RISK
FACTORS
Your investment in ARNs is subject
to investment risks, many of which differ from those of a conventional debt security. Your decision to purchase ARNs should be
made only after carefully considering the risks, including those discussed below, in light of your particular circumstances. ARNs
are not an appropriate investment for you if you are not knowledgeable about the material terms of ARNs or investments in equity
or equity-based securities in general.
General Risks Relating to ARNs
Your investment may result in a
loss; there is no guaranteed return of principal.
There is no fixed principal repayment amount on ARNs at maturity. The return
on ARNs will be based on the performance of the Market Measure and therefore, you may lose all or a significant portion of your
investment if the value of the Market Measure decreases from the Starting Value to the Ending Value.
Your return on the ARNs may be less
than the yield on a conventional fixed or floating rate debt security of comparable maturity.
There will be no periodic interest
payments on ARNs as there would be on a conventional fixed-rate or floating-rate debt security having the same maturity. Any return
that you receive on ARNs may be less than the return you would earn if you purchased a conventional debt security with the same
maturity date. As a result, your investment in ARNs may not reflect the full opportunity cost to you when you consider factors,
such as inflation, that affect the time value of money.
Your investment return is limited
to the return represented by the Capped Value and may be less than a comparable investment directly in the Market Measure.
The
appreciation potential of ARNs is limited to the Capped Value. You will not receive a Redemption Amount greater than the Capped
Value, regardless of the appreciation of the Market Measure. In contrast, a direct investment in the Market Measure would allow
you to receive the full benefit of any appreciation in the value of the Market Measure.
In addition, unless otherwise set forth
in the applicable term sheet or in the event of an adjustment as described in this product supplement under “Description
of ARNs—Anti-Dilution Adjustments,” the Ending Value will not reflect the value of dividends paid, or distributions
made, on an Underlying Stock, or any other rights associated with an Underlying Stock. Your return on the ARNs will not reflect
the return you would realize if you actually owned shares of an Underlying Stock.
Payments on ARNs are subject to
our credit risk and the credit risk of the Guarantor, and actual or perceived changes in our or the Guarantor’s creditworthiness
are expected to affect the value of ARNs
.
ARNs are our senior unsecured debt securities, the payment on which will
be fully and unconditionally guaranteed by the Guarantor. ARNs are not guaranteed by any entity other than the Guarantor. As a
result, your receipt of the Redemption Amount at maturity is dependent upon our ability and the ability of the Guarantor to repay
our obligations under the ARNs on the maturity date, regardless of whether the Market Measure increases from the Starting Value
to the Ending Value. No assurance can be given as to what our financial condition or the financial condition of the Guarantor will
be on the maturity date. If we and the Guarantor become unable to meet our respective financial obligations as they become due,
you may not receive the amounts payable under the terms of the ARNs.
In addition, our credit ratings and
the credit ratings of the Guarantor are assessments by ratings agencies of our respective abilities to pay our obligations. Consequently,
our or the Guarantor’s perceived creditworthiness and actual or anticipated decreases in our or the Guarantor’s credit
ratings or increases in the spread between the yield on our respective
securities and the yield on U.S. Treasury securities (the
“
credit spread
”) prior to the maturity date may adversely affect the market value of the ARNs. However, because
your return on the ARNs depends upon factors in addition to our ability and the ability of the Guarantor to pay our respective
obligations, such as the value of the Market Measure, an improvement in our or the Guarantor’s credit ratings will not reduce
the other investment risks related to ARNs.
We are a finance subsidiary and,
as such, will have limited assets and operations.
We are a finance subsidiary of Bank of America Corporation and will have
no assets, operations or revenues other than those related to the issuance, administration and repayment of our debt securities
that are guaranteed by the Guarantor. As a finance subsidiary, to meet our obligations under the ARNs, we are dependent upon payment
or contribution of funds and/or repayment of outstanding loans from the Guarantor and/or its other subsidiaries. Therefore, our
ability to make payments on the ARNs may be limited. In addition, we will have no independent assets available for distributions
to holders of ARNs if they make claims in respect of the ARNs in a bankruptcy, resolution or similar proceeding. Accordingly, any
recoveries by such holders may be limited to those available under the related guarantee by the Guarantor, and that guarantee will
rank equally with all other unsecured senior obligations of the Guarantor.
The Guarantor’s
obligations under its guarantee of the ARNs will be structurally subordinated to liabilities of the Guarantor’s subsidiaries
.
Because the Guarantor is a holding company, its ability to make payments under its guarantee of our payment obligations on the
ARNs depends upon the Guarantor’s receipt from its subsidiaries of distributions, advances and other payments. In addition,
the Guarantor’s right to participate in any distribution of assets of any of its subsidiaries upon that subsidiary’s
bankruptcy, insolvency, liquidation, reorganization or similar proceeding is subject to the prior claims of creditors of that subsidiary,
except to the extent the Guarantor may itself be recognized as a creditor of that subsidiary. As a result, the Guarantor’s
obligations under its guarantee of the ARNs will be structurally subordinated to all existing and future claims of creditors of
its subsidiaries, and claimants should look only to the assets of the Guarantor for payments under its guarantee of the ARNs.
ARNs issued by us will not have
the benefit of any cross-default or cross-acceleration with other indebtedness of BofA Finance LLC or the Guarantor; events of
bankruptcy or insolvency or resolution proceedings relating to the Guarantor and covenant breach by the Guarantor will not constitute
an event of default with respect to the ARNs.
ARNs issued by us will not have the benefit of any cross-default or cross-acceleration
with other indebtedness of BofA Finance LLC or the Guarantor. In addition, events of bankruptcy or insolvency or resolution or
similar proceedings relating to the Guarantor will not constitute an event of default with respect to the ARNs. Furthermore, it
will not constitute an event of default with respect to the ARNs if the guarantee by the Guarantor ceases to be in full force and
effect for any reason. Therefore, events of bankruptcy or insolvency or resolution or similar proceedings relating to the Guarantor
(in the absence of any such event occurring with respect to us) will not permit the ARNs to be declared due and payable. In addition,
a breach of a covenant by the Guarantor (including, for example, a breach of the Guarantor’s covenants with respect to mergers
or the sale of all or substantially all its assets), will not permit the ARNs to be declared due and payable. The value you receive
on the ARNs may be significantly less than what you otherwise would have received had the ARNs been declared due and payable immediately
upon certain events of bankruptcy or insolvency or resolution or similar proceedings relating to the Guarantor or the breach of
a covenant by the Guarantor or upon the Guarantor’s guarantee ceasing to be in full force and effect.
The initial estimated value of ARNs
considers certain assumptions and variables and relies in part on certain forecasts about future events, which may prove to be
incorrect.
The initial estimated value of the ARNs, which will be set forth in the applicable term sheet, is an estimate only,
determined as of a particular point in time by reference to our and our affiliates’ pricing models. These pricing models
consider certain assumptions and variables, including our credit spreads and those of the Guarantor, the Guarantor’s internal
funding rate on the pricing date, mid-market terms on hedging transactions, expectations on interest rates and volatility, price-sensitivity
analysis, and the expected term of the ARNs. These pricing models rely in part on certain forecasts about future events, which
may prove to be incorrect.
The public offering price you pay
for ARNs will exceed the initial estimated value.
If you attempt to sell ARNs prior to maturity, their market value may be
lower than the price you paid for them and lower than the initial estimated value. This is due to, among other things, changes
in the value of the Market Measure, the Guarantor’s internal funding rate, and the inclusion in the public offering price
of the underwriting discount and an expected hedging related charge. These factors, together with various credit, market and economic
factors over the term of ARNs, are expected to reduce the price at which you may be able to sell ARNs in any secondary market and
will affect the value of ARNs in complex and unpredictable ways.
The initial estimated value does not
represent a minimum or maximum price at which we, the Guarantor, MLPF&S or any of our other affiliates would be willing to
purchase your ARNs in any secondary market (if any exists) at any time. The value of your ARNs at any time after issuance will
vary based on many factors that cannot be predicted with accuracy, including the performance of the Market Measure, our and the
Guarantor’s creditworthiness and changes in market conditions.
We cannot assure you that there
will be a trading market for your ARNs.
If a secondary market exists, we cannot predict how the ARNs will trade, or whether
that market will be liquid or illiquid. The development of a trading market for ARNs will depend on various factors, including
the Guarantor’s financial performance and changes in the value of the Market Measure. The number of potential buyers of your
ARNs in any secondary market may be limited. There is no assurance that any party will be willing to purchase your ARNs at any
price in any secondary market.
We anticipate that one or more of the
selling agents will act as a market-maker for ARNs, but none of them is required to do so and may cease to do so at any time. Any
price at which a selling agent may bid for, offer, purchase, or sell any of the ARNs may be higher or lower than the applicable
public offering price, and that price may differ from the values determined by pricing models that it may use, whether as a result
of dealer discounts, mark-ups, or other transaction costs. These bids, offers, or transactions may adversely affect the prices,
if any, at which those ARNs might otherwise trade in the market. In addition, if at any time any selling agent were to cease acting
as a market-maker for any issue of ARNs, it is likely that there would be significantly less liquidity in that secondary market.
In such a case, the price at which those ARNs could be sold likely would be lower than if an active market existed.
Unless otherwise stated in the term
sheet, we will not list ARNs on any securities exchange or quotation system. Even if an application were made to list your ARNs,
we cannot assure you that the application will be approved or that your ARNs will be listed and, if listed, that they will remain
listed for their entire term. The listing of ARNs on any securities exchange or quotation system will not necessarily ensure that
a trading market will develop, and if a trading market does develop, that there will be liquidity in the trading market.
The Redemption Amount will not reflect
changes in the value of the Market Measure other than on the calculation day.
Changes in the value of the Market Measure during
the term of ARNs other than on the calculation day will not be reflected in the calculation of the Redemption Amount. To calculate
the Redemption Amount, the calculation agent will compare only the Ending Value to the Starting Value. No other values of the Market
Measure will be taken into account. As a result, even if the value of the Market Measure has increased at certain times during
the term of the ARNs, you will receive a Redemption Amount that is less than the principal amount if the Ending Value is less than
the Starting Value.
If your ARNs are linked to a Basket,
changes in the prices of one or more of the Basket Stocks may be offset by changes in the prices of one or more of the other Basket
Stocks.
The Market Measure of your ARNs may be a Basket. In such a case, changes in the prices of one or more of the Basket
Stocks may not correlate with changes in the prices of one or more of the other Basket Stocks. The prices of one or more Basket
Stocks may increase, while the prices of one or more of the other Basket Stocks may decrease or not increase as much. Therefore,
in calculating the value of the Market Measure at any time, increases in the price of one Basket Stock may be moderated or wholly
offset by decreases or lesser increases in the prices of one or more of the other Basket Stocks. If the weightings of the applicable
Basket Stocks are not equal, adverse changes in the prices of the Basket Stocks which are more heavily weighted could have a greater
impact upon the value of the Market Measure and, consequently, the return on your ARNs.
If you attempt to sell ARNs prior
to maturity, their market value, if any, will be affected by various factors that interrelate in complex ways, and their market
value may be less than the principal amount.
The ARNs are not designed to be short-term trading instruments. You have no right
to have your ARNs redeemed prior to maturity. If you wish to liquidate your investment in ARNs prior to maturity, your only option
would be to sell them. At that time, there may be an illiquid market for your ARNs or no market at all. Even if you were able to
sell your ARNs, there are many factors outside of our control that may adversely affect their market value, some of which, but
not all, are stated below. The impact of any one factor may be offset or magnified by the effect of another factor. The following
paragraphs describe a specific factor’s expected impact on the market value of ARNs, assuming all other conditions remain
constant.
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Value of the Market Measure.
We anticipate that the market value of ARNs prior to maturity generally will depend to
a significant extent on the value of the Market Measure. In general, it is expected that the market value of ARNs will decrease
as the value of the Market Measure decreases, and increase as the value of the Market Measure increases. However, as the value
of the Market Measure increases or decreases, the market value of ARNs is not expected to increase or decrease at the same rate.
If you sell your ARNs when the value of the Market Measure is less than, or not sufficiently above, the applicable Starting Value,
then you may receive less than the principal amount of your ARNs.
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In addition, because the
Redemption
Amount
will not exceed the
applicable Capped Value
, we do
not expect that the ARNs will trade in any secondary market at a price that is greater than the
Capped
Value
.
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Volatility of the Market Measure.
Volatility is the term used to describe the size and frequency of market fluctuations.
The volatility of the Market Measure during the term of the ARNs may vary. In addition, an unsettled international environment
and related uncertainties may result in greater market volatility, which may continue over the term of the ARNs. Increases or decreases
in the volatility of the Market Measure may have an adverse impact on the market value of ARNs. Even if the value of the Market
Measure
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increases after the applicable pricing date, if you
are able to sell your ARNs before their maturity date, you may receive substantially less than the amount that would be payable
at maturity based on that value because of the anticipation that the value of the Market Measure will continue to fluctuate until
the
Ending Value is determined
.
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Economic and Other Conditions Generally.
The general economic conditions of the capital markets in the United States,
as well as geopolitical conditions and other financial, political, regulatory, and judicial events and related uncertainties that
affect stock markets generally, may adversely affect the value of the Market Measure and the market value of ARNs.
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Interest Rates.
We expect that changes in interest rates will affect the market value of ARNs. In general, if U.S. interest
rates increase, we expect that the market value of ARNs will decrease, and conversely, if U.S. interest rates decrease, we expect
that the market value of ARNs will increase. In general, we expect that the longer the amount of time that remains until maturity,
the more significant the impact of these changes will be on the value of the ARNs. The level of interest rates also may affect
the U.S. economy and any applicable market outside of the U.S., and, in turn, the value of the Market Measure, and, thus, the market
value of ARNs may be adversely affected. If any Underlying Stock is an ADR, the level of interest rates in the relevant foreign
country may affect the economy of that foreign country and, in turn, the value of the ADR, and, thus, the market value of the ARNs
may be adversely affected.
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Dividend Yields.
In general, if cumulative dividend yield on an Underlying Stock increases, we anticipate that the market
value of ARNs will decrease; conversely, if that dividend yield decreases, we anticipate that the market value of your ARNs will
increase.
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Our and the Guarantor’s Financial Condition and Creditworthiness.
Our and the Guarantor’s perceived creditworthiness,
including any increases in our respective credit spreads and any actual or anticipated decreases in our respective credit ratings,
may adversely affect the market value of the ARNs. In general, we expect the longer the amount of time that remains until maturity,
the more significant the impact will be on the value of the ARNs. However, a decrease in our or the Guarantor’s credit spreads
or an improvement in our or the Guarantor’s credit ratings will not necessarily increase the market value of ARNs.
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Time to Maturity.
There may be a disparity between the market value of the ARNs prior to maturity and their value at
maturity. This disparity is often called a time “value,” “premium,” or “discount,” and reflects
expectations concerning the value of the Market Measure prior to the maturity date. As the time to maturity decreases, this disparity
may decrease, such that the value of the ARNs will approach the expected Redemption Amount to be paid at maturity.
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Trading and hedging
activities by us, the Guarantor and any of our other affiliates may adversely affect your return on the ARNs and their market value.
We, the Guarantor and our other affiliates, including the selling agents, may buy or sell shares of any Underlying Stock, futures,
options contracts or exchange-traded instruments on any Underlying Stock, or other listed or over-the counter derivative instruments
linked to any Underlying Stock. We, the Guarantor and any of our other affiliates, including the selling agents, may execute such
purchases or sales for our own or their own accounts, for business reasons, or in connection with hedging our obligations under
ARNs. These transactions could affect the value of an Underlying Stock in a manner that could be adverse to your investment in
ARNs. On or before the applicable pricing date, any purchases or sales by us, the Guarantor or our other affiliates, including
the selling agents, or others on our or their behalf (including for the purpose of
hedging anticipated exposures), may increase
the value of an Underlying Stock. Consequently, the value of that Underlying Stock may decrease subsequent to the pricing date
of an issue of ARNs, which may adversely affect the market value of ARNs.
We, the Guarantor, or one or more of
our other affiliates, including the selling agents, may also engage in hedging activities that could increase the value of an Underlying
Stock on the applicable pricing date. In addition, these activities may decrease the market value of your ARNs prior to maturity,
including on the calculation day, and may reduce the Redemption Amount. We, the Guarantor, or one or more of our other affiliates,
including the selling agents, may purchase or otherwise acquire a long or short position in ARNs, and may hold or resell ARNs.
For example, the selling agents may enter into these transactions in connection with any market making activities in which they
engage. We cannot assure you that these activities will not adversely affect the value of the Market Measure, the market value
of your ARNs prior to maturity or the Redemption Amount.
Our trading, hedging and other business
activities may create conflicts of interest with you.
We, the Guarantor or one or more of our other affiliates, including the
selling agents, may engage in trading activities related to an Underlying Stock that are not for your account or on your behalf.
We, the Guarantor, or one or more of our other affiliates, including the selling agents, also may issue or underwrite other financial
instruments with returns based upon the applicable Underlying Stock. These trading and other business activities may present a
conflict of interest between your interest in ARNs and the interests we, the Guarantor, and our other affiliates, including the
selling agents, may have in our proprietary accounts, in facilitating transactions, including block trades, for our or their other
customers, and in accounts under our or their management. These trading and other business activities, if they influence the value
of the
Market Measure
or secondary trading in your ARNs, could be
adverse to your interests as a beneficial owner of ARNs.
We expect to enter into arrangements
or adjust or close out existing transactions to hedge our obligations under the ARNs. We, the Guarantor, or our other affiliates
also may enter into hedging transactions relating to other notes or instruments, some of which may have returns calculated in a
manner related to that of a particular issue of ARNs. We may enter into such hedging arrangements with one of our affiliates. Our
affiliates may enter into additional hedging transactions with other parties relating to ARNs and the applicable Underlying Stock.
This hedging activity is expected to result in a profit to those engaging in the hedging activity, which could be more or less
than initially expected, or the hedging activity could also result in a loss. We and our affiliates will price these hedging transactions
with the intent to realize a profit, regardless of whether the value of ARNs increases or decreases. Any profit in connection with
such hedging activities will be in addition to any other compensation that we, the Guarantor and any of our other affiliates, including
the selling agents, receive for the sale of the ARNs, which creates an additional incentive to sell ARNs to you.
There may be potential conflicts
of interest involving the calculation agent, which is an affiliate of ours. We have the right to appoint and remove the calculation
agent.
One of our affiliates will be the calculation agent for ARNs and, as such, will determine the Starting Value, the Ending
Value and the Redemption Amount. Under some circumstances, these duties could result in a conflict of interest between its status
as our affiliate and its responsibilities as calculation agent. These conflicts could occur, for instance, in connection with the
calculation agent’s determination as to whether a Market Disruption Event has occurred, or in connection with judgments that
it would be required to make if certain corporate events occur with respect to any Underlying Stock. See the sections entitled
“Description of ARNs—Market Disruption Events” and “—Anti-Dilution Adjustments.” The calculation
agent will be required to carry out its duties in good faith and use its reasonable
judgment. However, because we expect that the Guarantor
will control the calculation agent, potential conflicts of interest could arise.
The U.S. federal income tax consequences
of an investment in ARNs are uncertain, and may be adverse to a holder of ARNs.
No statutory, judicial, or administrative authority
directly addresses the characterization of ARNs or securities similar to ARNs for U.S. federal income tax purposes. As a result,
significant aspects of the U.S. federal income tax consequences of an investment in ARNs are not certain. Under the terms of ARNs,
you will have agreed with us to treat ARNs as single financial contracts, as described under “U.S. Federal Income Tax Summary—General.”
If the Internal Revenue Service (the “IRS”) were successful in asserting an alternative characterization for ARNs,
the timing and character of gain or loss with respect to ARNs may differ. No ruling will be requested from the IRS with respect
to ARNs and no assurance can be given that the IRS will agree with the statements made in the section entitled “U.S. Federal
Income Tax Summary.”
You are urged to consult with your
own tax advisor regarding all aspects of the U.S. federal income tax consequences of investing in ARNs.
Risks Relating to an Underlying
Stock
You must rely on your own evaluation
of the merits of an investment linked to any applicable Underlying Stock.
In the ordinary course of business, our affiliates
may have expressed views on expected movements in an Underlying Stock, and may do so in the future. These views or reports may
be communicated to our clients and clients of our affiliates. However, these views are subject to change from time to time. Moreover,
other professionals who deal in markets relating to an Underlying Stock may at any time have significantly different views from
those of our affiliates. For these reasons, you are encouraged to derive information concerning an Underlying Stock from multiple
sources, and you should not rely on the views expressed by our affiliates.
You will have no rights as a security
holder, you will have no rights to receive any shares of any Underlying Stock, and you will not be entitled to dividends or other
distributions by any Underlying Company.
ARNs are our debt securities. They are not equity instruments, shares of stock, or
securities of any other issuer, other than the related guarantees, which are the securities of the Guarantor. Investing in ARNs
will not make you a holder of any Underlying Stock. You will not have any voting rights, any rights to receive dividends or other
distributions, or any other rights with respect to any Underlying Stock. As a result, the return on your ARNs may not reflect the
return you would realize if you actually owned shares of any Underlying Stock and received the dividends paid or other distributions
made in connection with them. Your ARNs will be paid in cash and you have no right to receive any shares of any Underlying Stock.
If shares of an Underlying Company
are also listed on a foreign exchange, your return may be affected by factors affecting international securities markets.
The
value of securities traded outside of the U.S. may be adversely affected by a variety of factors relating to the relevant securities
markets. Factors which could affect those markets, and therefore the return on your ARNs, include:
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Market Liquidity and Volatility.
The relevant foreign securities markets may be less liquid
and/or more volatile than U.S. or other securities markets and may be affected by market developments in different ways than U.S.
or other securities markets.
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Political, Economic, and Other Factors.
The prices and performance of securities of companies
in foreign countries may be affected by political, economic, financial, and
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social factors in those regions. Direct or indirect
government intervention to stabilize a particular securities market and cross-shareholdings in companies in the relevant foreign
markets may affect prices and the volume of trading in those markets. In addition, recent or future changes in government, economic,
and fiscal policies in the relevant jurisdictions, the possible imposition of, or changes in, currency exchange laws, or other
laws or restrictions, and possible fluctuations in the rate of exchange between currencies, are factors that could negatively affect
the relevant securities markets. The relevant foreign economies may differ from the U.S. economy in economic factors such as growth
of gross national product, rate of inflation, capital reinvestment, resources, and self-sufficiency.
In particular, many
emerging nations are undergoing rapid change, involving the restructuring of economic, political, financial and legal systems.
Regulatory and tax environments may be subject to change without review or appeal, and many emerging markets suffer from underdevelopment
of capital markets and tax systems. In addition, in some of these nations, issuers of the relevant securities face the threat of
expropriation of their assets and/or nationalization of their businesses. The economic and financial data about some of these countries
may be unreliable.
Additionally, the accounting, auditing and financial reporting standards
and requirements applicable to companies in foreign countries may differ from those applicable to U.S. reporting companies.
We and the Guarantor do not control
any Underlying Company and have not verified any disclosure made by any Underlying Company.
The Guarantor, or our other affiliates
currently, or in the future, may engage in business with any Underlying Company, and the Guarantor or our affiliates may from time
to time own securities of any Underlying Company. However, none of us, the Guarantor nor any of our other affiliates, including
the selling agents, have the ability to control any actions of any Underlying Company or have undertaken any independent review
of, or made any due diligence inquiry with respect to, any Underlying Company. Unless otherwise specified therein, any information
in the term sheet regarding any Underlying Company is derived from publicly available information. You should make your own investigation
into any Underlying Stock.
The Guarantor’s business activities
relating to any Underlying Company may create conflicts of interest with you.
The Guarantor and our other affiliates, including
the selling agents, at the time of any offering of ARNs or in the future, may engage in business with any Underlying Company, including
making loans to, equity investments in, or providing investment banking, asset management, or other services to that company, its
affiliates, and its competitors.
In connection with these activities,
the Guarantor or our other affiliates may receive information about those companies that they will not divulge to you or other
third parties. One or more of our affiliates have published, and in the future may publish, research reports on one or more of
these companies. This research is modified from time to time without notice and may express opinions or provide recommendations
that are inconsistent with purchasing or holding your ARNs. Any of these activities may adversely affect the value of the Market
Measure and, consequently, the market value of your ARNs. None of us, the Guarantor nor any of our other affiliates, including
the selling agents, makes any representation to any purchasers of the ARNs regarding any matters whatsoever relating to any Underlying
Company. Any prospective purchaser of the ARNs should undertake an independent investigation of any Underlying Company to a level
that, in its judgment, is appropriate to make an informed decision regarding an investment in the ARNs. The selection of an Underlying
Stock does not reflect any investment recommendations from us, the Guarantor or our other affiliates.
An Underlying Company will have
no obligations relating to ARNs and we will not perform any due diligence procedures with respect to any Underlying Company.
An Underlying Company will not have any financial or legal obligation with respect to ARNs or the amounts to be paid to you, including
any obligation to take our needs or the needs of noteholders into consideration for any reason, including taking any corporate
actions that might affect the value of an Underlying Stock or the value of ARNs. An Underlying Company will not receive any of
the proceeds from any offering of ARNs, and will not be responsible for, or participate in, the offering of ARNs. No Underlying
Company will be responsible for, or participate in, the determination or calculation of the amount receivable by holders of ARNs.
None of us,
the Guarantor nor any of our other affiliates, including the selling agents,
will conduct any due diligence inquiry with
respect to any Underlying Stock in connection with an offering of ARNs.
None of us, the Guarantor nor
any of our other affiliates, including the selling agents,
has made any independent investigation as to the completeness
or accuracy of publicly available information regarding any Underlying Company or as to the future performance of any Underlying
Stock. Any prospective purchaser of ARNs should undertake such independent investigation of any Underlying Company as in its judgment
is appropriate to make an informed decision with respect to an investment in ARNs.
The Redemption Amount will not be
adjusted for all corporate events that could affect an Underlying Company.
The Price Multiplier, the Ending Value, the Redemption
Amount, and other terms of ARNs may be adjusted for the specified corporate events affecting any Underlying Stock, as described
in the section entitled “Description of ARNs—Anti-Dilution Adjustments.” However, these adjustments do not cover
all corporate events that could affect the market price of an Underlying Stock, such as offerings of common shares for cash or
in connection with certain acquisition transactions. The occurrence of any event that does not require the calculation agent to
adjust the applicable Price Multiplier or the amount paid to you at maturity may adversely affect the Closing Market Price of an
Underlying Stock, the Ending Value and the Redemption Amount, and, as a result, the market value of ARNs.
Risks Relating to Underlying Stocks
That Are ADRs
The value of an ADR may not accurately
track the value of the common shares of the related Underlying Company.
If an Underlying Stock is an ADR, each ADR will represent
shares of the relevant Underlying Company. Generally, the ADRs are issued under a deposit agreement that sets forth the rights
and responsibilities of the depositary, the Underlying Company and the holders of the ADRs. The trading patterns of the ADRs will
generally reflect the characteristics and valuations of the underlying common shares; however, the value of the ADRs may not completely
track the value of those shares. There are important differences between the rights of holders of ADRs and the rights of holders
of the underlying common shares. In addition, trading volume and pricing on the applicable non-U.S. exchange may, but will not
necessarily, have similar characteristics as the ADRs. For example, certain factors may increase or decrease the public float of
the ADRs and, as a result, the ADRs may have less liquidity or lower market value than the underlying common shares.
Exchange rate movements may adversely
affect the value of an Underlying Stock that is an ADR.
If an Underlying Stock is an ADR, the market price of the Underlying
Stock will generally track the U.S. dollar value of the market price of the underlying common shares. Therefore, if the value of
the related foreign currency in which the underlying common shares are traded decreases relative to the U.S. dollar, the market
price of the Underlying Stock may decrease while the market price of the underlying common shares remains stable or increases,
or does not decrease to the same extent. As a result, changes in, and the volatility of, the exchange rates between the U.S. dollar
and the relevant non-U.S. currency could have a
negative impact on the value of the Underlying Stock and
consequently, the value of your ARNs and the amount payable on ARNs.
Adverse trading conditions in the
applicable non-U.S. market may negatively affect the value of an Underlying Stock that is an ADR.
Holders of an Underlying
Company’s ADRs may usually surrender the ADRs in order to receive and trade the underlying common shares. This provision
permits investors in the ADRs to take advantage of price differentials between markets. However, this provision may also cause
the market prices of the applicable Underlying Stock to more closely correspond with the values of the common shares in the applicable
non-U.S. markets. As a result, a market outside of the United States for the underlying common shares that is not liquid may also
result in an illiquid market for the ADRs, which may negatively impact the value of such ADRs and, consequently, the value of your
ARNs.
Delisting of an Underlying Stock
that is an ADR may adversely affect the value of ARNs.
If an Underlying Stock that is an ADR is no longer listed or admitted
to trading on a U.S. securities exchange registered under the Exchange Act or included in the OTC Bulletin Board Service operated
by the Financial Industry Regulatory Authority, Inc. (“
FINRA
”), or if the ADR facility between the Underlying
Company and the ADR depositary is terminated for any reason, the Market Measure for ARNs will be deemed to be the Underlying Company’s
common equity securities rather than the ADRs, and the calculation agent will determine the price of the Market Measure by reference
to those common shares, as described below under “Description of ARNs—Delisting of ADRs or Termination of ADR Facility.”
Replacing the original ADRs with the underlying common shares may adversely affect the value of ARNs and the Redemption Amount.
USE OF
PROCEEDS
Unless otherwise specified in the relevant
term sheet, we intend to lend the net proceeds we receive from each sale of ARNs to the Guarantor and/or its affiliates (other
than us). The Guarantor expects that it and/or its affiliates (other than us) will use the proceeds from these loans for the purposes
described in the accompanying prospectus under “Use of Proceeds.” In addition, we expect that we may use a portion
of the net proceeds to hedge our obligations under ARNs by entering into hedging arrangements with one or more affiliates.
DESCRIPTION
OF ARNS
General
Each issue of ARNs will be part of
a series of medium-term notes entitled “Medium-Term Notes, Series A” that will be issued under the Senior Indenture,
as amended and supplemented from time to time, among us, the Guarantor and The Bank of New York Mellon Trust Company N.A., as trustee.
The Senior Indenture is described more fully in the prospectus and prospectus supplement. The following description of ARNs supplements
and, to the extent it is inconsistent with, supersedes the description of the general terms and provisions of the notes and debt
securities set forth under the headings “Description of the Notes” in the prospectus supplement and “Description
of Debt Securities” in the prospectus. These documents should be read in connection with the applicable term sheet.
Our payment obligations on the ARNs
are fully and unconditionally guaranteed by the Guarantor. ARNs will rank equally with all of our other unsecured senior debt from
time to time outstanding. The guarantee of the ARNs will rank equally with all other unsecured senior obligations of the Guarantor.
Any payments due on ARNs, including any repayment of principal, are subject to our credit risk, as issuer, and the credit risk
of Bank of America Corporation, as guarantor.
The maturity date of the ARNs and the
aggregate principal amount of each issue of ARNs will be stated in the term sheet. If the scheduled maturity date is not a business
day, we will make the required payment on the next business day, and no interest will accrue as a result of such delay.
We will not pay interest on ARNs. ARNs
do not guarantee the return of principal at maturity. ARNs will be payable only in U.S. dollars.
Prior to the maturity date, ARNs are
not redeemable by us, except under the limited circumstances set forth below, or repayable at the option of any holder. ARNs are
not subject to any sinking fund.
We will issue ARNs in denominations
of whole units. Unless otherwise set forth in the applicable term sheet, each unit will have a principal amount of $10. The CUSIP
number for each issue of ARNs will be set forth in the applicable term sheet. You may transfer ARNs only in whole units.
Payment at Maturity
At maturity, subject to our credit
risk as issuer of ARNs and the credit risk of the Guarantor as guarantor of ARNs, you will receive a Redemption Amount, denominated
in U.S. dollars. The “
Redemption Amount
” will be calculated as follows:
|
•
|
If the Ending Value is greater than the Starting Value,
then the Redemption Amount will equal:
|
The Redemption Amount will not exceed
a “
Capped Value
” set forth in the term sheet.
|
•
|
If the Ending Value is less than or equal to the Starting
Value, then the Redemption Amount will equal:
|
Principal Amount x
The
Redemption Amount will not be less than zero.
Your participation in any upside performance
of the Market Measure underlying your ARNs will also be impacted by the Participation Rate. The “
Participation Rate
”
will be 300% for ARNs unless otherwise set forth in the term sheet.
Each term sheet will provide examples
of Redemption Amounts based on a range of hypothetical Ending Values.
If specified in the term sheet, your
ARNs may be “
Relative Value ARNs
,” the return on which will be determined based on the relative performance
of two or more Market Measures. The specific terms of any Relative Value ARNs will be set forth in the term sheet.
The term sheet will set forth information
as to the specific Market Measure, including information as to the historical prices of the Underlying Stock or Underlying Stocks.
However, historical prices of any Underlying Stock are not indicative of its future performance or the performance of your ARNs.
An investment in ARNs does not entitle
you to any ownership interest, including any voting rights, in any Underlying Stock, nor dividends paid or other distributions
made, by any Underlying Company.
The Starting Value and the Ending Value
Starting Value
The “
Starting Value
”
will be the price of the Underlying Stock on the pricing date, determined as set forth in the term sheet.
If the Market Measure consists of a
Basket, the Starting Value will be equal to 100. See “—Basket Market Measures.”
Ending Value
The “
Ending Value
”
will equal the Closing Market Price of the Underlying Stock on the calculation day multiplied by its Price Multiplier on that day.
If the Market Measure consists of a
Basket, the Ending Value of the Basket will be determined as described in “—Basket Market Measures—Ending Value
of the Basket.”
The “
calculation day
”
means a trading day shortly before the maturity date. The calculation day will be set forth in the term sheet.
A “
trading day
”
means a day on which trading is generally conducted (or was scheduled to have been generally conducted, but for the occurrence
of a Market Disruption Event) on the New York Stock Exchange (the “
NYSE
”), the NASDAQ Stock Market, the Chicago
Board Options Exchange, and in the over-the-counter market for equity securities in the United States, or any successor exchange
or market, or in the case of a security traded on one
or more non-U.S. securities exchanges or markets, on the
principal non-U.S. securities exchange or market for such security.
If there is a Market Disruption Event
on the scheduled calculation day, the calculation day will be the immediately succeeding trading day during which no Market Disruption
Event occurs or is continuing; provided that the Ending Value will be determined (or, if not determinable, estimated) by the calculation
agent in a commercially reasonable manner on a date no later than the second scheduled trading day prior to the maturity date,
regardless of the occurrence of a Market Disruption Event on that day.
The “
Closing Market Price
”
for one share of any Underlying Stock (or one unit of any other security for which a Closing Market Price must be determined) on
any trading day means any of the following:
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·
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if the Underlying Stock (or such other security) is listed or admitted to trading on a national securities exchange, the last
reported sale price, regular way (or, in the case of The NASDAQ Stock Market, the official closing price), of the principal trading
session on that day on the principal U.S. securities exchange registered under the Exchange Act on which the Underlying Stock (or
such other security) is listed or admitted to trading;
|
|
·
|
if the Underlying Stock (or such other security) is not listed or admitted to trading on any national securities exchange but
is included in the OTC Bulletin Board, the last reported sale price of the principal trading session on the OTC Bulletin Board
on that day;
|
|
·
|
if the Underlying Stock (or such other security) is issued by a foreign issuer and its closing price cannot be determined as
set forth in the two bullet points above, and the Underlying Stock (or such other security) is listed or admitted to trading on
a non-U.S. securities exchange or market, the last reported sale price, regular way, of the principal trading session on that day
on the primary non-U.S. securities exchange or market on which the Underlying Stock (or such other security) is listed or admitted
to trading (converted to U.S. dollars using such exchange rate as the calculation agent, in its sole discretion, determines to
be commercially reasonable); or
|
|
·
|
if the Closing Market Price cannot be determined as set forth in the prior bullets, the mean, as determined by the calculation
agent, of the bid prices for the Underlying Stock (or such other security) obtained from as many dealers in that security (which
may include us, MLPF&S and/or any of our other affiliates), but not exceeding three, as will make the bid prices available
to the calculation agent. If no such bid price can be obtained, the Closing Market Price will be determined (or, if not determinable,
estimated) by the calculation agent in its sole discretion in a commercially reasonable manner.
|
The initial
“Price Multiplier”
for an Underlying Stock will be one, unless otherwise set forth in the applicable term sheet. The Price Multiplier for each Underlying
Stock will be subject to adjustment for certain corporate events relating to that Underlying Stock described below under “—Anti-Dilution
Adjustments.”
Market Disruption Events
As to any Underlying Stock (or any
“successor Underlying Stock,” which is the common equity securities of a Successor Entity (as defined below)), a “
Market
Disruption Event
” means any of the following events, as determined by the calculation agent in its sole discretion:
|
(A)
|
the suspension of or material limitation on trading, in each case, for more than two consecutive hours of trading, or during
the one-half hour period preceding the close of trading, of the shares of the Underlying Stock (or the successor to the Underlying
Stock) on the primary exchange where such shares trade, as determined by the calculation agent (without taking into account any
extended or after-hours trading session);
|
|
(B)
|
the suspension of or material limitation on trading, in each
case, for more than two consecutive hours of trading, or during the one-half hour period preceding the close of trading, on the
primary exchange that trades options contracts or futures contracts related to the shares of the Underlying Stock (or successor
to the Underlying Stock) as determined by the calculation agent (without taking into account any extended or after-hours trading
session), in options contracts or futures contracts related to the shares of the Underlying Stock
(or
successor to the Underlying Stock)
; or
|
|
(C)
|
the determination that the scheduled calculation day is not a trading day by reason of an extraordinary event, occurrence,
declaration, or otherwise.
|
For the purpose of determining whether
a Market Disruption Event has occurred:
|
(1)
|
a limitation on the hours in a trading day and/or number of days of trading will not constitute a Market Disruption Event if
it results from an announced change in the regular business hours of the relevant exchange;
|
|
(2)
|
a decision to permanently discontinue trading in the shares of the Underlying Stock (or successor Underlying Stock) or the
relevant futures or options contracts relating to such shares will not constitute a Market Disruption Event;
|
|
(3)
|
a suspension in trading in a futures or options contract on the shares of the Underlying Stock (or successor Underlying Stock),
by a major securities market by reason of (a) a price change violating limits set by that securities market, (b) an imbalance of
orders relating to those contracts, or (c) a disparity in bid and ask quotes relating to those contracts, will each constitute
a suspension of or material limitation on trading in futures or options contracts relating to the Underlying Stock;
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(4)
|
subject to paragraph (3) above, a suspension of or material limitation on trading on the relevant exchange will not include
any time when that exchange is closed for trading under ordinary circumstances; and
|
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(5)
|
for the purpose of clause (A) above, any limitations on trading during significant market fluctuations under NYSE Rule 80B,
or any applicable rule or regulation enacted or promulgated by the NYSE or any other self-regulatory organization or the SEC of
similar scope as determined by the calculation agent, will be considered “material.”
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Anti-Dilution Adjustments
As to any Underlying Stock (or successor
to the Underlying Stock), the calculation agent, in its sole discretion, may adjust the Price Multiplier (and as a result, the
Ending Value), and any other terms of ARNs (such as the Starting Value), if an event described below occurs after the pricing date
and on or before the calculation day and if the calculation agent determines that such an event has a diluting or concentrative
effect on the theoretical value of the shares of the Underlying Stock or successor Underlying Stock.
The Price Multiplier resulting from
any of the adjustments specified below will be rounded to the eighth decimal place with five one-billionths being rounded upward.
No adjustments to the Price Multiplier will be required unless the adjustment would require a change of at least 0.1% in the Price
Multiplier then in effect. Any adjustment that would require a change of less than 0.1% in the Price Multiplier which is not applied
at the time of the event may be reflected at the time of any subsequent adjustment that would require a change of the Price Multiplier.
The required adjustments specified below do not cover all events that could affect the Underlying Stock.
No adjustments to the Price Multiplier
for any Underlying Stock or any other terms of ARNs will be required other than those specified below. However, the calculation
agent may, at its sole discretion, make additional adjustments or adjustments that differ from those described herein to the Price
Multiplier or any other terms of ARNs to reflect changes to the Underlying Stock if the calculation agent determines that the adjustment
is appropriate to ensure an equitable result.
The calculation agent will be solely
responsible for the determination of any adjustments to the Price Multiplier for any Underlying Stock or any other terms of ARNs
and of any related determinations with respect to any distributions of stock, other securities or other property or assets, including
cash, in connection with any corporate event described below; its determinations and calculations will be conclusive absent a determination
of a manifest error.
No adjustments are required to be made
for certain other events, such as offerings of common equity securities by the Underlying Company for cash or in connection with
the occurrence of a partial tender or exchange offer for the Underlying Stock by the Underlying Company.
Following certain corporate events
relating to an Underlying Stock, where the Underlying Company is not the surviving entity, any payment you receive on the notes
may be based on the equity securities of a successor to the Underlying Company or any cash or any other assets distributed to holders
of the Underlying Stock in such corporate event.
Following
an event that
results in
an adjustment to the Price Multiplier for
any Underlying Stock
or any of the other terms of ARNs, the calculation
agent may (but is not required to) provide holders of ARNs with information about that adjustment as it deems appropriate, depending
on the nature of the adjustment. Upon written request by any holder of ARNs, the calculation agent will provide that holder with
information about such adjustment.
Anti-Dilution Adjustments to Underlying
Stocks that Are Common Equity
The calculation agent, in its sole
discretion and as it deems reasonable, may adjust the Price Multiplier for any Underlying Stock and other terms of ARNs, and hence
the Ending Value, as a result of certain events related to an Underlying Stock, which include, but are not limited to, the following:
Stock Splits and Reverse Stock
Splits.
If an Underlying Stock is subject to a stock split or reverse stock split, then once such
split has become effective, the Price Multiplier will be adjusted such that the new Price Multiplier will equal the product of:
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·
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the prior Price Multiplier; and
|
|
·
|
the number of shares that a holder of one share of the Underlying Stock before the effective date of the stock split or reverse
stock split would have owned immediately following the applicable effective date.
|
For example, a two-for-one stock split
would ordinarily change a Price Multiplier of one into a Price Multiplier of two. In contrast, a one-for-two reverse stock split
would ordinarily change a Price Multiplier of one into a Price Multiplier of one-half.
Stock Dividends.
If
an Underlying Stock is subject to (i) a stock dividend (i.e., an issuance of additional shares of Underlying Stock) that is given
ratably to all holders of the Underlying Stock or (ii) a distribution of additional shares of the Underlying Stock as a result
of the triggering of any provision of the organizational documents of the Underlying Company, then, once the dividend has become
effective and the Underlying Stock is trading ex-dividend, the Price Multiplier will be adjusted on the ex-dividend date such that
the new Price Multiplier will equal the prior Price Multiplier
plus
the product of:
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·
|
the prior Price Multiplier; and
|
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·
|
the number of additional shares issued in the stock dividend with respect to one share of the Underlying Stock;
|
provided that no adjustment will be made for a stock dividend
for which the number of shares of the Underlying Stock paid or distributed is based on a fixed cash equivalent value, unless such
distribution is an Extraordinary Dividend (as defined below).
For
example, a stock dividend of one new share for each share held would ordinarily change a Price Multiplier of one into a Price Multiplier
of two.
Extraordinary Dividends.
There
will be no adjustments to the Price Multiplier to reflect any cash dividends or cash distributions paid with respect to an Underlying
Stock other than Extraordinary Dividends, as described below, and distributions described under the section entitled “—Reorganization
Events” below.
An “
Extraordinary Dividend
”
means, with respect to a cash dividend or other distribution with respect to an Underlying Stock, a dividend or other distribution
that the calculation agent determines, in its sole discretion, is not declared or otherwise made according to the Underlying Company’s
then existing policy or practice of paying such dividends on a quarterly or other regular basis. If an Extraordinary Dividend occurs,
the Price Multiplier will be adjusted on the ex-dividend date so that the new Price Multiplier will equal the product of:
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·
|
the prior Price Multiplier; and
|
|
·
|
a fraction, the numerator of which is the Closing Market Price per share of the Underlying Stock on the trading day preceding
the ex-dividend date and the denominator of which is the amount by which the Closing Market Price per share of the Underlying Stock
on that preceding trading day exceeds the Extraordinary Dividend Amount.
|
The “
Extraordinary Dividend
Amount
” with respect to an Extraordinary Dividend will equal:
|
·
|
in the case of cash dividends or other distributions that constitute regular dividends, the amount per share of the Underlying
Stock of that Extraordinary
|
Dividend minus the amount per share of the immediately
preceding non-Extraordinary Dividend for that share; or
|
·
|
in the case of cash dividends or other distributions that do not constitute regular dividends, the amount per share of the
Underlying Stock of that Extraordinary Dividend.
|
To the extent an Extraordinary Dividend
is not paid in cash, the value of the non-cash component will be determined by the calculation agent, whose determination will
be conclusive. A distribution on the Underlying Stock described in the section “—Issuance of Transferable Rights or
Warrants” or clause (a), (d) or (e) of the section entitled “—Reorganization Events” below that also constitutes
an Extraordinary Dividend will only cause an adjustment under those respective sections.
Issuance of Transferable Rights
or Warrants.
If an Underlying Company issues transferable rights or warrants to all holders of
record of the Underlying Stock to subscribe for or purchase the Underlying Stock, including new or existing rights to purchase
the Underlying Stock under a shareholder rights plan or arrangement, then the Price Multiplier will be adjusted on the trading
day immediately following the issuance of those transferable rights or warrants so that the new Price Multiplier will equal the
prior Price Multiplier plus the product of:
|
·
|
the prior Price Multiplier; and
|
|
·
|
the number of shares of the Underlying Stock that can be purchased with the cash value of those warrants or rights distributed
on one share of the Underlying Stock.
|
The number of shares that can be purchased
will be based on the Closing Market Price of the Underlying Stock on the date the new Price Multiplier is determined. The cash
value of those warrants or rights, if the warrants or rights are traded on a registered national securities exchange, will equal
the closing price of that warrant or right. If the warrants or rights are not traded on a registered national securities exchange,
the cash value will be determined by the calculation agent and will equal the average of the bid prices obtained from three dealers
at 3:00 p.m., New York time on the date the new Price Multiplier is determined, provided that if only two of those bid prices are
available, then the cash value of those warrants or rights will equal the average of those bids and if only one of those bids is
available, then the cash value of those warrants or rights will equal that bid.
Reorganization Events
If after the pricing date and on or
prior to the calculation day, as to any Underlying Stock:
|
(a)
|
there occurs any reclassification or change of the Underlying Stock, including, without limitation, as a result of the issuance of tracking stock by the Underlying Company;
|
|
(b)
|
the Underlying Company, or any surviving entity or subsequent surviving entity of the Underlying Company (a “
Successor Entity
”), has been subject to a merger, combination, or consolidation and is not the surviving entity;
|
|
(c)
|
any statutory exchange of securities of the Underlying Company or any Successor Entity with another corporation occurs, other than under clause (b) above;
|
|
(d)
|
the Underlying Company is liquidated or is subject to a proceeding under any applicable bankruptcy, insolvency, or other similar law;
|
|
(e)
|
the Underlying Company issues to all of its shareholders securities of an issuer other than the Underlying Company, including equity securities of an affiliate of the Underlying Company, other than in a transaction described in clauses (b), (c), or (d) above;
|
|
(f)
|
a tender or exchange offer or going-private transaction is consummated for all the outstanding shares of the Underlying Company;
|
|
(g)
|
there occurs any reclassification or change of the Underlying Stock that results in a transfer or an irrevocable commitment to transfer all such outstanding shares of the Underlying Stock to another entity or person;
|
|
(h)
|
the Underlying Company or any Successor Entity is the surviving entity of a merger, combination, or consolidation, that results in the outstanding Underlying Stock (other than Underlying Stock owned or controlled by the other party to such transaction) immediately prior to such event collectively representing less than 50% of the outstanding Underlying Stock immediately following such event; or
|
|
(i)
|
the Underlying Company ceases to file the financial and other information with the SEC in accordance with Section 13(a) of the Exchange Act (an event in clauses (a) through (i), a “
Reorganization Event
”),
|
then, on or after the date of the occurrence
of a Reorganization Event, the calculation agent shall, in its sole discretion, make an adjustment to the Price Multiplier or any
other terms of ARNs as the calculation agent, in its sole discretion, determines appropriate to account for the economic effect
on ARNs of that Reorganization Event (including adjustments to account for changes in volatility, expected dividends, stock loan
rate, or liquidity relevant to the Underlying Stock or to ARNs), which may, but need not, be determined by reference to the adjustment(s)
made in respect of such Reorganization Event by an options exchange to options on the relevant Underlying Stock traded on that
options exchange and determine the effective date of that adjustment. If the calculation agent determines that no adjustment that
it could make will produce a commercially reasonable result, then the calculation agent may cause the maturity date of ARNs to
be accelerated to the fifth business day following the date of that determination and the amount payable to you will be calculated
as though the date of early repayment were the stated maturity date of ARNs and as though the calculation day were the fifth trading
day prior to the date of acceleration.
If the Underlying Company ceases to
file the financial and other information with the SEC in accordance with Section 13(a) of the Exchange Act, as contemplated by
clause (i) above, and the calculation agent determines in its sole discretion that sufficiently similar information is not otherwise
available to you, then the calculation agent may cause the maturity date of ARNs to be accelerated to the fifth business day following
the date of that determination and the amount payable to you will be calculated as though the date of early repayment were the
stated maturity date of ARNs, and as though the calculation day were the fifth trading day prior to the date of acceleration. If
the calculation agent determines that sufficiently similar information is available to you, the Reorganization Event will be deemed
to have not occurred.
Alternative Anti-Dilution and Reorganization
Adjustments
The calculation agent may elect at
its discretion to not make any of the adjustments to the Price Multiplier for any Underlying Stock or to the other terms of ARNs
described in this
section, but may instead make adjustments, in its discretion,
to the Price Multiplier for any Underlying Stock or any other terms of ARNs (such as the Starting Value) that will reflect the
adjustments to the extent practicable made by the Options Clearing Corporation on options contracts on an Underlying Stock or any
successor common stock. For example, if the Underlying Stock is subject to a two-for-one stock split, and the Options Clearing
Corporation adjusts the strike prices of the options contract on the Underlying Stock by dividing the strike price by two, then
the calculation agent may also elect to divide the Starting Value by two. In this case, the Price Multiplier will remain one. This
adjustment would have the same economic effect on holders of ARNs as if the Price Multiplier had been adjusted.
Anti-Dilution Adjustments to Underlying
Stocks that Are ADRs
For purposes of the anti-dilution adjustments
set forth above, if an Underlying Stock is an ADR (an “
Underlying ADR
”), the calculation agent will consider
the effect of any of the relevant events on the Underlying ADR, and adjustments will be made as if the Underlying ADR was the Underlying
Stock described above. For example, if the stock represented by the Underlying ADR is subject to a two-for-one stock split, and
assuming an initial Price Multiplier of 1, the Price Multiplier for the Underlying ADR would be adjusted so that it equals two.
Unless otherwise specified in the applicable term sheet, with respect to ARNs linked to an Underlying ADR (or an Underlying Stock
issued by a non-U.S. Underlying Company), the term “dividend” means the dividends paid to holders of the Underlying
ADR (or the Underlying Stock issued by the non-U.S. Underlying Company), and such dividends may reflect the netting of any applicable
foreign withholding or similar taxes that may be due on dividends paid to a U.S. person.
The calculation agent may determine
not to make an adjustment if:
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(A)
|
holders of the Underlying ADR are not eligible to participate in any of the events that would otherwise require anti-dilution
adjustments as set forth above if ARNs had been linked directly to the common shares of the Underlying Company represented by the
Underlying ADR; or
|
|
(B)
|
to the extent that the calculation agent determines that the Underlying Company or the depositary for the ADRs has adjusted
the number of common shares of the Underlying Company represented by each share of the Underlying ADR, so that the market price
of the Underlying ADR would not be affected by the corporate event.
|
If the Underlying Company or the depositary
for the ADRs, in the absence of any of the events described above, elects to adjust the number of common shares of the Underlying
Company represented by each share of the Underlying ADR, then the calculation agent may make the appropriate anti-dilution adjustments
to reflect such change. The depositary for the ADRs may also make adjustments in respect of the ADRs for share distributions, rights
distributions, cash distributions and distributions other than shares, rights, and cash. Upon any such adjustment by the depositary,
the calculation agent may adjust the Price Multiplier or other terms of ARNs as the calculation agent determines commercially reasonable
to account for that event.
Delisting of ADRs or Termination of ADR Facility
If an Underlying ADR is no longer listed
or admitted to trading on a U.S. securities exchange registered under the Exchange Act or included in the OTC Bulletin Board Service
operated by FINRA, or if the ADR facility between the Underlying Company and the ADR depositary is terminated for any reason, then,
on and after the date that the Underlying ADR is no longer so listed or admitted to trading or the date of such termination, as
applicable (the
“termination date”
), the Market Measure
for ARNs will be deemed to be the Underlying Company’s common equity securities rather than the Underlying ADR. The calculation
agent will determine the price of the Market Measure by reference to those common shares. Under such circumstances, the calculation
agent may modify any terms of ARNs as it deems necessary, in its sole discretion, to ensure an equitable result. On and after the
termination date, for all purposes, the Closing Market Price of the Underlying Company’s common shares on their primary exchange
will be converted to U.S. dollars using such exchange rate as the calculation agent, in its sole discretion, determines to be commercially
reasonable.
Underlying Stock
Any information regarding any Underlying
Stock or any Underlying Company will be derived from publicly available documents. Any Underlying Stock will be registered under
the Exchange Act. Information provided to or filed with the SEC by any Underlying Company can be located at the SEC’s facilities
or through the SEC’s website, www.sec.gov.
None of us, the Guarantor or any of our other affiliates
will have independently verified the accuracy or completeness of any of the information or reports of an Underlying Company.
The selection of an Underlying Stock
is not a recommendation to buy or sell the Underlying Stock. None of us, the Guarantor or any of our other affiliates makes any
representation to any purchaser of ARNs as to the performance of any Underlying Stock.
Basket Market Measures
If the Market Measure to which your
ARNs are linked is a Basket, the Basket Stocks will be set forth in the term sheet. We will assign each Basket Stock a weighting
(the “
Initial Component Weight
”) so that each Basket Stock represents a percentage of the Starting Value of
the Basket on the pricing date. The Basket Stocks may or may not have equal Initial Component Weights, as set forth the term sheet.
Determination of the Component Ratio for Each
Basket Stock
The “
Starting Value
”
of the Basket will be equal to 100. We will set a fixed factor (the “
Component Ratio
”) for each Basket Stock
on the pricing date, based upon the weighting of that Basket Stock. The Component Ratio for each Basket Stock will equal:
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·
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the Initial Component Weight (expressed as a percentage) for that Basket Stock, multiplied by 100;
divided by
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·
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the Closing Market Price of that Basket Stock on the pricing date.
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Each Component Ratio will be rounded
to eight decimal places.
The Component Ratios will be calculated
in this way so that the Starting Value of the Basket will equal 100 on the pricing date. The Component Ratios will not be revised
subsequent to their determination on the pricing date, except that the calculation agent may in its good faith judgment adjust
the Component Ratio of any Basket Stock in the event that Basket Stock is materially changed or modified in a manner that does
not, in the opinion of the calculation agent, fairly represent the value of that Basket Stock had those material changes or modifications
not been made.
The following table is for illustration
purposes only, and does not reflect the actual composition, Initial Component Weights, or Component Ratios, which will be set forth
in the term sheet.
Example: The
hypothetical
Basket Stocks
are Stock ABC, Stock XYZ, and Stock RST, with their Initial Component Weights being 50.00%, 25.00% and 25.00%, respectively, on
a
hypothetical
pricing date:
Basket
Stock
|
Initial
Component
Weight
|
Hypothetical
Closing Market
Price
(1)
|
Hypothetical
Component Ratio
(2)
|
Initial Basket
Value
Contribution
|
|
Stock ABC
|
50.00%
|
50.00
|
1.00000000
|
50.00
|
|
Stock XYZ
|
25.00%
|
24.00
|
1.04166667
|
25.00
|
|
Stock RST
|
25.00%
|
10.00
|
2.50000000
|
25.00
|
|
Starting Value
|
100.00
|
|
|
(1)
|
This column sets forth the
hypothetical
Closing Market Price of each Basket Stock on the
hypothetical
pricing date.
|
|
(2)
|
The
hypothetical
Component Ratio for each Basket Stock equals its Initial Component Weight (expressed as a percentage) multiplied by 100, and then divided by the
hypothetical
Closing Market Price of that Basket Stock on the
hypothetical
pricing date, with the result rounded to eight decimal places.
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|
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Ending Value of the Basket
The “
Ending Value
”
of the Basket will be the value of the Basket on the calculation day. The value of the Basket will equal the sum of the products
of the Closing Market Price of each Basket Stock on a trading day multiplied by its Price Multiplier on that day, and the Component
Ratio for each Basket Stock. The value of the Basket will vary based on the increase or decrease in the price of each Basket Stock.
Any increase in the price of a Basket Stock (assuming no change in the price of the other Basket Stock or Basket Stocks) will result
in an increase in the value of the Basket. Conversely, any decrease in the price of a Basket Stock (assuming no change in the price
of the other Basket Stock or Basket Stocks) will result in a decrease in the value of the Basket.
Unless otherwise specified in the term
sheet, if, for any Basket Stock (an “
Affected Basket Stock
”), a Market Disruption Event occurs on the scheduled
calculation day (such day being a “
non-calculation day
”), the calculation agent will determine the prices of
the Basket Stocks for that non-calculation day, and as a result, the Ending Value, as follows:
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·
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The Closing Market Price of each Basket Stock that is not an Affected Basket Stock will be its Closing Market Price on that
non-calculation day.
|
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·
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The Closing Market Price of each Basket Stock that is an Affected Basket Stock for the applicable non-calculation day will
be determined in the same manner as described in the second to last paragraph of subsection “—The Starting Value and
the Ending Value—Ending Value,” provided that references to “Underlying Stock” will be references to “Basket
Stock.”
|
For purposes of determining whether
a Market Disruption Event has occurred as to any Basket Stock, “Market Disruption Event” will have the meaning stated
above in
“—Market Disruption Events.”
Role of the Calculation Agent
The calculation agent has the sole
discretion to make all determinations regarding ARNs as described in this product supplement, including determinations regarding
the Starting Value, the Ending Value, the Price Multiplier, the Closing Market Price, the Redemption Amount, any Market Disruption
Events, any anti-dilution adjustments, a successor Underlying Stock, business days, trading days and non-calculation days. Absent
manifest error, all determinations of the calculation agent will be conclusive for all purposes and final and binding on you, the
Guarantor and us, without any liability on the part of the calculation agent.
We expect to appoint MLPF&S or
one of our other affiliates as the calculation agent for each issue of ARNs. However, we may change the calculation agent at any
time without notifying you. The identity of the calculation agent will be set forth in the applicable term sheet.
Same-Day Settlement and Payment
ARNs will be delivered in book-entry
form only through The Depository Trust Company against payment by purchasers of ARNs in immediately available funds. We will pay
the Redemption Amount in immediately available funds so long as ARNs are maintained in book-entry form.
Events of Default and Acceleration
Events of Default are defined in the
Senior Indenture and in the section entitled “Description of Debt Securities—Events of Default and Rights of Acceleration”
on page 35 of the accompanying prospectus. If such an event occurs and is continuing, unless otherwise stated in the term sheet,
the amount payable to a holder of ARNs upon any acceleration permitted under the Senior Indenture will be equal to the Redemption
Amount described under the caption “—Payment at Maturity,” determined as if the date of acceleration were the
maturity date of ARNs and as if the fifth trading day prior to the date of acceleration were the calculation day. If a bankruptcy
proceeding is
commenced in
respect
of us,
your claim may be limited
under applicable bankruptcy law
. In case of a default in payment of
ARNs
,
whether at their maturity or upon acceleration, they will not bear a default interest rate.
Listing
Unless otherwise specified in the applicable
term sheet, ARNs will not be listed on a securities exchange or quotation system.
SUPPLEMENTAL
PLAN OF DISTRIBUTION
One or more of our affiliates may act
as our selling agent for any offering of ARNs. The selling agents may act on either a principal basis or an agency basis, as set
forth in the applicable term sheet. Each selling agent will be a party to a distribution agreement described in the “Supplemental
Plan of Distribution (Conflicts of Interest)” beginning on page S-15 of the accompanying prospectus supplement.
Each selling agent will receive an
underwriting discount or commission that is a percentage of the aggregate principal amount of ARNs sold through its efforts, which
will be set forth in the applicable term sheet. You must have an account with the applicable selling agent in order to purchase
ARNs.
None of the selling agents is acting
as your fiduciary or advisor solely as a result of the making of any offering of ARNs, and you should not rely upon this product
supplement, the term sheet, or the accompanying prospectus or prospectus supplement as investment advice or a recommendation to
purchase any ARNs. You should make your own investment decision regarding ARNs after consulting with your legal, tax, and other
advisors.
MLPF&S and any of our other affiliates
may use this product supplement, the prospectus supplement, and the prospectus, together with the applicable term sheet, in a market-making
transaction for any ARNs after their initial sale.
U.S.
FEDERAL INCOME TAX SUMMARY
The following summary of the material
U.S. federal income tax considerations of the acquisition, ownership, and disposition of ARNs supplements, and to the extent inconsistent
supersedes, the discussions under “U.S. Federal Income Tax Considerations” in the accompanying prospectus and under
“U.S. Federal Income Tax Considerations” in the accompanying prospectus supplement and is not exhaustive of all possible
tax considerations. This summary is based upon the Internal Revenue Code of 1986, as amended (the “
Code
”), regulations
promulgated under the Code by the U.S. Treasury Department (“
Treasury
”) (including proposed and temporary regulations),
rulings, current administrative interpretations and official pronouncements of the IRS, and judicial decisions, all as currently
in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance
can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences
described below. This summary does not include any description of the tax laws of any state or local governments, or of any foreign
government, that may be applicable to a particular holder. If the tax consequences associated with ARNs are different than those
described below, they will be described in the applicable term sheet.
Although the ARNs are issued by us,
they will be treated as if they were issued by Bank of America Corporation for U.S. federal income tax purposes. Accordingly throughout
this discussion, references to “we,” “our” or “us” are generally to Bank of America Corporation
unless the context requires otherwise.
This summary is directed solely to
U.S. Holders and Non-U.S. Holders that, except as otherwise specifically noted, will purchase ARNs upon original issuance and will
hold ARNs as capital assets within the meaning of Section 1221 of the Code, which generally means property held for investment,
and that are not excluded from the discussion under “U.S. Federal Income Tax Considerations” in the accompanying prospectus.
You should consult your own tax
advisor concerning the U.S. federal income tax consequences to you of acquiring, owning, and disposing of ARNs, as well as any
tax consequences arising under the laws of any state, local, foreign, or other tax jurisdiction and the possible effects of changes
in U.S. federal or other tax laws.
General
Although there is no statutory, judicial,
or administrative authority directly addressing the characterization of ARNs, in the opinion of our counsel, Morrison & Foerster
LLP, and based on certain factual representations received from us, ARNs with terms described in this product supplement should
be treated as single financial contracts with respect to the Market Measure and under the terms of ARNs, we and every investor
in ARNs agree, in the absence of an administrative determination or judicial ruling to the contrary, to treat ARNs in accordance
with such characterization. This discussion assumes that ARNs constitute single financial contracts with respect to the Market
Measure for U.S. federal income tax purposes. If ARNs did not constitute single financial contracts, the tax consequences described
below would be materially different.
This characterization of ARNs is
not binding on the IRS or the courts. No statutory, judicial, or administrative authority directly addresses the characterization
of ARNs or any similar instruments for U.S. federal income tax purposes, and no ruling is being requested from the IRS with respect
to their proper characterization and treatment. Due to the absence of authorities on point, significant aspects of the U.S. federal
income tax consequences of an investment in ARNs are not certain, and no assurance can be given that the IRS or any court will
agree with the characterization and tax treatment described
in this product supplement. Accordingly, you are urged to consult your tax advisor regarding all aspects of the U.S. federal income
tax consequences of an investment in ARNs, including possible alternative characterizations.
Unless otherwise stated, the following
discussion is based on the characterization described above. The discussion in this section assumes that there is a significant
possibility of a significant loss of principal on an investment in ARNs.
We will not attempt to ascertain whether
the issuer of any Underlying Stock would be treated as a “passive foreign investment company” (“
PFIC
”),
within the meaning of Section 1297 of the Code, or a United States real property holding corporation, within the meaning of Section
897(c) of the Code. If the issuer of any Underlying Stock were so treated, certain adverse U.S. federal income tax consequences
could possibly apply to a holder of ARNs. You should refer to information filed with the SEC by the issuer of any Underlying Stock
and consult your tax advisor regarding the possible consequences to you, if any, if the issuer of any Underlying Stock is or becomes
a PFIC or is or becomes a United States real property holding corporation.
U.S. Holders
Upon receipt of a cash payment at maturity
or upon a sale or exchange of ARNs prior to maturity, a U.S. Holder generally will recognize capital gain or loss equal to the
difference between the amount realized and the U.S. Holder’s tax basis in ARNs. A U.S. Holder’s tax basis in ARNs will
equal the amount paid by that holder to acquire them. This capital gain or loss generally will be long-term capital gain or loss
if the U.S. Holder held ARNs for more than one year. The deductibility of capital losses is subject to limitations.
Alternative Tax Treatments
.
Due to the absence of authorities that directly address the proper tax treatment of ARNs, prospective investors are urged to consult
their tax advisors regarding all possible alternative tax treatments of an investment in ARNs. In particular, if ARNs have a term
that exceeds one year, the IRS could seek to subject ARNs to the Treasury regulations governing contingent payment debt instruments.
If the IRS were successful in that regard, the timing and character of income on ARNs would be affected significantly. Among other
things, a U.S. Holder would be required to accrue original issue discount every year at a “comparable yield” determined
at the time of issuance. In addition, any gain realized by a U.S. Holder at maturity, or upon a sale or exchange, of ARNs generally
would be treated as ordinary income, and any loss realized at maturity would be treated as ordinary loss to the extent of the U.S.
Holder’s prior accruals of original issue discount, and as capital loss thereafter. If ARNs have a term of one year or less,
a U.S. holder who uses the accrual method of accounting generally should be required to accrue any original issue discount on an
ARN on a straight-line basis. At maturity, or upon a sale or exchange, a U.S. holder using either a cash or accrual method of accounting
generally should recognize taxable gain (all or a portion of which may be treated as ordinary income) or loss in an amount equal
to the difference between the amount realized and such holder’s tax basis in ARNs.
The IRS released Notice 2008-2 (“
Notice
”)
which sought comments from the public on the taxation of financial instruments currently taxed as “prepaid forward contracts.”
This Notice addresses instruments such as ARNs. According to the Notice, the IRS and Treasury are considering whether a holder
of an instrument such as ARNs should be required to accrue ordinary income on a current basis, regardless of whether any payments
are made prior to maturity. It is not possible to determine what guidance the IRS and Treasury will ultimately issue, if any. Any
such future guidance may affect the amount, timing and character of income, gain, or loss in respect of ARNs, possibly with retroactive
effect.
The IRS and Treasury are also considering
additional issues, including whether additional gain or loss from such instruments should be treated as ordinary or capital, whether
foreign holders of such instruments should be subject to withholding tax on any deemed income accruals, whether Section 1260 of
the Code, concerning certain “constructive ownership transactions,” generally applies or should generally apply to
such instruments, and whether any of these determinations depend on the nature of the underlying asset.
In addition, proposed Treasury regulations
require the accrual of income on a current basis for contingent payments made under certain notional principal contracts. The preamble
to the regulations states that the “wait and see” method of accounting does not properly reflect the economic accrual
of income on those contracts, and requires current accrual of income for some contracts already in existence. While the proposed
regulations do not apply to prepaid forward contracts, the preamble to the proposed regulations expresses the view that similar
timing issues exist in the case of prepaid forward contracts. If the IRS or Treasury publishes future guidance requiring current
economic accrual for contingent payments on prepaid forward contracts, it is possible that you could be required to accrue income
over the term of ARNs.
Because of the absence of authority
regarding the appropriate tax characterization of ARNs, it is also possible that the IRS could seek to characterize ARNs in a manner
that results in tax consequences that are different from those described above. For example, the IRS could possibly assert that
any gain or loss that a holder may recognize at maturity or upon sale or exchange of ARNs should be treated as ordinary gain or
loss.
It is possible that the IRS could assert
that a U.S. Holder’s holding period in respect of ARNs should end on the applicable calculation day, even though such holder
will not receive any amounts in respect of ARNs prior to the redemption or maturity of ARNs. In such case, if the applicable calculation
day is not in excess of one year from the original issue date, a U.S. Holder may be treated as having a holding period in respect
of ARNs equal to one year or less, in which case any gain or loss such holder recognizes at such time would be treated as short-term
capital gain or loss.
Non-U.S. Holders
A Non-U.S. Holder generally will not
be subject to U.S. federal income or withholding tax for amounts paid in respect of ARNs, provided that the Non-U.S. Holder complies
with applicable certification requirements and that the payment is not effectively connected with the conduct by the Non-U.S. Holder
of a U.S. trade or business. Notwithstanding the foregoing, gain from the sale or exchange of ARNs or their settlement at maturity
may be subject to U.S. federal income tax if that Non-U.S. Holder is a non-resident alien individual and is present in the U.S.
for 183 days or more during the taxable year of the settlement at maturity, sale or exchange and certain other conditions are satisfied.
If a Non-U.S. Holder of ARNs is engaged
in the conduct of a trade or business within the U.S. and if gain realized on the settlement at maturity, sale or exchange of ARNs,
is effectively connected with the conduct of such trade or business (and, if certain tax treaties apply, is attributable to a permanent
establishment maintained by the Non-U.S. Holder in the U.S.), the Non-U.S. Holder generally will be subject to U.S. federal income
tax on such gain on a net income basis in the same manner as if it were a U.S. Holder. Such Non-U.S. Holders should read the material
under the heading “—U.S. Holders,” for a description of the U.S. federal income tax consequences of acquiring,
owning, and disposing of ARNs. In addition, if such Non-U.S. Holder is a foreign corporation, it may also be subject to a branch
profits tax equal to 30% (or such lower rate provided by any applicable tax treaty) of a portion of its earnings and
profits for the taxable year that are effectively connected
with its conduct of a trade or business in the U.S., subject to certain adjustments.
A “dividend equivalent” payment is treated as a dividend
from sources within the United States and such payments generally would be subject to a 30% (or a lower rate under an applicable
treaty) U.S. withholding tax if paid to a Non-U.S. Holder. Under U.S. Treasury Department regulations, payments (including deemed
payments) with respect to equity-linked instruments (“ELIs”) that are “specified ELIs” may be treated as
dividend equivalents if such specified ELIs reference an interest in an “underlying security,” which is generally any
interest in an entity taxable as a corporation for U.S. federal income tax purposes if a payment with respect to such interest
could give rise to a U.S. source dividend. However, Internal Revenue Service guidance provides that withholding on dividend equivalent
payments will not apply to specified ELIs that are not delta-one instruments and that are issued before January 1, 2019. We expect
that the delta of the ARNs with respect to the Market Measure will not be one, and therefore, we expect that Non-U.S. Holders should
not be subject to withholding on dividend equivalent payments, if any, under ARNs issued before January 1, 2019. However, it is
possible that ARNs issued before January 1, 2019, could be treated as deemed reissued for U.S. federal income tax purposes upon
the occurrence of certain events affecting the Market Measure or the ARNs, and following such occurrence the ARNs could be treated
as subject to withholding on dividend equivalent payments. Non-U.S. Holders that enter, or have entered, into other transactions
in respect of the Market Measure or the ARNs should consult their tax advisors as to the application of the dividend equivalent
withholding tax in the context of the ARNs and their other transactions. If any payments are treated as dividend equivalents subject
to withholding, we (or the applicable paying agent) would be entitled to withhold taxes without being required to pay any additional
amounts with respect to amounts so withheld.
As discussed above, alternative characterizations
of ARNs for U.S. federal income tax purposes are possible. Should an alternative characterization, by reason of change or clarification
of the law, by regulation or otherwise, cause payments as to ARNs to become subject to withholding tax, tax will be withheld at
the applicable statutory rate. As discussed above, the IRS has indicated in the Notice that it is considering whether income in
respect of instruments such as ARNs should be subject to withholding tax. Prospective Non-U.S. Holders of ARNs should consult their
own tax advisors in this regard.
U.S. Federal Estate Tax.
Under
current law, while the matter is not entirely clear, individual Non-U.S. Holders, and entities whose property is potentially includible
in those individuals’ gross estates for U.S. federal estate tax purposes (for example, a trust funded by such an individual
and with respect to which the individual has retained certain interests or powers), should note that, absent an applicable treaty
benefit, ARNs are likely to be treated as U.S. situs property, subject to U.S. federal estate tax. These individuals and entities
should consult their own tax advisors regarding the U.S. federal estate tax consequences of investing in ARNs.
Backup Withholding and Information Reporting
Please see the discussion under “U.S.
Federal Income Tax Considerations — Taxation of Debt Securities — Backup Withholding and Information Reporting”
in the accompanying prospectus for a description of the applicability of the backup withholding and information reporting rules
to payments made on ARNs.