Equity Risk Management Hedging and Monetization Strategies

1 Equity Risk ManagementHedging and Monetization StrategiesUBS is the main partner of Alinghi, America s Cup winner Introduction Concentrated Assets Maximize the Power, Minimize the Risk ..1 The Advantages of Equity Risk Management ..2 Serving Diverse Investor Needs ..3 Case History: A Study in Personalization ..4II. Equity Risk Management StrategiesOverview Chart of Equity Risk Management Strategies ..5 Summary of Equity Risk Management Strategies ..6 III. Strategy DetailsRemain Unhedged ..8 Sale of Securities ..8 Sale of OTC Covered Call Options ..9 Purchase of OTC Put Options.

2 10 Zero-Premium Collars ..11 Maximum Monetization and Asset Protection (MMAP) ..13IV. Frequently Asked Questions..17V. Tax ConsiderationsApplicable Tax Legislation and Straddle Rules ..18 Tax Consequence Scenario Analysis ..19VI. Legal and Regulatory IssuesRules 144 and 144(k) ..21 Rule 145 ..22 Considerations for Insiders ..23 Rule 10b5-1 ..24 Additional Issues and Eligibility ..25 VII. The Businesses of UBS..26 ContentsUBS is a world-leading financial powerhouse with the heart and soul of a two-person organization. OurEquity Risk Management Team will work hand-in-hand,employing their financial acumen and analyticalinsight to tailor the best strategy for Assets Maximize the Power, Minimize the RiskHigh-profile initial public offerings andstock-for-stock acquisitions have leftmany individuals with an enviable, yet precarious, position of owning large concentrations of a single , the inability to sell whether due to insider status.

3 Capitalgains implications or legal restrictions can make managing the risks associ-ated with these holdings a time when our Equity marketsare characterized by unprecedentedgrowth and volatility, how do youprotect the value of your large positionsand enhance investment flexibility?That s where UBS can and us A Powerful PartnershipYour circumstances and goals are unlikeanybody else s. At UBS, we take time tofind out about your needs and createan Equity risk Management strategy thatmakes sense for you. We remain focusedon you and how we can best optimizeyour concentrated Equity positions.

4 We utilize Strategies which can: Protect against declines in stock value Enhance returns by monetizing a stock position Allow for diversification Increase borrowing capacity Defer costly capital gains taxesWhy UBS? Consistently recognized as a leader in Equity RiskManagement Strength of credit rating (S&P: AA+, Fitch: AA+,Moody s: Aa2) Peace of mind for our investors Globally integrated presence in all major financial markets Some 70,000 employees around theworld, 40% in the High caliber and experience of sales team professionals Awarded Best Global Risk Management House by Euromoney,2005 Introduction 1I.

5 Introduction The Advantages of Equity Risk ManagementWell-diversified portfolio of stocksIndividual stocksLiquidity Strategies Provide DiversificationDiversification is the key to enhancedinvestment flexibility. UBS offers solu-tions that provide access to cash tobuy stock in other companies or simplyenjoy life s rewards. There is no need tosell shares and incur capital gains taxesor surrender the privileges of holdingthe Strategies Limit RiskTo limit downside risk, UBS also offers a variety of Hedging tools with expertisein execution. We provide a customizedstrategy designed to meet your uniqueneeds and objectives.

6 The Power of DiversificationThe true power of diversification lies inits ability to target an expected returnwhile reducing the exposure to chart depicts 10 individual stocksand their expected returns and associ-ated volatility. The blue line representsa diversified portfolio holding variouscombinations of these 10 assets. Aninvestor holding any one of these individual stocks (we ve used A in ourexample) would clearly be better offdiversifying to create a portfolio thatoffers the same potential rewards withless risk (point B).In addition, UBS can create a programthat limits potential losses while simultaneously enhancing of our risk Management strategiesare structured as over-the-counter(OTC) transactions and are not listed on any options exchange.

7 The OTCoption market has the following advan-tages over listed option markets: Flexibility: The OTC market providesthe ultimate flexibility with regard todetermining price and maturity. Liquidity:The OTC market is as liq-uid as the liquidity of the underlyingstock. European Style:Exercisable at maturity, there is no risk of early exercise in the OTC Risk Managementdelivers two significantbenefits. It allows you toutilize Strategies that pro-tect your holdings and, atthe same time, enhancesinvestment Risk (volatility)ExpectedReturnBA0%0%10%20%30 %40%2%4%6%8%10%12%14% Equity Risk Management solutions can accommodatea variety of high net Diverse Investor Needs Initial investors:Initial investors who own restricted or low-basisshares of an issuer who recently had an initial public offering or amerger transaction.

8 Current or retired executives or employees:A current or former company executive or employee whohas accumulated a large amount of shares. Inheritance:A family who hasowned shares of a company for manyyears, perhaps even Risk Management solutions canaccommodate a variety of high networth investors holding large, concen-trated positions. These include: Executives who were bought outfor stock:A company executive,founder or investor of an acquiredcompany who received shares of theacquirer as consideration in a mergertransaction. Individuals with leveraged positions:An individual with an unprotected concentrated equityposition who carries margin debt can restructure and eliminate the possibility of margin 3 You and us.

9 It s our primary focus atUBS. Our Equity Risk Managementsolutions are no exception. Here s a case in long time investor in United ParcelService, Inc. (UPS), John had large hold-ings in the stock, as well as a signifi-cant position in FedEx Corp. (FDX). Atthe time he met with UBS, his holdingswere valued at $350 million, with mar-gin debt of nearly $100 million. Johnwas bullish on the long-term prospectsof both companies, but was smartenough to realize that a short-termdecline might result in a forced liquida-tion of his stock at depressed prices. During his initial conversationwith UBS,John was shown how the firm could: Reduce his existing margin expenseby moving the loan to UBS, and Reduce the risk of any margin call byhedging some or all of his position witha Maximum Monetization and AssetProtection ( MMAP ) initial discussion was followed by a review, during which UBS evaluatedmultiple scenarios to determine whichstrategy most effectively.

10 Minimized shares allocated to hedge(to retain upside) Eliminated margin call risk Significantly reduced financing costJohn s original intention, to hedge halfhis FDX and half his UPS, proved to bethe most expensive and least effectivestrategy. The optimal result was tohedge his entire UPS position, whichgenerated the maximum liquidity. UBSexpedited John's strategy, completinghis documentation within days of hispending business trip, and acted upontrading instructions to meet John' a volatile market,UBS exceeded John s expectations onthe execution of the was able to add value by: Delivering expert and objective ideas Focusing on what s right for the client Providing personal service with greatattention to detail Timely execution4 Introduction Case History:A Study in PersonalizationOverview Chart of Equity Risk Management StrategiesEquity Risk Management Strategies 5II.