
quotation agent obtains fewer than five such reference treasury
dealer quotations, the average of all such quotations.
36
Description of Company Preferred Securities
“quotation agent”means UBS Securities LLC and
its successors, except that if UBS Securities LLC ceases to be
primary U.S. Government securities dealer in New York City
(a “primary treasury dealer”), UBS Preferred Funding
Company will designate another primary treasury dealer.
“Reference Treasury Dealer”means (i) the
quotation agent and (ii) any other primary treasury dealer
selected by the quotation agent after consultation with the
relevant UBS Preferred Funding Company.
“Reference Treasury Dealer Quotations”means,
with respect to each reference treasury dealer and any
redemption date, the average, as determined by the quotation
agent, of the bid and asked prices for the comparable treasury
issue (expressed in each case as a percentage of its principal
amount) quoted in writing to the quotation agent by such
reference treasury dealer at 5:00 p.m., New York City time,
on the third business day preceding such redemption date.
“Treasury Rate”means (i) the yield, under
the heading which represents the average for the week
immediately prior to the redemption date, appearing in the most
recently published statistical release designated
“H.15(519)” or any successor publication which is
published weekly by the Federal Reserve and which established
yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption “Treasury
Constant Maturities,” for the maturity corresponding to the
remaining life (or, if no maturity is within three months before
or after the remaining life, yields for the two published
maturities most closely corresponding to the remaining life will
be determined and the treasury rate will be interpolated or
extrapolated from such yields on a straight-line basis, rounding
to the nearest month) or (ii) if such release (or any
successor release) is not published during the week preceding
the calculation date or does not contain such yields, the rate
per annum equal to the semi-annual equivalent yield to maturity
of the comparable treasury issue, calculated using a price for
the comparable treasury issue (expressed as a percentage of its
principal amount) equal to the comparable treasury price for
such redemption date. The treasury rate will be calculated on
the third business day preceding the redemption date.
“Investment Company Act Event”means, with
respect to any UBS Preferred Funding Company, the receipt by UBS
AG of an opinion of a nationally recognized law firm in the
United States experienced in such matters to the effect that
there is more than an insubstantial risk that such UBS Preferred
Funding Company or the related UBS Preferred Funding Trust is an
“investment company” within the meaning of the
Investment Company Act of 1940.
“Tax Event”means, with respect to any UBS
Preferred Funding Company, the receipt by UBS AG of an opinion
of a nationally recognized law firm or other tax advisor (which
may be an accounting firm) in Switzerland or the United States,
as appropriate, experienced in such matters to the effect that
there is more than an insubstantial risk that (A) such UBS
Preferred Funding Company or the related UBS Preferred Funding
Trust is or will be subject to more than a de minimis
amount of additional taxes, duties or other governmental
charges, (B) UBS AG is or will be required to pay any
additional amounts in respect of any taxes, duties or other
governmental charges with respect to payments of interest or
principal on the related subordinated notes and with respect to
any payments on the related trust preferred securities,
(C) such UBS Preferred Funding Company is or will be
required to pay any additional amounts in respect of any taxes,
duties or other governmental charges with respect to payments of
dividends on its company preferred securities or the related UBS
Preferred Funding Trust is or will be required to pay any
additional amounts in respect of any taxes, duties or other
governmental charges with respect to distributions on its trust
preferred securities, or (D) the treatment of any of such
UBS Preferred Funding Company’s items of income, gain,
loss, deduction or expense, or the treatment of any item of
income, gain, loss, deduction or expense of UBS AG related to
the related subordinated notes or its ownership of such UBS
Preferred Funding Company, in each case as reflected on the
37
Description of Company Preferred Securities
tax returns (including estimated returns) filed (or to be filed)
by such UBS Preferred Funding Company or UBS AG, will not be
respected by a taxing authority, as a result of which such UBS
Preferred Funding Company or UBS AG is or will be subject to
more than a de minimis amount of additional taxes, duties
or other governmental charges or civil liabilities, the effect
of which cannot be avoided by such UBS Preferred Funding Company
or UBS AG taking reasonable measures available to it without any
adverse effect on or material cost to UBS AG or such UBS
Preferred Funding Company (as determined by UBS AG in its sole
discretion).
Registrar and Transfer Agent
Wilmington Trust Company, or any other entity that UBS AG
designates, will act as registrar and transfer agent for the
company preferred securities.
Registration of transfers of company preferred securities will
be effected without charge by or on behalf of the relevant UBS
Preferred Funding Company, but upon payment of any tax or other
governmental charges that may be imposed in connection with any
transfer or exchange. No UBS Preferred Funding Company will be
required to register or cause to be registered the transfer of
its company preferred securities after such company preferred
securities have been called for redemption.
The LLC Agreement of each UBS Preferred Funding Company will
provide that, in the event of a partial redemption of its
company preferred securities that would result in a delisting of
the related trust preferred securities from any securities
exchange on which such trust preferred securities are then
listed, such UBS Preferred Funding Company will redeem its
company preferred securities in whole.
Notices
Notices to the holders of company preferred securities will be
mailed by first-class mail, postage prepaid, to the
holders’ addresses appearing in the relevant UBS Preferred
Funding Company’s records.
Governing Law
The LLC Agreement of each UBS Preferred Funding Company and the
company preferred securities are governed by the laws of the
State of Delaware.
Nature of the Trading Market
The company preferred securities will not be listed on any
national exchange or traded in any established market.
38
Book-Entry Issuance of Trust Preferred Securities
The trust preferred securities will initially be issued to
investors only in book-entry form. The total aggregate amount of
trust preferred securities of each UBS Preferred Funding Trust
will be represented by permanent global securities in fully
registered form (each, a “global certificate”) and
deposited with a custodian for, and registered in the name of
The Depository Trust Company (“DTC”) or its nominee.
Except as provided in the applicable prospectus supplement, the
global certificates will initially be deposited with Wilmington
Trust Company, as the custodian for DTC, and registered in the
name of Cede & Co., as the nominee of DTC.
Except as described below, the global certificates may be
transferred, in whole and not in part, only to another nominee
of DTC or a successor of DTC or its nominee. Beneficial
interests in the global certificates may not be exchanged for
trust preferred securities in certificated form except in the
limited circumstances described below.
Persons that acquire beneficial ownership interests in any
global certificate will hold their interests through either
(i) DTC in the United States or (ii) Clearstream
Banking or the Euroclear System in Europe if such persons are
participants in those systems, or indirectly through
organizations that are participants in those systems.
Clearstream and Euroclear will hold omnibus positions on behalf
of their participants through customers’ securities
accounts in Clearstream’s and Euroclear’s names on the
books of their respective depositaries, which in turn will hold
those positions in customers’ securities accounts in the
depositaries’ names on the books of DTC. Unless and until
certificated securities are issued, the only “holder”
of any trust preferred securities will be Cede & Co.,
as nominee of DTC, or the nominee of a successor depositary.
Beneficial owners will be permitted to exercise their rights
only indirectly through DTC, Clearstream, Euroclear and their
participants.
Withdrawal of Related Company Preferred Securities
Represented by Trust Preferred Securities
Any beneficial owner of trust preferred securities may withdraw
and hold directly a corresponding amount of related company
preferred securities as described under “Description of
Trust Preferred Securities—Withdrawal of Company Preferred
Securities.” Within a reasonable period after such request
has been properly made, the trustee of the relevant UBS
Preferred Funding Trust will instruct DTC to reduce the number
of trust preferred securities represented by the relevant global
certificate by the amount of related company preferred
securities to be so withdrawn by the withdrawing owner.
Company preferred securities that are withdrawn will be issued
only in definitive, fully-registered form and will not be
eligible to be held through DTC, Euroclear or Clearstream, and
under current law the holders of such company preferred
securities will receive an annual
Form K-1 instead
of the Form 1099 that is received by the holders of trust
preferred securities. See “U.S. Tax Considerations—
Information Reporting and Backup Withholding Tax.”
Any holder of company preferred securities may redeposit its
company preferred securities as described under
“Description of Trust Preferred Securities—Withdrawal
of Company Preferred Securities.” Within a reasonable
period after such deposit is properly made, the trustee of the
relevant UBS Preferred Funding Trust will instruct DTC to
increase the number of trust preferred securities represented by
the relevant global certificate accordingly.
The Depository Trust Company
The Depository Trust Company, or DTC, is a limited-purpose trust
company organized under the New York Banking Law, a
“banking organization” within the meaning of the New
York Banking Law, a
39
Book-Entry Issuance of Trust Preferred Securities
member of the Federal Reserve System, a “clearing
corporation” within the meaning of the New York Uniform
Commercial Code, and a “clearing agency” registered
pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934.
DTC holds securities that its participants deposit with DTC. DTC
also facilitates the settlement among its participants of
securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry
changes in its participants’ accounts, eliminating the need
for physical movement of securities certificates. Participants
in DTC include Clearstream and Euroclear, securities brokers and
dealers, banks, trust companies, clearing corporations and
certain other organizations.
DTC is owned by a number of its participants and by the New York
Stock Exchange, the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to DTC
is also available to others, such as securities brokers and
dealers, banks and trust companies, that clear through or
maintain a custodial relationship with a DTC participant, either
directly or indirectly. The rules applicable to DTC and its
participants are on file with the SEC.
Clearstream Banking
Clearstream Banking, société anonyme, or
Clearstream, is incorporated under the laws of Luxembourg as a
professional depositary. Clearstream holds securities for its
participating organizations and facilitates the clearance and
settlement of securities transactions between its participants
through electronic book-entry changes in accounts of its
participants, eliminating the need for physical movement of
certificates. Transactions may be settled in Clearstream in any
of 28 currencies, including U.S. dollars.
Clearstream provides to its participants, among other things,
services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities
lending and borrowing. Clearstream interfaces with domestic
markets in several countries. As a professional depositary,
Clearstream is subject to regulation by the Luxembourg Monetary
Institute. Clearstream participants are recognized financial
institutions around the world, including securities brokers and
dealers, banks, trust companies, clearing corporations and
certain other organizations. Indirect access to Clearstream is
also available to others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial
relationship with a Clearstream participant, either directly or
indirectly.
Euroclear System
Euroclear was created in 1968 to hold securities for its
participants and to clear and settle transactions between its
participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. The Euroclear System is owned
by Euroclear Clearance System Public Limited Company (ECS plc)
and operated through a license agreement by Euroclear Bank
S.A./N.V., a bank incorporated under the laws of the Kingdom of
Belgium (the “Euroclear Operator”).
The Euroclear Operator holds securities and book-entry interests
in securities for participating organizations and facilitates
the clearance and settlement of securities transactions between
Euroclear participants, and between Euroclear participants and
participants of certain other securities intermediaries through
electronic book-entry changes in accounts of such participants
or other securities intermediaries.
The Euroclear Operator provides Euroclear participants, among
other things, with safekeeping, administration, clearance and
settlement, securities lending and borrowing, and related
services.
40
Book-Entry Issuance of Trust Preferred Securities
Non-participants of Euroclear may hold and transfer book-entry
interests in the securities through accounts with a direct
participant of Euroclear or any other securities intermediary
that holds a book-entry interest in the securities through one
or more securities intermediaries standing between such other
securities intermediary and Euroclear Operator.
Securities clearance accounts and cash accounts with the
Euroclear Operator are governed by the Terms and Conditions
Governing Use of Euroclear and the related Operating Procedures
of the Euroclear System, collectively, the Euroclear Terms and
Conditions, and applicable Belgian law. The Euroclear Terms and
Conditions govern transfers of securities and cash within
Euroclear, withdrawals of securities and cash from Euroclear,
and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible
basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under
the Euroclear Terms and Conditions only on behalf of Euroclear
participants, and has no record of or relationship with persons
holding through Euroclear participants.
Participants and Beneficial Owners
Purchases of trust preferred securities within the DTC system
must be made by or through DTC participants, which will receive
a credit for the trust preferred securities on DTC’s
records and on the records of Clearstream or Euroclear, if
applicable. The ownership interest of each actual purchaser of
trust preferred securities, which is that of a beneficial owner
of an interest in a global certificate, is in turn to be
recorded on the DTC participants’ and indirect
participants’ records.
Beneficial owners of interests in a global certificate will not
receive written confirmation from DTC of their purchases, but
beneficial owners of an interest in a global certificate are
expected to receive written confirmations providing details of
the transactions, as well as periodic statements of their
holdings, from the DTC participants or indirect participants
through which the beneficial owners of an interest in a global
certificate purchased their ownership interests in the relevant
trust preferred securities. Transfers of ownership interests in
trust preferred securities will be accomplished by entries made
on the books of DTC participants and indirect participants
acting on behalf of beneficial owners of an interest in a global
certificate. Beneficial owners of interests in a global
certificate will not receive certificates representing their
ownership interests in the relevant trust preferred securities,
unless use of the book-entry system for such trust preferred
securities is discontinued.
Transfers Among DTC, Clearstream and Euroclear
Transfers between DTC participants will occur in accordance with
the rules of DTC. Transfers between Clearstream and Euroclear
participants will occur in accordance with their respective
rules and operating procedures.
Cross-market transfers between persons holding directly or
indirectly through DTC, on the one hand, and directly or
indirectly through Clearstream or Euroclear participants, on the
other, will be effected in DTC in accordance with the rules of
DTC on behalf of the relevant European international clearing
system by the relevant European depositary. However, those
cross-market transactions will require delivery of instructions
to the relevant European international clearing system by the
counterparty in that system in accordance with its rules and
procedures and within its established deadlines, European time.
The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver
instructions to the relevant European depositary to take action
to effect final settlement on its behalf by delivering or
receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement
applicable to DTC. Clearstream and Euroclear participants may
not deliver instructions directly to the European depositaries.
41
Book-Entry Issuance of Trust Preferred Securities
Because of time zone differences, credits of trust preferred
securities received in Clearstream or Euroclear as a result of a
transaction with a person that does not hold trust preferred
securities through Clearstream or Euroclear will be made during
subsequent securities settlement processing and dated the
business day following the DTC settlement date. Those credits or
any transactions in those securities settled during that
processing will be reported to the relevant Euroclear or
Clearstream participants on that business day. Cash received in
Clearstream or Euroclear as a result of sales of trust preferred
securities by or through a Clearstream or Euroclear participant
to a DTC participant will be received with value on the DTC
settlement date, but will be available in the relevant
Clearstream or Euroclear cash account only as of the business
day following settlement in DTC.
Limitations on Responsibilities of DTC, Clearstream and
Euroclear
DTC, Clearstream and Euroclear have no knowledge of the actual
beneficial owners of interests in a global certificate
representing trust preferred securities. DTC’s records
reflect only the identity of the DTC participants, including
Clearstream and Euroclear, to whose accounts those trust
preferred securities are credited, which may or may not be the
beneficial owners of interests in a global certificate.
Similarly, the records of Clearstream and Euroclear reflect only
the identity of the Clearstream or Euroclear participants to
whose accounts those trust preferred securities are credited,
which also may or may not be the beneficial owners of interests
in a global certificate. DTC, Clearstream and Euroclear
participants and indirect participants will remain responsible
for keeping account of their holdings on behalf of their
customers.
DTC’s Procedures for Notices, Voting and Payments
So long as DTC, or its nominee, is the registered owner or
holder of a global certificate, DTC or that nominee, as the case
may be, will be considered the sole owner or holder of trust
preferred securities represented by the global certificate for
all purposes under the relevant Amended and Restated Trust
Agreement. No beneficial owner of an interest in a global
certificate will be able to transfer that interest except in
accordance with DTC’s applicable procedures, in addition to
those provided for under the relevant Amended and Restated Trust
Agreement.
DTC has advised UBS AG, as provider of the UBS AG subordinated
guarantees, that it will take any action permitted to be taken
by a holder of relevant trust preferred securities, including
the presentation of trust preferred securities for exchange as
described below, only at the direction of one or more of its
participants to whose account the DTC interests in the global
certificates are credited and only in respect of that portion of
the aggregate liquidation amount of trust preferred securities
as to which that participant or participants has or have given
the direction.
Conveyance of notices and other communications by DTC to its
participants, by those participants to its indirect
participants, and by participants and indirect participants to
beneficial owners of interests in a global certificate will be
governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
The relevant trustee will send redemption notices in respect of
trust preferred securities held in book-entry form to Cede &
Co., and will also give those notices in the manner indicated
under “Description of Trust Preferred Securities—
Notices.” If less than all the trust preferred securities
of any UBS Preferred Funding Trust are being redeemed, DTC will
determine the amount of the interest of each DTC participant to
be redeemed in accordance with its procedures.
Although voting with respect to trust preferred securities is
limited, in those cases where a vote is required, neither DTC
nor Cede & Co. will itself consent or vote with respect to
such trust preferred securities. Under its usual procedures, DTC
will mail an Omnibus Proxy to the relevant UBS Preferred Funding
Trust as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.’s
42
Book-Entry Issuance of Trust Preferred Securities
consenting or voting rights of those participants to whose
accounts such trust preferred securities are allocated on the
record date identified in a listing attached to the Omnibus
Proxy.
Distributions on trust preferred securities held in book-entry
form will be made to DTC in immediately available funds.
DTC’s practice is to credit its participants’ accounts
on the relevant payment date in accordance with their respective
holdings shown on DTC’s records unless DTC has reason to
believe that it will not receive payments on that payment date.
Payments by DTC’s participants and indirect participants to
beneficial owners of interests in a global certificate will be
governed by standing instructions and customary practices. Such
payments will be the responsibility of those participants and
indirect participants and not of DTC, the relevant UBS Preferred
Funding Trust or UBS AG, as the guarantor, subject to any
statutory or regulatory requirements that may be in effect from
time to time. Payment of any dividends or other amounts to DTC
is the responsibility of the relevant UBS Preferred Funding
Trust, disbursement of such payments to participants is the
responsibility of DTC, and disbursement of those payments to the
beneficial owner of an interest in a global certificate is the
responsibility of participants and indirect participants.
Except as described in this prospectus, a beneficial owner of an
interest in a global certificate will not be entitled to receive
physical delivery of the trust preferred securities.
Accordingly, each beneficial owner of an interest in a global
certificate must rely on the procedures of DTC to exercise any
rights under its trust preferred securities.
Termination of and Changes to Depositary Arrangements
A global certificate is exchangeable for trust preferred
securities in registered certificated form if DTC:
•
notifies the relevant UBS Preferred Funding Trust that it is
unwilling or unable to continue as depositary for the global
certificates and such UBS Preferred Funding Trust does not
appoint a successor depositary, or
•
has ceased to be a clearing agency registered under the
Securities Exchange Act of 1934.
Although DTC, Clearstream and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of
interests in the global certificates among participants, none is
under any obligation to perform or continue to perform those
procedures, and those procedures may be discontinued at any
time. Neither UBS AG nor any UBS Preferred Funding Trust will
have any responsibility for the performance by DTC, Clearstream,
Euroclear or their participants or indirect participants under
the rules and procedures governing them. DTC, Clearstream or
Euroclear may discontinue providing its services as securities
depositary with respect to any trust preferred securities at any
time by giving notice to the relevant UBS Preferred Funding
Trust. Under those circumstances, definitive trust preferred
security certificates with respect to such trust preferred
securities would be delivered as described under
“Description of Trust Preferred Securities— Transfer
and Issue of Definitive Trust Preferred Securities.”
Limitations on Rights Resulting from Book-Entry Form
The laws of some jurisdictions require that certain purchasers
of securities take physical delivery of securities in definitive
form. These laws may impair the ability to transfer beneficial
interests in the global trust preferred securities as
represented by a global certificate.
43
Description of UBS AG Subordinated Guarantees
At or prior to the issuance of any trust preferred securities
and the related company preferred securities, UBS AG and
Wilmington Trust Company, as guarantee trustee, will execute the
related UBS AG Subordinated Guarantee Agreements. We will
qualify the UBS AG Subordinated Guarantee Agreements as
indentures under the Trust Indenture Act. The terms of the UBS
AG subordinated guarantees will include both those stated in the
UBS AG Subordinated Guarantee Agreements and those made part of
the UBS AG Subordinated Guarantee Agreements by the Trust
Indenture Act. The following summary of the material terms and
provisions of the UBS AG subordinated guarantees is not complete
and is subject to, and qualified in its entirety by reference
to, the UBS AG Subordinated Guarantee Agreements and the Trust
Indenture Act. We have filed a copy of a form of UBS AG
Subordinated Guarantee Agreement as an exhibit to the
registration statement of which this prospectus is a part.
Guaranteed Obligations
In each UBS AG Subordinated Guarantee Agreement, UBS AG will,
subject to the capital limitations, and as further provided
herein, unconditionally guarantee, on a subordinated basis, the
payment by the related UBS Preferred Funding Company of the
following, without duplication:
•
any dividends on the related company preferred securities that
are due and payable on any mandatory dividend payment date in an
amount equal to the mandatory dividend payment;
•
any discretionary dividends on the related company preferred
securities that become definitive because UBS AG does not
deliver a no dividend instruction;
•
the redemption price payable with respect to any related company
preferred securities called for redemption by the relevant UBS
Preferred Funding Company;
•
the liquidating distribution on each related company preferred
security payable upon liquidation of the relevant UBS Preferred
Funding Company; and
•
any additional amounts payable by the relevant UBS Preferred
Funding Company as described under “Description of Company
Preferred Securities— Additional Amounts.”
Subject to the subordination provisions described below, UBS AG
will be obligated to make such payments as and when due,
regardless of any defense, right of set-off or counterclaim that
the relevant UBS Preferred Funding Company may have or assert,
other than the defense of payment, and whether or not the
relevant UBS Preferred Funding Company has legally available
funds for the guaranteed payments. UBS AG’s obligations
under the UBS AG Subordinated Guarantee Agreements are several
and independent of the obligations of each relevant UBS
Preferred Funding Company with respect to its company preferred
securities.
See “Description of Company Preferred Securities—
Dividends” for a description of circumstances when dividend
on company preferred securities are mandatory, “Description
of Company Preferred Securities— Redemption” for a
description of the company preferred securities’ redemption
provisions, and “Description of Company Preferred
Securities— Ranking and Liquidation Preference” for a
description of the liquidation claim to which the holders are
entitled in a liquidation of any UBS Preferred Funding Company.
44
Description of UBS AG Subordinated Guarantees
Subordination
Each UBS AG subordinated guarantee will be a general and
unsecured obligation of UBS AG and, in liquidation of UBS AG,
will rank, both as to payment and in liquidation:
•
subordinate and junior to all deposits and other liabilities
(including those in respect of bonds, notes and debentures of
UBS AG) that do not expressly rank equally with the obligations
of UBS AG under the relevant UBS AG Subordinated Guarantee
Agreement, and
•
senior to the ordinary shares of UBS AG and any other securities
or shares of UBS AG expressed to rank junior to the most senior
preference shares of UBS AG (if any) from time to time
outstanding.
The foregoing liabilities that rank senior to the UBS AG
subordinated guarantees are collectively called “UBS AG
senior liabilities.”
Payments under the UBS AG subordinated guarantees (other than
payments upon a winding-up or dissolution, by bankruptcy or
otherwise, in Switzerland of UBS AG as provided below) will be
conditional upon UBS AG not being in default in the payment of
UBS AG senior liabilities and being solvent at the time of
payment. A report as to the insolvency of UBS AG by two persons,
each being a managing director, director or other authorized
officer or agent of UBS AG or employees of the independent
accountants of UBS AG will, in the absence of manifest error be
treated and accepted by UBS AG, the holders of company preferred
securities and all other interested parties as correct and
sufficient evidence thereof.
If UBS AG is liquidated, whether voluntarily or involuntarily,
(i) each UBS Preferred Funding Company will be liquidated
and (ii) under the UBS AG Subordinated Guarantee
Agreements, the holders of related company preferred securities
(whether through a UBS Preferred Funding Trust or as direct
holders who have withdrawn their related company preferred
securities from a UBS Preferred Funding Trust) will have a claim
entitling them to substantially the same liquidating
distributions in the liquidation of UBS AG that they would have
been entitled to if they had purchased preferred shares of UBS
AG having an aggregate liquidation preference equal to the
aggregate liquidation preference of their related company
preferred securities and bearing dividends at the rate of
dividends applicable to their related company preferred
securities. Each UBS AG Subordinated Guarantee Agreement and
each related UBS Preferred Funding Company’s LLC Agreement,
taken together, will provide that the holders of company
preferred securities of the relevant UBS Preferred Funding
Company will not receive liquidating distributions in a
liquidation of such UBS Preferred Funding Company and payments
under the related UBS AG subordinated guarantee that, taken
together, exceed the liquidating distributions to which they
would have been entitled had they instead owned noncumulative
perpetual preferred shares of UBS AG with equivalent terms as
described above.
The subordination provisions set out above will be irrevocable.
UBS AG will not be permitted to create or permit to exist any
charge or other security interest over its assets to secure its
obligations in respect of the UBS AG subordinated guarantees.
The obligations of UBS AG in respect of the UBS AG subordinated
guarantees will be, prior to the winding up or dissolution of
UBS AG, conditional upon UBS AG being solvent immediately before
and after payment by the Cayman Islands branch. If this
condition is not satisfied, any amounts that might otherwise
have been allocated in or towards payment in respect of a UBS AG
subordinated guarantee will be used to absorb losses of UBS AG.
The Swiss Federal Banking Commission has the right to impose
protective or development measures and finally to impose the
liquidation of UBS AG in case of danger of insolvency pursuant
to Article 25 et seq. of the Swiss Banking Law.
45
Description of UBS AG Subordinated Guarantees
As used in this prospectus and the applicable prospectus
supplement:
“assets”means the consolidated gross assets of
UBS AG.
“liabilities”means the consolidated gross
liabilities of UBS AG, all as shown by the latest published
audited consolidated balance sheet of UBS AG as adjusted for
contingencies and for subsequent events, all valued in such
manner as UBS AG or any liquidator (as the case may be) may
determine and calculated in accordance with International
Financial Reporting Standards.
“solvent”means (i) UBS AG is able to pay
its debts as they fall due and (ii) UBS AG’s assets
exceed its liabilities (other than its liabilities to persons
who are not senior creditors).
Subject to applicable law, no beneficiary of the UBS AG
subordinated guarantees will be able to exercise, claim or plead
any right of set-off, compensation or retention in respect of
any amount owed to it by UBS AG arising under or in connection
with the UBS AG subordinated guarantees and each beneficiary of
the UBS AG subordinated guarantees will, by virtue of being a
beneficiary of the UBS AG subordinated guarantees, be deemed to
have waived all such rights to set-off, compensation or
retention.
Additional Amounts
UBS AG will make all payments under the UBS AG subordinated
guarantees without withholding or deducting for, or on account
of, any present or future tax, duties, assessments or
governmental charges imposed or levied by Switzerland or the
jurisdiction of residence of the issuer of any subordinated
notes held by any UBS Preferred Funding Company or from which
any payment on such notes is made or any authority of any of
those jurisdictions that has the power to tax, unless UBS AG is
required by law to withhold or deduct the present or future tax,
duties, assessments or governmental charges. If UBS AG is
required to withhold or deduct any portion of a payment, UBS AG
will pay additional amounts in order to cause the net amounts
received by the holders of the relevant trust preferred
securities and company preferred securities to be the same as
the holders would have received in the absence of the
withholding or deduction, subject to the same limitations or
additional amounts payable by each UBS Preferred Funding Company
as described above under “Description of Company Preferred
Securities—Additional Amounts.”
If payment of the amounts described above cannot be made by
reason of any limitation referred to above, those amounts will
be payable in proportion to the amounts that would have been
payable but for that limitation.
Other Provisions
The relevant guarantee trustee, on behalf of the holders of the
related company preferred securities, may enforce each UBS AG
subordinated guarantee directly against UBS AG if UBS AG
defaults under such UBS AG subordinated guarantee. Each UBS AG
Subordinated Guarantee Agreement will provide that, to the
fullest extent permitted by law, without the need for any other
action of any person, including the relevant guarantee trustee
or any other holder of related trust preferred securities or
related company preferred securities, each holder of related
trust preferred securities or related company preferred
securities will be entitled to enforce the rights of the holders
of such company preferred securities under the related UBS AG
Subordinated Guarantee Agreement represented by the trust
preferred securities or company preferred securities held by
such holder.
46
Description of UBS AG Subordinated Guarantees
Certain Covenants of UBS AG and the UBS Preferred Funding
Companies
Issuance and Guarantee of Preference Shares
UBS AG will not issue any preferred or preference shares with
liquidation rights effectively ranking senior to its obligations
under the UBS AG subordinated guarantees or give any guarantee
in respect of any of its preferred shares or preferred shares
issued by any of its subsidiaries if the guarantee would rank
senior to the UBS AG subordinated guarantees unless the UBS AG
subordinated guarantees are amended to give the holders of
related company preferred securities and the related trust
preferred securities the same rights and entitlements as are
contained in or attached to the other guarantees so that the UBS
AG subordinated guarantees rank equally with those guarantees
and, from a financial point of view, effectively, with those
preferred shares. Except to the extent described above, the UBS
AG subordinated guarantees do not limit the incurrence or
issuance of other secured or unsecured debt or other obligations
of UBS.
Payment of Dividends
UBS AG will agree in the UBS AG subordinated guarantees that if
any amount required to be paid under the UBS AG subordinated
guarantees in respect of any dividends on related trust
preferred securities or related company preferred securities
payable in respect of the most recent dividend period has not
been paid, UBS AG will pay that amount before paying any
dividend or other payment on any UBS AG junior obligations,
except dividends in the form of the ordinary shares.
No Assignment
UBS AG will not be permitted to assign its obligations under the
UBS AG subordinated guarantees, except in the case of merger,
consolidation or sale of substantially all of its assets where
UBS AG is not the surviving entity.
Termination
Each UBS AG subordinated guarantee will terminate on the earlier
of:
•
the payment of the redemption price for all related company
preferred securities or purchase and cancellation of all related
company preferred securities, and
•
full payment of the liquidating distribution on all related
company preferred securities.
However, each UBS AG subordinated guarantee will continue to be
effective or will be reinstated, as the case may be, if the
holder is required to return any payment made under the related
company preferred securities or the related UBS AG subordinated
guarantee.
Amendments
Any changes to the provisions of a UBS AG subordinated guarantee
that establish the amount and timing of the payments under that
UBS AG subordinated guarantee must be approved by each holder of
related company preferred securities. Any other provision of a
UBS AG subordinated guarantee may be modified only with the
prior approval of the holders of not less than two-thirds (based
on the aggregate liquidation preference) of the related company
preferred securities.
Notwithstanding the foregoing, without the consent of any holder
of related company preferred securities, UBS AG may amend or
supplement each UBS AG Subordinated Guarantee Agreement:
•
to conform any change in the Investment Company Act, the Trust
Indenture Act or the rules or regulations of either such Act,
•
to add to the covenants, restrictions or obligations of UBS AG,
47
Description of UBS AG Subordinated Guarantees
•
to modify, eliminate and add to any provision to such extent as
may be necessary or desirable under such UBS AG Subordinated
Guarantee Agreement, so long as any such action shall not
materially adversely affect the rights, preferences or
privileges of the holders of related company preferred
securities, or
•
to cure any ambiguity or to correct or supplement any provision
in such UBS AG Subordinated Guarantee that may be defective or
inconsistent with any other provision therein.
Information Concerning the Guarantee Trustee
Wilmington Trust Company will be the guarantee trustee. The
guarantee trustee will be required to perform only those duties
that are specifically set forth in the UBS AG subordinated
guarantees, except when a default has occurred and is continuing
with respect to any UBS AG subordinated guarantee. After a
default, the guarantee trustee will be required to exercise the
same degree of care a prudent person would exercise under the
circumstances in the conduct of his or her own affairs. Subject
to these requirements, the guarantee trustee is under no
obligation to exercise any of the powers vested in it by any UBS
AG subordinated guarantee at the request of any holder of
related company preferred securities or any holder of related
trust preferred securities, as the case may be, unless the
holder offers the guarantee trustee reasonable indemnity against
the costs, expenses and liabilities that might be incurred by
exercising those powers.
Governing Law
The UBS AG subordinated guarantees will be governed by and
construed in accordance with the laws of the State of New York.
48
Description of Subordinated Notes of UBS AG
The following summary of the material terms and provisions of
the subordinated notes is not complete and is subject to, and
qualified in its entirety by reference to, the terms and
provisions of the subordinated notes. We have filed a copy of
the form of subordinated note as an exhibit to the registration
statement of which this prospectus is a part.
General
Each UBS Preferred Funding Company will apply the proceeds of
its company preferred securities and company common securities
to purchase from the Cayman Islands branch of UBS AG newly
issued subordinated notes of the Cayman Islands branch. The
subordinated notes are undated obligations of UBS AG, acting
through the Cayman Islands branch. Interest on the subordinated
notes will be payable from the date of initial issuance on the
dates specified in the applicable prospectus
supplement—which dates will correspond to the dividend
payment dates of the related company preferred
securities—(each, an “interest payment date” and
the period from and including an interest payment date, or the
date of initial issuance, as applicable, to but not including
the next interest payment date, an “interest period”)
for each interest period, at a fixed or floating rate specified
in the applicable prospectus supplement.
Interest due on an interest payment date will be deferrable at
the option of UBS AG’s Cayman Islands branch to the extent
that dividends on the related company preferred securities due
on the corresponding dividend payment date would constitute
nondefinitive dividends. Interest deferred in this manner will
not itself bear interest.
Redemption
Unless otherwise specified in the applicable prospectus
supplement, the subordinated notes will be redeemable with the
consent of the Swiss Federal Banking Commission and at the
option of the Cayman Islands branch of UBS AG:
•
on or after the date specified in the applicable prospectus
supplement, in whole or in part, at a redemption price equal to
100% of their principal amount plus interest accrued but
unpaid to the date fixed for redemption.
•
prior to the date specified in the applicable prospectus
supplement, in whole but not in part, if a Tax Event, an
Investment Company Act Event or a Capital Event occurs, at a
redemption price equal to 100% of their principal amount plus
interest accrued but unpaid to the date fixed for redemption.
Additional Amounts
If the Cayman Islands branch of UBS AG is required to withhold
any taxes, duties or other governmental charges with respect to
any payment in respect of any subordinated notes, the Cayman
Islands branch will pay such additional amounts as shall be
required so that the amount received by each UBS Preferred
Funding Company under the related subordinated notes shall not
be reduced as a result of any such additional taxes, duties or
other governmental charges.
49
Description of Subordinated Notes of UBS AG
Subordination
The subordinated notes are a general and unsecured obligation of
UBS AG and, in liquidation of UBS AG, will rank, both as to
payment and in liquidation:
•
subordinate and junior to UBS AG senior liabilities, as defined
under “Description of UBS AG Subordinated
Guarantees—Subordination,” and
•
senior to the ordinary shares of UBS AG and any other securities
or shares of UBS AG expressed to rank junior to the most senior
preference shares of UBS AG (if any) from time to time
outstanding.
Payments under any subordinated notes (other than payments upon
a winding-up or dissolution, by bankruptcy or otherwise, in
Switzerland of UBS AG) are conditional upon UBS AG not being in
default in the payment of UBS AG senior liabilities, and being
solvent, as defined under “Description of UBS AG
Subordinated Guarantees—Subordination,” at the time of
payment. A report as to the insolvency of UBS AG by two persons,
each being a managing director, director or other authorized
officer or agent of UBS AG or employees of the independent
accountants of UBS AG will, in the absence of manifest error be
treated and accepted by UBS AG, the holders of the company
preferred securities and all other interested parties as correct
and sufficient evidence thereof.
Enforcement of Subordinated Notes
Any consent, notice or other action (including any enforcement
action) given or taken by or on behalf of a UBS Preferred
Funding Company with respect to related subordinated notes may
be given or taken at the discretion of a majority of the entire
board of directors of such UBS Preferred Funding Company.
Transfer of Subordinated Notes
The subordinated notes held by a UBS Preferred Funding Company
will be represented by a single definitive note registered in
the name of such UBS Preferred Funding Company. Each UBS
Preferred Funding Company’s LLC Agreement provides that any
UBS Preferred Funding Company may sell its subordinated notes
only upon the affirmative vote of both a majority of the board
of directors of such UBS Preferred Funding Company and the
holders of two-thirds (based on the aggregate liquidation
preference) of its company preferred securities and other
company parity preferred securities (if any), voting together as
a single class.
Although each UBS Preferred Funding Company will be permitted to
sell its subordinated notes subject to the requirements of the
Securities Act of 1933 and other applicable laws and the
foregoing requirements, neither UBS AG nor any UBS Preferred
Funding Company anticipates that any UBS Preferred Funding
Company will sell its subordinated notes and there is no
expectation that a market will develop or exist for any
subordinated notes. Unless otherwise specified in the applicable
prospectus supplement, any subordinated notes, by their terms,
will provide that they may be sold in whole and not in part and
may not be divided into denominations of less than USD25 or
USD1000, as the case may be.
Events of Default
No subordinated notes will provide for acceleration if the
Cayman Islands branch of UBS AG fails to make a payment when
due. If the Cayman Islands branch fails to make a payment when
due of an installment of interest on any subordinated notes, the
related UBS Preferred Funding Company will be entitled to seek
to enforce payment only of the defaulted installment but not in
respect of any failure to pay interest due under the related
subordinated notes that was deferred because the dividends on its
50
Description of Subordinated Notes of UBS AG
company preferred securities on the corresponding dividend
payment date would have constituted nondefinitive dividends. A
“default” under any subordinated notes will occur if
the Cayman Islands branch fails to make a payment when due of an
installment of principal or interest.
Modification and Amendment of Subordinated Notes
Any subordinated notes will be able to be modified or amended
only by the written agreement of the Cayman Islandsbranch of UBS AG and the related UBS Preferred Funding
Company. However, each UBS Preferred Funding Company’s LLC
Agreement will provide that no UBS Preferred Funding Company may
agree to any such modification or amendment for so long as any
of its company preferred securities or other company parity
preferred securities, if any, are outstanding unless holders of
two-thirds (based on the aggregate liquidation preference) of
its company preferred securities and other company parity
preferred securities, if any, voting as a class, consent to such
modification or amendment (except that such consent of the
holders of its company preferred securities and any other
company parity preferred securities shall not be required if
(a) the proposed amendment or modification would not
materially and adversely affect the rights, preferences, powers
or privileges of such UBS Preferred Funding Company and
(b) such UBS Preferred Funding Company has received a
letter from each of Moody’s Investors Service, Inc. and
Standard & Poor’s Ratings Services to the effect
that such amendment will not result in a downgrading of its
respective rating then assigned to its company preferred
securities).
Governing Law
The subordinated notes will be governed by the laws of the State
of New York.
51
U.S. Tax Considerations
In the opinion of Sullivan & Cromwell LLP, the following,
unless otherwise stated in the applicable prospectus supplement
relevant to the trust preferred securities being offered
thereby, accurately describes the material United States federal
income tax (and, where specifically noted, United States federal
estate tax) consequences of the purchase of the trust preferred
securities and the ownership and disposition of the trust
preferred securities and the company preferred securities.
YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISORS AS TO THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE TRUST PREFERRED SECURITIES OR
THE COMPANY PREFERRED SECURITIES, AS WELL AS THE EFFECT OF ANY
STATE, LOCAL OR FOREIGN TAX LAWS IN LIGHT OF YOUR PARTICULAR
CIRCUMSTANCES.
This discussion addresses only the tax consequences to a person
that acquires the trust preferred securities on their original
issue at their original offering price and that holds the trust
preferred securities, and any company preferred securities
received in exchange for the trust preferred securities, as
capital assets. It does not address all tax consequences that
may be applicable to a beneficial owner of the trust preferred
securities or company preferred securities nor does it address
the tax consequences to:
•
persons that may be subject to
special treatment under United States federal income tax law,
such as tax-exempt entities, certain insurance companies,
broker-dealers, traders in securities that elect to mark to
market, persons liable for alternative minimum tax or persons
that actually or constructively own 10% or more of the voting
stock of UBS AG,
•
persons that will hold the trust
preferred securities or the company preferred securities as part
of a larger transaction, such as a “straddle” or a
“hedging” or “conversion” or other
integrated transaction, or
•
United States Holders (as
defined below) whose functional currency is not the United
States dollar.
If a partnership holds the trust preferred securities, the
United States federal income tax treatment of a partner will
generally depend on the status of the partner and the tax
treatment of the partnership. If you are a partner in a
partnership holding the trust preferred securities, you should
consult your tax advisor with regard to the United States
federal income tax treatment of the investment in the trust
preferred securities.
This discussion assumes that the applicable UBS Preferred
Funding Company will hold no assets other than the UBS AG
subordinated notes. If the applicable UBS Preferred Funding
Company will hold assets other than the UBS AG subordinated
notes, you should consult your tax advisor with regard to the
United States federal income tax treatment of your investment in
the trust preferred securities.
This discussion is based upon the Internal Revenue Code of 1986,
as amended, Treasury regulations, Internal Revenue Service
rulings and pronouncements and judicial decisions as of the date
hereof, all of which are subject to change, possibly with
retroactive effect.
Classification of the UBS Preferred Funding Trusts and the
UBS Preferred Funding Companies
Under current law, and assuming compliance with the terms of
each Amended and Restated Trust Agreement in the form attached
as an exhibit hereto, each UBS Preferred Funding Trust will not
be treated as an association taxable as a corporation for United
States federal income tax purposes. In addition, we intend to
treat each UBS Preferred Funding Trust as a grantor trust for
United States federal income tax purposes, and the discussion
below assumes that the applicable UBS Preferred
52
U.S. Tax Considerations
Funding Trust will in fact be treated as a grantor trust for
United States federal income tax purposes. As a result, each
beneficial owner of the trust preferred securities will be
considered the beneficial owner of a pro rata portion of
the related company preferred securities held by the applicable
UBS Preferred Funding Trust. If the applicable UBS Preferred
Funding Trust were to be treated as a partnership for United
States federal income tax purposes, the treatment of a
beneficial owner of the trust preferred securities s would not
be materially different from the treatment described below,
except that U.S. tax information will be provided to such
beneficial owners and to the Internal Revenue Service on
Schedule K-1, rather than in the manner described below
under “—Information Reporting and Backup
Withholding.”
Under current law, each UBS Preferred Funding Company will be
treated as a partnership for United States federal income tax
purposes. A partnership is not a taxable entity and incurs no
United States federal income tax liability. Instead, each
partner is required to take into account its allocable share of
items of income, gain, loss and deduction of the partnership in
computing its United States federal income tax liability,
regardless of whether distributions are made to the partner.
These items generally will be treated as if realized by the
partner directly from the same source realized by the applicable
UBS Preferred Funding Company.
United States Holders
You are a “United States Holder” if you are a
beneficial owner of the trust preferred securities or company
preferred securities and you are:
•
an individual citizen or
resident of the United States,
•
a corporation organized in or
under the laws of the United States or any state thereof or the
District of Columbia,
•
an estate, and your income is
subject to United States federal income tax regardless of
source, or
•
a trust, if
•
a United States court is able to
exercise primary supervision over your administration, and
•
one or more United States
persons are authorized to control all substantial decisions of
the trust.
Income from the Trust Preferred Securities
Under the applicable Amended and Restated LLC Agreement in the
form attached as an exhibit hereto, upon the payment, or deemed
payment, of dividends on the company preferred securities, a
like amount of the applicable UBS Preferred Funding
Company’s ordinary income generally will be allocated to
the holders of company preferred securities. Regardless of when
dividends on the related trust preferred securities are actually
paid, income allocated to the holders of company preferred
securities will be includable as ordinary income by a United
States Holder for its taxable year that includes
31 December of the calendar year in which the income is
allocated, except that if the United States Holder disposes of
its entire holding of the trust preferred securities and company
preferred securities (if any), the amount allocated for the
calendar year of that disposition will be includable for the
United States Holder’s taxable year that includes the date
of that disposition.
Dividends paid by a “qualified foreign corporation” to
a non-corporate United States Holder in taxable years beginning
before January 1, 2009 are generally subject to a
preferential rate of tax for United States federal tax purposes
if the beneficial recipient of the dividend satisfies certain
minimum holding period requirements and the dividend is paid out
of the current or accumulated earnings and profits of the
foreign corporation (as determined for United States federal
income tax purposes). The subordinated notes held by the
applicable UBS Preferred Funding Company should be treated as
equity
53
U.S. Tax Considerations
of UBS AG. Furthermore, UBS AG should currently be treated as a
“qualified foreign corporation” for United States
federal income tax purposes. Accordingly, amounts included in
income by a non-corporate United States Holder with respect to
its trust preferred securities in taxable years beginning before
January 1, 2009 should generally be subject to a
preferential rate of tax for United States federal income tax
purposes, provided that (a) the United States Holder
satisfies certain minimum holding period requirements and
(b) the payments on the subordinated notes are paid out of
the current or accumulated earnings and profits of UBS AG.
Special rules apply in determining the foreign tax credit
limitation with respect to dividends that are subject to tax at
a preferential rate.
Assuming compliance with the terms of the applicable Amended and
Restated Trust Agreement in the form attached as an exhibit
hereto, each UBS Preferred Funding Trust will distribute, until
the date and otherwise in the manner specified in the applicable
prospectus supplement, an amount of cash equal to all of the
income that is allocated to it as a holder of company preferred
securities. As a consequence, a United States Holder generally
will not recognize income in respect of trust preferred
securities without receiving the corresponding cash
distribution, unless the United States Holder sells or otherwise
disposes of those trust preferred securities between the payment
date of dividends on the related company preferred securities
and the corresponding record date for dividends on the trust
preferred securities. In the case of a sale between those dates,
a United States Holder generally will recognize ordinary income
in an amount equal to the dividends on the company preferred
securities, which would increase the United States Holder’s
basis in the trust preferred securities and reduce the gain, or
increase the loss, recognized on the sale or other disposition.
A United States Holder’s allocated share of the applicable
UBS Preferred Funding Company’s income from the
subordinated notes will be foreign source income for purposes of
determining the limitation on any allowable foreign tax credit.
The overall limitation on foreign taxes eligible for credit is
calculated separately with respect to specific classes of
income. For this purpose, a United States Holder’s
allocated share of each UBS Preferred Funding Company’s
income from the subordinated notes for taxable years beginning
before January 1, 2007 generally will constitute
“passive income” or, in the case of certain United
States Holders, “financial services income” and for
taxable years beginning after December 31, 2006 generally
will constitute “passive income” or, in the case of
certain United States Holders, “general income.” If,
with respect to any distribution to a United States Holder,
additional amounts are paid by the applicable UBS Preferred
Funding Company as a result of withholding taxes imposed on the
distribution, those additional amounts will be taxable to the
United States Holder as foreign source income. However,
withholding taxes in the amount of those additional amounts will
generally be treated as foreign income taxes eligible for credit
against that United States Holder’s United States federal
income tax liability, subject to generally applicable
limitations and conditions or, at the election of that United
States Holder, for deduction in computing the United States
Holder’s taxable income.
No portion of the income derived by a United States Holder from
the trust preferred securities will be eligible for the
dividends-received deduction generally available to United
States corporations in respect of dividends received from other
United States corporations.
UBS AG believes that it is not a “passive foreign
investment company” (sometimes known as a “PFIC”)
for United States federal income tax purposes, but this
conclusion is a factual determination made annually and thus may
be subject to change. A United States Holder might be subject to
special rules with respect to certain amounts earned by the
applicable UBS Preferred Funding Company with respect to the
initial subordinated notes if UBS AG were treated as a PFIC for
United States federal income tax purposes.
54
U.S. Tax Considerations
Receipt of the Company Preferred Securities upon Liquidation
of each UBS Preferred Funding Trust
Under certain circumstances, the company preferred securities
may be distributed to trust preferred securityholders in
exchange for their trust preferred securities and in liquidation
of the applicable UBS Preferred Funding Trust. Unless the
liquidation of the applicable UBS Preferred Funding Trust occurs
as a result of that UBS Preferred Funding Trust being subject to
United States federal income taxes, such a distribution to a
United States Holder would be treated, for United States federal
income tax purposes, as a non-taxable event. Each United States
Holder would receive an aggregate tax basis in the company
preferred securities equal to the United States Holder’s
aggregate tax basis in its trust preferred securities and the
United States Holder’s holding period in the company
preferred securities received would include the period during
which the trust preferred securities were held by the United
States Holder. If, however, the liquidation of the applicable
UBS Preferred Funding Trust were to occur because that UBS
Preferred Funding Trust is subject to United States federal
income taxes, the distribution of the company preferred
securities to United States Holders by the applicable UBS
Preferred Funding Trust would likely be a taxable event to each
United States Holder, and a United States Holder would recognize
gain or loss as if the United States Holder had exchanged its
trust preferred securities for the company preferred securities
it received. The gain or loss would be equal to the difference
between the United States Holder’s aggregate tax basis in
its trust preferred securities surrendered in the exchange and
the aggregate fair market value of the company preferred
securities received in the exchange.
If the company preferred securities are distributed to the
holders of trust preferred securities in liquidation of the
applicable UBS Preferred Funding Trust, under current law, U.S.
tax information will be provided to beneficial owners of the
company preferred securities and to the Internal Revenue Service
on Schedule K-1,
rather than in the manner described below under
“—Information Reporting and Backup Withholding.”
Disposition of the Trust Preferred Securities or the Company
Preferred Securities
A United States Holder will recognize gain or loss on a sale,
exchange or other taxable disposition of the trust preferred
securities or the company preferred securities in an amount
equal to the difference between the United States Holder’s
adjusted tax basis and the amount realized on the disposition. A
United States Holder’s adjusted tax basis in the trust
preferred securities generally will equal the amount paid for
the trust preferred securities, increased by the amount of
income allocated to the United States Holder and reduced by the
amount of any cash, and the fair market value of any other
property, distributed to the United States Holder. Any gain or
loss so recognized generally will be capital gain or loss, will
be long-term capital gain or loss if the United States
Holder’s holding period is more than one year and will be
U.S. source income or loss for purposes of determining the
limitation on any allowable foreign tax credit. Capital gain of
a non-corporate United States Holder is generally taxed at
preferential rates where the property is held for more than one
year.
The trust preferred securities may trade at a price that does
not fully reflect the value of income that may have been
allocated to a United States Holder with respect to the United
States Holder’s trust preferred securities. A United States
Holder that disposes of the trust preferred securities between
the payment date of dividends on the company preferred
securities and the corresponding record date for dividends on
the trust preferred securities generally will be required to
include as ordinary income an amount equal to dividends on the
company preferred securities and to add the amount of that
income to its adjusted tax basis in the trust preferred
securities. Accordingly, such a United States Holder will
recognize a capital loss to the extent that the selling price is
less than the United States Holder’s adjusted tax basis.
Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal
income tax purposes.
55
U.S. Tax Considerations
Non-United States Holders
You are a “Non-United States Holder” if you are a
beneficial owner of the trust preferred securities or the
company preferred securities and you are for United States
federal income tax purposes:
•
a nonresident alien individual,
•
a foreign corporation,
•
a foreign partnership, or
•
an estate or trust in either case that is not subject to United
States federal income tax on a net income basis on income or
gain from the trust preferred securities or company preferred
securities.
Each UBS Preferred Funding Company intends to operate, and the
discussion below assumes that it will in fact operate, so that
it will not be engaged in a trade or business within the United
States for United States federal income tax purposes. Moreover,
Each UBS Preferred Funding Company intends to invest, and the
discussion below assumes that it will in fact invest, in
securities the income from which will be either generally exempt
from United States federal withholding tax or exempt from United
States federal withholding tax to the extent allocable to a
Non-United States Holder.
A Non-United States Holder will not be subject to United States
federal income or withholding tax on any allocated share of the
applicable UBS Preferred Funding Company’s income or gain,
or any gain realized on the sale or exchange of the trust
preferred securities or company preferred securities, unless, in
the case of gains, the Non-United States Holder is an individual
who was present in the United States for 183 days or more
in the taxable year in which the gain is realized and certain
other conditions are met. A Non-United States Holder will not be
subject to backup withholding provided certain certification
requirements are satisfied as described under
“—Information Reporting and Backup Withholding.”
The treatment of the trust preferred securities and the company
preferred securities for United States federal estate tax
purposes is unclear. If you are an individual Non-United States
Holder or an entity the property of which is potentially
includible in the gross estate of an individual Non-United
States Holder for United States federal estate tax purposes (for
example, a trust funded by an individual Non-United States
Holder and with respect to which such holder has retained
certain interests or powers), you should consult your tax
advisor about the possibility that the trust preferred
securities or the company preferred securities will be
includable in the gross estate of the appropriate individual
holder for purposes of the United States federal estate tax.
Information Reporting and Backup Withholding
If you are a noncorporate United States Holder, under current
law the amount of income paid or accrued on the trust preferred
securities will generally be reported to you on Internal Revenue
Service Form 1099. For calendar years beginning after
January 1, 2007, United States Holders, as “trust
interest holders” in a “widely-held fixed investment
trust,” will also receive an annual statement containing a
detailed description of the tax information necessary for the
United States Holder to compute its tax liability with respect
to the trust preferred securities. In addition, information
reporting will generally apply to the payment of proceeds to a
noncorporate United States Holder from the disposition of the
trust preferred securities effected at a United States office of
a broker or at the office of a broker that is a United States
person or has certain connections with the United States.
Additionally, backup withholding may apply to such amount of
income or payment of proceeds if you are a noncorporate United
States Holder that:
•
fails to provide an accurate taxpayer identification number,
•
is notified by the Internal Revenue Service that you have failed
to report all interest and dividends required to be shown on
your federal income tax returns, or
56
U.S. Tax Considerations
•
in certain circumstances, fails to comply with applicable
certification requirements.
If you are a Non-United States Holder, you are generally exempt
from backup withholding and information reporting requirements
with respect to:
•
payments made on the trust preferred securities outside the
United States by a
non-U.S. payor, and
•
other payments made on the trust preferred securities and the
payment of the proceeds from the disposition of the trust
preferred securities effected at a United States office of a
broker, as long as the income associated with such payments is
otherwise exempt from United States federal income tax, and:
•
the payor or broker does not have actual knowledge or reason to
know that you are a United States person and you have furnished
the payor or broker:
•
an Internal Revenue Service Form
W-8BEN or an acceptable
substitute form upon which you certify, under penalties of
perjury, that you are a non-United States person, or
•
other documentation upon which it may rely to treat the payments
as made to a non-United States person in accordance with U.S.
Treasury regulations, or
•
you otherwise establish an exemption.
Payment of the proceeds from the disposition of the trust
preferred securities effected at a foreign office of a broker
generally will not be subject to information reporting or backup
withholding. However, a disposition of the trust preferred
securities effected at a foreign office of a broker will be
subject to information reporting and backup withholding if:
•
the proceeds are transferred to an account maintained by you in
the United States,
•
the payment of proceeds or the confirmation of the sale is
mailed to you at a United States address, or
•
the sale has some other specified connection with the United
States as provided in U.S. Treasury regulations,
unless the broker does not have actual knowledge or reason to
know that you are a United States person and the documentation
requirements described above are met or you otherwise establish
an exemption.
In addition, a disposition of the trust preferred securities
effected at a foreign office of a broker will be subject to
information reporting if the broker is:
•
a United States person,
•
a controlled foreign corporation for United States tax purposes,
•
a foreign person 50% or more of whose gross income is
effectively connected with the conduct of a United States trade
or business for a specified three-year period, or
•
a foreign partnership, if at any time during its tax year:
•
one or more of its partners are “U.S. persons”, as
defined in U.S. Treasury regulations, who in the aggregate hold
more than 50% of the income or capital interest in the
partnership, or
•
such foreign partnership is engaged in the conduct of a United
States trade or business,
unless the broker does not have actual knowledge or reason to
know that you are a United States person and the documentation
requirements described above are met or you otherwise establish
an exemption. Backup withholding will apply if the sale is
subject to information reporting and the broker has actual
knowledge that you are a United States person.
57
U.S. Tax Considerations
You generally may obtain a refund of any amounts withheld under
the backup withholding rules that exceed your income tax
liability by filing a refund claim with the United States
Internal Revenue Service.
Under current law, U.S. tax information will be provided to
beneficial owners of the company preferred securities and to the
Internal Revenue Service on Schedule K-1, rather than in the
manner described above.
58
Tax Considerations Under the Laws of Switzerland
General
Unless as otherwise stated in the applicable prospectus
supplement, this section describes the material Swiss tax
consequences (corporate and individual income tax, wealth tax,
withholding tax, stamp tax on the issuance of securities, stamp
tax on the turnover of securities) of the acquisition, ownership
and disposition of trust preferred securities and company
preferred securities. The tax information set forth below is
based on the opinion of Homburger, Zurich, Switzerland, dated
March 24, 2006 and has been approved by them for its
accuracy.
The following summary does not purport to address all tax
consequences of the acquisition, ownership and disposition of
trust preferred securities and company preferred securities, and
does not take into account the specific circumstances of any
particular investor. This summary is based on the tax
legislation of Switzerland as in effect on the date hereof,
which are subject to change (or subject to changes in
interpretation), possibly with retroactive effect.
Holders or prospective holders of trust preferred securities or
company preferred securities are advised to consult their own
tax advisers in light of their particular circumstances as to
the Swiss tax legislation that could be relevant for them in
connection with acquiring, owning and disposing of the trust
preferred securities or company preferred securities and
receiving dividend, redemption or liquidation payments on the
trust preferred securities or company preferred securities and
the consequences of such actions under the tax legislation of
Switzerland.
Withholding Tax
Dividend, redemption and liquidation payments on the trust
preferred securities or the company preferred securities will
not be subject to Swiss withholding tax (even though UBS AG
guarantees, on a subordinated basis, dividend, redemption and
liquidation payment obligations under the company preferred
securities), provided that at all times the respective UBS
Preferred Funding Trust and the respective UBS Preferred Funding
Company are resident and effectively managed outside
Switzerland, the Cayman Islands branch of UBS AG has the
status of a bank and is a permanent establishment situated and
effectively managed outside Switzerland and the respective
proceeds from the sale of the trust preferred securities, the
company preferred securities and the subordinated notes are (on
a non-consolidated basis) booked and used outside Switzerland.
Stamp Taxes
The issuance of the trust preferred securities and the company
preferred securities will not be subject to Swiss federal stamp
tax on the issuance of securities (even though UBS AG
guarantees, on a subordinated basis, dividend, redemption and
liquidation payment obligations under the company preferred
securities), provided that at all times the respective UBS
Preferred Funding Trust and the respective UBS Preferred Funding
Company are resident and effectively managed outside
Switzerland, the Cayman Islands branch of UBS AG has the status
of a bank and is a permanent establishment situated and
effectively managed outside Switzerland and the respective
proceeds from the sale of the trust preferred securities, the
company preferred securities and the subordinated notes are (on
a non-consolidated basis) booked and used outside Switzerland.
Dealings in trust preferred securities or company preferred
securities where a bank or another securities dealer in
Switzerland (as defined in the Swiss Federal Stamp Tax Act) acts
as an intermediary, or is a party, to the transaction, may be
subject to Swiss federal stamp tax on the turnover in securities
at an aggregated rate of up to 0.3 percent of the purchase
price of the trust
59
Tax Considerations Under the Laws of Switzerland
preferred securities or the company preferred securities. A
branch of UBS AG situated, or a subsidiary of UBS AG resident,
outside Switzerland, which, in each case, is not a member of a
Swiss stock exchange, will not be a Swiss securities dealer
under the Swiss Federal Stamp Tax Act.
Swiss Federal, Cantonal and Communal Income and Wealth
Taxation
Dividend, redemption and liquidation payments on trust preferred
securities or company preferred securities to a holder who is
not resident in Switzerland, and who, during the respective
taxation year, has not engaged in a trade or business through a
permanent establishment in Switzerland, and who is not subject
to corporate or individual income taxation in Switzerland for
any other reason will not be subject to any Swiss federal,
cantonal or communal income tax.
Private individuals resident in Switzerland and holding the
trust preferred securities or the company preferred securities
in their private fortune, are required to include the dividend,
redemption and liquidation payments (but not the repayments of
nominal capital) on the trust preferred securities or the
company preferred securities in their personal income tax return
and are subject to Swiss federal, cantonal and communal income
tax on any net taxable income (including the dividend,
redemption and liquidation payments (but not the repayments of
nominal capital) on the trust preferred securities or the
company preferred securities) for the relevant taxation period.
For private individuals capital gains resulting from the sale of
the trust preferred securities or the company preferred
securities are not subject to Swiss federal, cantonal and
communal income tax; this is also the case for accrued interest.
Capital losses are not tax-deductible. Swiss resident private
individuals who hold the trust preferred securities or the
company preferred securities as part of their private fortune
are required to report their trust preferred securities or
company preferred securities as part of their taxable wealth and
will be subject to cantonal and communal wealth tax, provided
that their net taxable wealth (including the trust preferred
securities or the company preferred securities) exceeds
applicable allowances.
Swiss-resident corporate entities, Swiss-resident private
individuals as well as corporate entities and private
individuals resident abroad who hold the trust preferred
securities or the company preferred securities as part of a
trade or business in Switzerland, in the case of residents
abroad carried on through a permanent establishment situated in
Switzerland, are required to recognize the dividend, redemption
and liquidation payments on the trust preferred securities or
the company preferred securities and capital gains or losses on
the sale of the trust preferred securities or the company
preferred securities in their income statement for the
respective taxation period and are subject to Swiss federal,
cantonal and communal individual or corporate income tax, as the
case may be, on any net taxable earnings (including the
dividend, redemption and liquidation payments on the trust
preferred securities or the company preferred securities and
capital gains or losses realized on the sale of the trust
preferred securities or the company preferred securities) for
such taxation period. The same taxation treatment also applies
to Swiss-resident private individuals who, for income tax
purposes, are classified as “professional securities
dealers” for reasons of, inter alia, frequent
dealing, or leveraged investments, in securities.
60
ERISA Considerations
If you are a fiduciary of a pension, profit-sharing or other
employee benefit plan subject to the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), you should
review the fiduciary standards of ERISA and the plan’s
particular circumstances before deciding to invest in the trust
preferred securities. You should consider whether the investment
would satisfy the prudence and diversification requirements of
ERISA and whether the investment would be consistent with the
terms of the plan and the other agreements which apply to plan
investments.
The following summary of certain ERISA considerations relevant
to investing in the trust preferred securities is subject to
anything set forth in the applicable prospectus supplement
relating to a particular offering of trust preferred securities.
A fiduciary of a plan subject to ERISA, as well as a person
investing on behalf of an individual retirement account or a
pension or profit-sharing plan for one or more self-employed
persons, should also consider whether an investment in the trust
preferred securities could result in a prohibited transaction.
ERISA and the Internal Revenue Code of 1986, as amended (the
“Code”), prohibit plans and individual retirement
accounts from engaging in certain transactions involving plan
assets with persons who are parties in interest under ERISA or
disqualified persons under the Code with respect to the plan or
individual retirement account. A violation of these rules may
result in a substantial excise tax under the Code and other
liabilities under ERISA. Employee benefit plans that are
governmental plans, foreign plans or church plans generally are
not subject to the prohibited transaction rules or the fiduciary
standards of ERISA.
The assets of each UBS Preferred Funding Trust would be treated
as plan assets for purposes of the prohibited transaction rules
under a U.S. Department of Labor regulation if plans and
individual retirement accounts purchase trust preferred
securities, unless an exception under the regulation applies.
The regulation provides an exception if the trust preferred
securities are considered to be publicly-offered securities.
Unless otherwise specified in an applicable prospectus
supplement, the underwriters expect that the trust preferred
securities will be publicly-offered securities under the
regulation because:
•
the underwriters expect that the
trust preferred securities will be purchased initially by at
least 100 persons who are independent of us and each other,
•
the trust preferred securities
can be transferred freely,
•
the trust preferred securities
are being sold through this prospectus which is part of an
effective registration statement filed with the SEC, and
•
the trust preferred securities
will be timely registered with the SEC under the Securities
Exchange Act of 1934.
If we are a party in interest or a disqualified person with
respect to a plan or individual retirement account that buys the
trust preferred securities, either directly or because we own
banking or other subsidiaries, the sale could be treated as a
prohibited transaction unless an administrative exemption issued
by the Department of Labor applies. The Department of Labor has
issued class exemptions that may apply to exempt transactions
resulting from the purchase or holding of the trust preferred
securities. Among those class exemptions are Prohibited
Transaction Exemption:
•
96-23, for transactions
determined by in-house asset managers;
•
95-60, for transactions
involving insurance company general accounts;
•
91-38, for transactions
involving bank collective investment funds;
61
ERISA Considerations
•
90-1, for transactions
involving insurance company separate accounts; and
•
84-14, for transactions
determined by independent qualified asset managers.
These rules are very complicated and the penalties that may be
imposed upon persons involved in prohibited transactions can be
substantial. This makes it very important that fiduciaries or
other persons considering purchasing the trust preferred
securities on behalf of a benefit plan investor consult with
their lawyer regarding what could happen if the assets of the
applicable UBS Preferred Funding Trust were deemed to be plan
assets and if the investor can use one of the above class
exemptions or another applicable exemption.
A purchaser or holder of trust preferred securities or any
interest therein will be deemed to have represented by its
purchase and holding thereof that it either (a) is not an
employee benefit plan and is not purchasing such securities on
behalf of or with plan assets of any employee benefit plan or
(b) is eligible for the exemptive relief available under
Prohibited Transaction Exemption 96-23, 95-60, 91-38, 90-1 or
84-14 or another applicable exemption with respect to such
holding.
Before relying on any of these exemptions, a purchaser must
conclude that the exemption provides the necessary relief for
all potential prohibited transactions arising from the purchase
of and from holding the trust preferred securities. Neither the
underwriters, UBS AG nor any of their respective affiliates,
agents or representatives have or can represent that these
exemptions apply with respect to any purchase of trust preferred
securities by any holder.
62
Plan of Distribution
We may sell any trust preferred securities in a public offering
to or through one or more underwriters, dealers and agents. The
names of the underwriters, dealers or agents involved in any
particular offering of trust preferred securities, the
liquidation amount of the trust preferred securities to be
purchased by such underwriters, dealers or agents, any
applicable commissions or discounts and detailed description of
any underwriting arrangement will be set forth in the applicable
prospectus supplement.
Because the National Association of Securities Dealers, Inc.
(“NASD”) views the trust preferred securities as a
direct participation program, any offering will be conducted in
accordance with Rule 2810 of the Rules of Conduct of the
NASD. The underwriters will not confirm initial sales to
accounts over which they exercise discretionary authority
without the prior written approval of the customer. In
accordance with the Rules of Conduct of the NASD, in no
situation will underwriting compensation exceed 8% of the
aggregate liquidation amount of the trust preferred securities.
UBS Securities LLC and UBS Financial Services Inc. are
affiliates of UBS. Rule 2720 of the Conduct Rules of the
NASD imposes certain requirements when an NASD member such as
UBS Securities LLC or UBS Financial Services Inc. distributes an
affiliated company’s securities. UBS Securities LLC and UBS
Financial Services Inc. have advised UBS that the offerings of
the trust preferred securities will comply with the applicable
requirements of Rule 2720.
Validity of the Securities
Unless otherwise provided in the applicable prospectus
supplement, certain matters of Delaware law relating to the
validity of any trust preferred securities and related company
preferred securities will be passed upon by Richards,
Layton & Finger, P.A., special Delaware counsel to UBS
AG, the UBS Preferred Funding Trusts and the UBS Preferred
Funding Companies. Unless otherwise provided in the applicable
prospectus supplement, the validity of the subordinated notes
and the UBS AG Subordinated Guarantee Agreements will be passed
upon for UBS AG, the UBS Preferred Funding Trusts and the UBS
Preferred Funding Companies by Sullivan & Cromwell LLP.
Sullivan & Cromwell LLP will rely upon the opinions of
Richards, Layton & Finger P.A., as to matters of
Delaware law, and the opinions of Homburger, Swiss counsel to
UBS AG, as to matters of Swiss law. Certain matters relating to
United States federal income tax considerations will be passed
upon for UBS AG, the UBS Preferred Funding Trusts and the UBS
Preferred Funding Companies by Sullivan & Cromwell LLP.
Experts
The consolidated balance sheet of UBS AG at December 31,2005 and 2004 and the related consolidated statement of income,
cash flows and changes in shareholder’s equity for each of
the three years in the period ended December 31, 2005incorporated by reference into this prospectus have been audited
by Ernst & Young Ltd., independent auditors as set forth in
their report thereon incorporated by reference into this
prospectus, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and
auditing.
63
Dates Referenced Herein and Documents Incorporated by Reference