Registration Statement No. 333-264388
Bank of Montreal may offer and sell from time to
time callable notes linked to one or more equity securities, equity indices and/or exchange traded funds (each, a “Reference Asset”).
This product supplement describes terms that will
apply generally to the notes, and supplements the terms described in the accompanying prospectus supplement and prospectus. A separate
term sheet or pricing supplement, as the case may be, will describe the terms that apply specifically to the notes, including any changes
to the terms specified below. We refer to these term sheets and pricing supplements generally as “pricing supplements.” If
the terms described in the applicable pricing supplement are inconsistent with those described in this product supplement or in the accompanying
prospectus supplement or prospectus, the following hierarchy will govern: first, the pricing supplement will govern; second, this product
supplement; third, the accompanying prospectus supplement and last, the accompanying prospectus.
During the term of the notes, you may receive periodic
payments of interest, if any, at the rate and on the dates specified in the applicable pricing supplement. Your notes may also be subject
to redemption prior to maturity on the terms specified in the applicable pricing supplement.
If the notes are not redeemed, at maturity, you
will receive, in addition to any accrued and unpaid interest on the notes that is otherwise due, an amount of cash that will be based
upon the value of the applicable Reference Asset or Reference Assets as of the applicable “Valuation Date(s)” (as defined
below). You may lose some or all of your principal amount. If specified in the applicable pricing supplement, we may, at our election,
deliver a specified number of shares of the applicable Reference Asset in lieu of a cash payment at maturity.
Because we have provided only a brief summary of
the terms of your notes above, you should read the detailed description of the terms of the notes found in “Summary Information”
and “General Terms of the Notes.”
The notes will not be listed on any securities
exchange.
Summary
Information
We refer to the notes we are offering by this
product supplement as the “notes.” Each of the notes, including your notes, has the terms described below and under “General
Terms of the Notes.” In addition, references to the “accompanying prospectus” mean the accompanying prospectus, dated
May 26, 2022, as supplemented by the accompanying prospectus supplement, dated May 26, 2022, relating to our Senior Medium-Term Notes,
Series I.
Issuer: |
Bank of Montreal |
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Reference Asset(s): |
Your notes will be linked to one or more equity securities (which may include American depositary receipts (“ADRs”)), equity indices and/or exchange traded funds (“ETFs”). The applicable pricing supplement may specify that your notes are linked to the performance of the least performing of two or more Reference Assets, or to a “Basket” of two or more Reference Assets. We refer to each Reference Asset included in a Basket as a “Basket Component.” |
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Denominations: |
Unless otherwise specified in the applicable pricing supplement, the notes will be issued in denominations of $1,000 and integral multiples of $1,000. |
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Interest Rate: |
We will pay you interest, if any, on the dates and at the rate per
year specified in the relevant pricing supplement.
The payment of interest may be contingent on the performance of the
applicable Reference Asset or Reference Assets on one or more dates specified in the applicable pricing supplement.
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Early Redemption: |
The applicable pricing supplement may specify that your notes are subject
to automatic redemption or redemption at the option of the Issuer (an “Issuer Call”).
If the relevant pricing supplement specifies that your notes are subject
to automatic redemption, the notes will be automatically redeemed if:
(i) in the case of notes linked to a single Reference Asset, the closing
level of the Reference Asset is greater than its call level on any call observation date; or
(ii) in the case of notes linked to the least performing of two or
more Reference Assets, the closing level of each Reference Asset is greater than its call level on any call observation date.
The “call observation dates” and the “call level”
will be set forth in the applicable pricing supplement.
If the relevant pricing supplement specifies that your notes are subject
to an Issuer Call, then we may elect, in our discretion, to redeem the notes, in whole but not in part, on any of the dates specified
in the applicable pricing supplement (each such date, a potential “call date”).
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Payment upon Early
Redemption: |
If the notes are redeemed prior to maturity, then, on the applicable
call settlement date, for each $1,000 principal amount, investors will receive the principal amount plus any accrued and unpaid interest
payment unless otherwise specified in the applicable pricing supplement.
Unless otherwise specified in the applicable pricing supplement,
the “call settlement date” will be the third business day following the applicable call observation date (in the case of
an automatic redemption) or call date (in the case of an Issuer Call). |
Payment at Maturity: |
If the notes are not automatically redeemed, your payment at maturity
will be based on the performance of the applicable Reference Asset or Reference Assets. At maturity, you will also receive any final payment
of interest due on your notes.
If so specified in the applicable pricing supplement, if the relevant
Reference Asset (or Least Performing Reference Asset, if applicable) is an equity security or an ETF, we will have the option to deliver
to you shares of the Reference Asset in lieu of the cash amount. If we deliver shares of the Reference Asset, fractional shares will be
paid in cash.
If your notes are linked to a single Reference Asset or a Basket:
You will receive at maturity the principal amount of your notes unless
(i) a Trigger Event occurs with respect to the Reference Asset or Basket, as applicable; and (ii) the Final Level of the Reference
Asset or Basket, applicable, is less than its Initial Level.
If the events described in (i) and (ii) above occur, you will receive
at maturity, for each $1,000 in principal amount of your notes, a cash amount equal to:
$1,000 + [$1,000 x (Percentage Change)]
In this case, you will lose 1% of the principal amount for every
1% decrease in the level of the Reference Asset or Basket, as applicable.
However, if the relevant pricing supplement
specifies that a “Buffer” is applicable to your notes, and the events described in (i)
and (ii) above occur, you will receive at maturity, for each $1,000 in principal amount of your notes, a cash amount equal to:
$1,000 + [$1,000 x (Percentage Change + Buffer Percentage)
x Downside Leverage Factor]
In this case, you will receive less than the principal amount of
your notes and will lose some, or all, of your initial investment in the notes.
If your notes are linked to the least performing of two or more
Reference Assets:
You will receive at maturity the principal amount of your notes unless
(i) a Trigger Event occurs with respect to any Reference Asset; and (ii) the Final Level of any Reference Asset is
less than its Initial Level.
If the events described in (i) and (ii) above occur, you will receive
at maturity, for each $1,000 in principal amount of your notes, a cash amount equal to:
$1,000 + [$1,000 x (Percentage Change of the Least Performing Reference
Asset)]
In this case, you will lose 1% of the principal amount for every
1% decrease in the value of the Least Performing Reference Asset.
However, if the relevant pricing supplement
specifies that a “Buffer” is applicable to your notes, and the events described in (i)
and (ii) above occur, you will receive at maturity, for each $1,000 in principal amount of your notes, a cash amount equal to:
$1,000 + [$1,000 x (Percentage Change of the Least
Performing Reference Asset + Buffer Percentage) x Downside Leverage Factor]
In this case, you will receive less than the principal amount
of your notes and will lose some, or all, of your initial investment in the notes. |
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Trigger Event: |
A Trigger Event occurs with respect to a Reference Asset if,
(a) for Reference Assets that are subject to Continuous Monitoring,
at any time during the applicable Monitoring Period, the level of that Reference Asset is less than its Trigger Level (or Buffer Level,
if applicable); or
(b) for Reference Assets that are subject to Closing Level Monitoring,
on any trading day during the applicable Monitoring Period, the closing level of that Reference Asset is less than its Trigger Level (or
Buffer Level, if applicable).
The applicable pricing supplement will specify if Continuous Monitoring,
Closing Level Monitoring, or another method for monitoring each Reference Asset is applicable to the notes. |
Monitoring Period: |
As may be specified in the applicable pricing supplement. For example, the Monitoring Period (a) may include the period from pricing date through the final Valuation Date, (b) may be limited to the final Valuation Date or (c) may be of any other period of time set forth in the applicable pricing supplement. The applicable pricing supplement may specify the same Monitoring Period or different Monitoring Periods for each Reference Asset. |
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Least Performing
Reference Asset: |
If the applicable pricing supplement specifies that your notes are linked to the least performing of two or more Reference Assets, the “Least Performing Reference Asset” will be the Reference Asset that has the lowest Percentage Change. The Least Performing Reference Asset may be, or may not be, a Reference Asset with respect to which a Trigger Event occurs. |
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Percentage Change: |
The Percentage Change with respect to each Reference Asset, expressed
as a percentage, is calculated as follows: |
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Final
Level – Initial Level
Initial Level |
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Initial Level: |
The Initial Level for each Reference Asset will be set forth in the applicable pricing supplement, and will generally be the closing level of the applicable Reference Asset on the pricing date of the notes. In the case of a note linked to a Basket, the Initial Level will be set forth in the applicable pricing supplement. The Initial Level of each Reference Asset is subject to adjustment as described further under “General Terms of the Notes” below. |
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Final Level: |
Unless otherwise set forth in the pricing supplement, the Final Level for each Reference Asset will be the closing level of the applicable Reference Asset on the Valuation Date or, if there is more than one Valuation Date, the arithmetic average of the closing level of that Reference Asset on each Valuation Date. In the case of a note linked to a Basket, unless otherwise set forth in the applicable pricing supplement, the Final Level will be the Basket Closing Level on the Valuation Date, or the arithmetic average of the Basket Closing Level on each of the Valuation Dates, as applicable, determined as described in more detail in the section entitled “General Terms of the Notes—Notes Linked to a Basket” in this product supplement. The applicable pricing supplement will set forth the Valuation Date or Valuation Dates. The Valuation Dates will be subject to postponement under certain circumstances, as described below. |
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Basket Closing Level: |
If your notes are linked to a Basket, unless otherwise set forth in the pricing supplement, on any day, the Basket Closing Level will be calculated as (a) the Initial Level multiplied by (b) the sum of (i) 1 plus (ii) the sum of the products of each Component Change multiplied by its Weighting Percentage. |
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Component Change: |
If your notes are linked to a Basket, unless otherwise set forth in
the applicable pricing supplement, on any day, with respect to each Basket Component, the Component Change will equal the quotient, expressed
as a percentage, of the following formula:
(Closing Basket Component Level - Initial
Basket Component Level)
Initial Basket Component Level |
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Closing Basket
Component Level: |
If your notes are linked to a Basket, unless otherwise set forth in the applicable pricing supplement, the Closing Basket Component Level of each Basket Component on any trading day, including any Valuation Date, will be its closing level. |
Initial Basket Component
Level: |
If your notes are linked to a Basket, the Initial Basket Component Level of each Basket Component will be set forth in the applicable pricing supplement and will generally be the closing level of the applicable Basket Component on the pricing date of the notes. |
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Weighting Percentage: |
If your notes are linked to a Basket, the Weighting Percentage with respect to each Basket Component will be set forth in the applicable pricing supplement. |
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Trigger Level: |
If your notes will have a Trigger Level, the applicable Trigger Level for each Reference Asset will be set forth in the applicable pricing supplement, and may be greater than, less than or equal to the applicable Initial Level. For example, the applicable pricing supplement may specify that the Trigger Level for a Reference Asset is equal to 80% of its Initial Level. |
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Buffer Level: |
If your notes will have a Buffer Level, the applicable Buffer Level for each Reference Asset will be set forth in the applicable pricing supplement. |
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Buffer Percentage: |
A specified percentage that will be set forth in the relevant pricing supplement, if applicable. |
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Downside Leverage
Factor: |
As specified in the relevant pricing supplement, if applicable. The Downside Leverage Factor may be less than, equal to or greater than 100%. If the Downside Leverage Factor is less than 100%, you will participate in less than the full downside performance (or in the case of bearish notes, upside performance) of the Reference Asset. If the Downside Leverage Factor is greater than 100%, you will participate on a leveraged basis in the downside performance (or in the case of bearish notes, upside performance) of the Reference Asset, and you may lose a greater portion of the principal amount of your investment. |
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Valuation Date(s): |
As specified in the applicable pricing supplement. Any Valuation Date is subject to postponement as set forth in the section below, “General Terms of the Notes —Valuation Date.” |
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Maturity Date: |
As specified in the applicable pricing supplement, subject to any prior automatic redemption. The Maturity Date of the notes is subject to postponement as set forth in the sections below, “General Terms of the Notes—Maturity Date.” |
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Clearance and Settlement: |
DTC |
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Listing: |
The notes will not be listed on any securities exchange. |
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Calculation Agent: |
Unless otherwise set forth in the applicable pricing supplement, BMO Capital Markets Corp. will serve as calculation agent for the notes. The calculation agent will make all required determinations as to the amounts payable on the notes. |
Additional
Risk Factors relating to the Notes
An investment
in the notes involves risks. This section describes significant risks relating to the terms of the notes. Before investing in the notes,
you should read the following information about these risks, together with the other information contained in or incorporated by reference
in the applicable pricing supplement, this product supplement and the accompanying prospectus supplement and prospectus.
Risks Related to the Structure or Terms of the Notes
Your investment in the notes may result in
a loss. Unless otherwise set forth in the applicable pricing supplement, the notes do not guarantee
any return of principal. If your notes are linked to the least performing of two or more Reference Assets, you will only receive the principal
amount of the notes at maturity if (a) the Final Level of each Reference Asset is greater than
or equal to its Initial Level, or (b) if a Trigger Event does not occur with respect to each Reference
Asset. If a Trigger Event occurs with respect to any Reference Asset and the Final Level of any
Reference Asset is less than its Initial Level, you will lose some or all of your investment in the
notes. If your notes are linked to a single Reference Asset, you will only receive the principal amount of the notes at maturity if (a)
the Final Level of the Reference Asset is greater than or equal to its Initial Level, or (b) if a Trigger Event does not occur with respect
to the Reference Asset. If a Trigger Event occurs with respect to the Reference Asset and the Final Level of the Reference Asset is less
than its Initial Level, you will lose some or all of your investment in the notes.
Your yield may be lower than the yield on
a standard debt security of comparable maturity. The yield that you will receive on your notes, which
could be negative, may be less than the yield you could earn if you purchased a standard senior debt security of Bank of Montreal with
the same maturity date. Your investment may not reflect the full opportunity cost to you when you take into account factors that affect
the time value of money.
Payments on the notes are subject to our credit
risk, and changes in our credit ratings are expected to affect the market value of the notes. The notes
are our senior unsecured debt securities. As a result, your receipt of all payments on the notes is dependent upon our ability to repay
our obligations as of the applicable payment date. This will be the case even if the value of the applicable Reference Asset or Reference
Assets increases after the pricing date. No assurance can be given as to what our financial condition will be at any time during the term
of the notes.
The amount to be paid at maturity will not
be affected by all developments relating to a Reference Asset. Changes in the value of a Reference Asset
during the term of the notes before the Valuation Date or Valuation Dates will not be reflected in the calculation of the payment at maturity,
except to the extent that a Reference Asset trades or closes (as applicable) below its Trigger Level or Buffer Level during any applicable
Monitoring Period, or to the extent that the notes are subject to an automatic redemption. The calculation agent will calculate the amount
to be paid at maturity by comparing the Final Level of any applicable Reference Asset to its Initial Level. As a result, you may receive
an amount that is less than the principal amount of your notes, even if the value of the applicable Reference Asset has increased at certain
times during the term of the notes before decreasing to a price below its Initial Level.
Risks Related to Automatic Redemption
Your notes will be subject to automatic early
redemption. If the applicable pricing supplement indicates that your notes are subject to automatic
redemption, we will redeem the notes if, in the case of notes linked to the least performing of two or more Reference Assets, the closing
level of each Reference Asset is greater than its call level on any call observation date or,
in the case of notes linked to a single Reference Asset, the closing level of the applicable Reference Asset is greater than its call
level on any call observation date. Following a redemption, you will not receive any additional interest payments on the notes, and you
may not be able to reinvest your proceeds in an investment with returns that are comparable to the notes.
Risks Related to Issuer Calls
We may elect to call the notes, and the notes
are subject to reinvestment risk. We may elect to call the notes at our discretion prior to the maturity date. If we elect to call
your notes early, you will not receive any additional interest payments on the notes, and you may not be able to reinvest your proceeds
in an investment with returns that are comparable to the notes. Further, our right to call the notes may also adversely impact your ability
to sell your notes in the secondary market.
It is more likely that we will elect to call the
notes prior to maturity when the expected amounts payable on the notes are greater than the amount that would be payable on other instruments
issued by us of comparable maturity, terms and credit rating trading in the market. The greater likelihood of us calling the notes in
that environment increases the risk that you will not be able to reinvest the proceeds from the called notes in an equivalent investment
with similar potential returns. To the extent you are able to reinvest such proceeds in an investment comparable to the notes, you may
incur transaction costs such as dealer discounts and hedging costs built into the price of the new securities. We are less likely to call
the notes prior to maturity when the expected amounts payable on the notes are less than the amounts that would be payable on other comparable
instruments issued by us, which includes when a Reference Asset is performing unfavorably to you. Therefore, the notes are more likely
to remain outstanding when the expected amount payable on the notes is less than what would be payable on other comparable instruments
and when your risk of not receiving any positive return on your initial investment is relatively higher.
Risks Related to Notes Linked to the Least Performing of Two or
More Reference Assets
Your payment at maturity may be determined
solely by reference to the Least Performing Reference Asset, even if the other Reference Assets perform better. If
a Trigger Event occurs with respect to any Reference Asset and the Final Level of any
Reference Asset is less than its Initial Level, your payment at maturity will be determined by reference
to the performance of the Least Performing Reference Asset. Even if the other Reference Assets have appreciated in value compared to their
Initial Level, or have experienced a decline that is less than that of the Least Performing Reference Asset, your return will only be
determined by reference to the performance of the Least Performing Reference Asset.
Your payment on the notes will be determined
by reference to each Reference Asset individually, not to a basket, and the payment at maturity will be based on the performance of the
Least Performing Reference Asset. If a Trigger Event occurs, the payment at maturity will be determined only by reference to the performance
of the Least Performing Reference Asset, regardless of the performance of the other Reference Assets. The notes are not linked to a weighted
basket, in which the risk may be mitigated and diversified among each of the basket components. For example, in the case of notes linked
to a weighted basket, the return would depend on the weighted aggregate performance of the basket components reflected as the basket return.
As a result, the depreciation of one basket component could be mitigated by the appreciation of the other basket component, as scaled
by the weighting of that basket component. However, in the case of the notes, the individual performance of each Reference Asset would
not be combined, and the depreciation of one Reference Asset would not be mitigated by any appreciation of the other Reference Asset.
Instead, your return will depend solely on the Final Level of the Least Performing Reference Asset.
Risks Related to Physical Settlement
The cash value of any Reference Asset that we
deliver to you may be less than the market value of those shares on the Valuation Date. If you receive shares of a Reference Asset
at maturity, the market price of the shares that you receive could decline between the Valuation Date (or the final Valuation Date) and
the Maturity Date, which is when you will actually receive those shares. Similarly, if we elect to pay you cash at maturity, we will determine
the amount to be paid on the Valuation Date (or the final Valuation Date) and you will not benefit from any appreciation in the market
price of the applicable Reference Asset that may occur between the Valuation Date (or the final Valuation Date) and the Maturity Date.
Risks Related to Liquidity and the Secondary Market
Your notes may not have an active trading market.
Your notes will not be listed on any securities exchange, and there may be little or no secondary market for your notes. Even if a secondary
market for your notes develops, it may not provide significant liquidity. We expect that transaction costs in any secondary market would
be high. As a result, the difference between bid and ask prices for your notes in any secondary market could be substantial. If you sell
your notes before maturity, you may have to do so at a substantial discount from the issue price, and as a result, you may suffer substantial
losses.
The market value of your notes may be influenced
by many unpredictable factors. The following factors, which are beyond our control, may influence the
market value of your notes:
| · | the value of any applicable Reference Asset, including whether its value is below the applicable Trigger Level or Buffer Level during
the applicable Monitoring Period, if applicable; |
| · | the likelihood of an automatic redemption; |
| · | the volatility of any applicable Reference Asset; |
| · | the proximity in time to the next interest payment; |
| · | the dividend rate on any applicable Reference Asset that is an ETF or the stocks represented or held by any Reference Asset; |
| · | economic, financial, political, military, regulatory, legal and other events that affect the applicable securities markets generally
and the U.S. markets in particular, and which may affect the value of any applicable Reference Assets; |
| · | if a Reference Asset includes one or more indices, commodities or other assets that have returns that are denominated in currencies
other than the U.S. dollar or prices in one or more non-U.S. markets, changes in, and the volatility of, the exchange rates between the
U.S. dollar and the relevant non-U.S. currency or currencies could have a negative impact on the payments due on your notes and their
market value; |
| · | interest and yield rates in the market; and |
| · | the time remaining to maturity of the notes. |
These factors may influence the market value of
your notes if you sell your notes before maturity. Our creditworthiness, as represented by our credit ratings or as otherwise perceived
in the market, will also affect the market value of your notes. If you sell your notes prior to maturity, you may receive less than the
principal amount of your notes.
The market value of your notes may decrease
at an accelerated rate as the value of a Reference Asset approaches and decreases below its Trigger Level or Buffer Level. When the
value of a Reference Asset on any trading day decreases from its respective Initial Level to a price near the applicable Trigger Level
or Buffer Level for the first time, the market value of the notes may decrease at a greater rate than the market value of that Reference
Asset. If a Reference Asset trades (in the case of Continuous Monitoring) or closes (in the case of Daily Monitoring) at levels that are
near or below the Trigger Level or Buffer Level, as applicable, we expect that the market value of the notes will decrease, reflecting
the fact that you may receive at maturity an amount that is less than the principal amount of your notes. All other factors remaining
constant, the longer the Monitoring Period is for any Reference Asset to which your notes are linked, the higher the probability will
be that such Reference Asset will trade or close (as applicable) at a price that is less than the applicable Trigger Level or Buffer Level.
Risks Related to Hedging and Conflicts of Interest
Our trading and other transactions relating
to any Reference Asset or related assets, and futures, options or other derivative products may adversely affect the market value of the
notes. As described below under “Use of Proceeds and Hedging,” we or one or more affiliates
may hedge our obligations under the notes by purchasing or selling shares of any Reference Asset or related assets, futures or options
relating to a Reference Asset, or other derivative instruments with returns linked or related to changes in the performance of a Reference
Asset. We or our affiliates may adjust these hedges by, among other things, purchasing or selling those assets at any time. Although they
are not expected to do so, any of these hedging activities may adversely affect the value of a Reference Asset, and therefore, the market
value of the notes, and the amounts payable at maturity. It is possible that we or one or more of our affiliates could receive substantial
returns from these hedging activities, even though the market value of the notes decreases.
We or one or more of our affiliates may also engage
in trading relating to a Reference Asset on a regular basis as part of our general broker-dealer and other businesses, for proprietary
accounts, for other accounts under management or to facilitate transactions for our customers, including block trades. Any of these activities
could adversely affect the value of a Reference Asset and therefore, the market value of the notes. We or one or more of our affiliates
may also issue or underwrite other securities or financial or derivative instruments with returns linked or related to changes in the
performance of any applicable Reference Asset or Reference Assets. By introducing competing products into the marketplace in this manner,
we or one or more of our affiliates could adversely affect the market value of the notes.
Our business activities or those of our affiliates
may create conflicts of interest. We and our affiliates expect to engage in trading activities related
to Reference Assets that are not for the account of holders of the notes or on their behalf. These trading activities may present a conflict
between the holders’ interests in the notes and the interests we and our affiliates will have in their proprietary accounts, in
facilitating transactions, including options and other derivatives transactions, for their customers and in accounts under their management.
These trading activities, if they influence the value of any Reference Asset, could be adverse to the interests of the holders of the
notes. We and one or more of our affiliates may, at the time that we offer any notes or any time thereafter, engage in business with the
issuers of a Reference Asset or issuers of the equity securities included in or held by a Reference Asset, including making loans to or
providing advisory services to those companies. These services could include investment banking and merger and acquisition advisory services.
These activities may present a conflict between our or one or more of our affiliates’ obligations and your interests as a holder
of the notes. Moreover, we and our affiliates may have published, and in the future expect to publish, research reports with respect to
a Reference Asset or the securities or other assets that it represents. This research is modified from time to time without notice and
may express opinions or provide recommendations that are inconsistent with purchasing or holding the notes. Any of these activities by
us or one or more of our affiliates may affect the value of a Reference Asset and therefore, the market value of the notes.
The calculation agent may postpone the determination
of the Final Level if a market disruption event occurs. The calculation agent may postpone the determination
of the Final Level of a Reference Asset if the calculation agent determines that a market disruption event has occurred or is continuing
on a Valuation Date. In no event, however, will any Valuation Date be postponed by more than ten trading days. As a result, if a market
disruption event occurs or is continuing on a Valuation Date, the Maturity Date for the notes could also be postponed.
If the determination of the value of a Reference
Asset for any Valuation Date is postponed to the last possible day, but a market disruption event occurs or is continuing on that day,
that day will nevertheless be the date on which the value of the applicable Reference Asset will be determined by the calculation agent.
In such an event, the calculation agent will make a good faith estimate in its sole discretion of the value that would have prevailed
in the absence of the market disruption event. See “General Terms of the Notes—Market Disruption Events.”
The delivery of the shares may be postponed
if a Physical Delivery Amount Disruption Event Occurs. As described in more detail in the section below, “General Terms of the
Notes—Payment at Maturity,” there may be circumstances in which the calculation agent determines that we are unable to procure
all or a portion of the securities needed fulfill its payment obligations on the Maturity Date. In such a case, the Maturity Date of your
notes and the delivery of the shares of the applicable Reference Asset may be postponed by up to ten business days, without any payment
of additional interest, and we may also pay to you cash in lieu of such securities. Accordingly, you are advised not to effect any transaction
involving the securities that you may expect to receive as payment on the notes until you have confirmed that those securities have been
received in your account. In addition, the value of the securities delivered may decrease, perhaps to a significant extent, in the period
between the Valuation Date or Valuation Dates and the Maturity Date, as so postponed.
As calculation agent, BMO Capital Markets
Corp. will have the authority to make determinations that could affect the value of your notes and your payment at maturity. As
calculation agent for your notes, BMO Capital Markets Corp. will have discretion in making various determinations that affect your notes,
including determining the Final Level, market disruption events, and any amount payable on your notes. The calculation agent also has
discretion in making certain adjustments relating to mergers and certain other corporate transactions the issuer of a Reference Asset
may undertake and determining whether an anti-dilution adjustment is needed as to any equity securities or ETFs and whether any Reference
Asset that is an index has been materially changed. The exercise of this discretion by BMO Capital Markets Corp. could adversely affect
the value of your notes and may present BMO Capital Markets Corp., which is our wholly owned subsidiary, with a conflict of interest.
Risks Related to Taxation
Significant aspects of the tax treatment of
the notes are uncertain. The tax treatment of the notes is uncertain. We do not plan to request a ruling from the Internal Revenue
Service or from any Canadian authorities regarding the tax treatment of the notes, and the Internal Revenue Service or a court may not
agree with the tax treatment described in this product supplement. Please read carefully the sections entitled “Supplemental Tax
Considerations” in this product supplement, the sections “United States Federal Income Taxation” and “Canadian
Taxation” in the accompanying prospectus and the section entitled “Certain Income Tax Consequences” in the accompanying
prospectus supplement. You should consult your tax advisor about your own tax situation.
A 30% U.S. Federal Withholding Tax May Be
Withheld on any Interest Payments to Non-United States Holders. The U.S. federal income tax treatment
of the notes is uncertain and as a result, the institution through which you hold the notes may determine to withhold U.S. federal income
tax at a 30% rate (or at a lower rate under an applicable income tax treaty) in respect of any interest payments made to a non-United
States holder unless such payments are effectively connected with the conduct by the non-United States holder of a trade or business in
the United States (in which case, to avoid withholding, the non-United States holder will be required to provide a Form W-8ECI). We will
not pay any additional amounts in respect of such withholding. Please read carefully the sections entitled “Supplemental Tax Considerations”
in this product supplement, the sections “United States Federal Income Taxation” and “Canadian Taxation” in the
accompanying prospectus and the section entitled “Certain Income Tax Consequences” in the accompanying prospectus supplement.
You should consult your tax advisor about your own tax situation.
Risks Related to ERISA
Employee benefit plans should carefully review
the legal issues of an investment in the notes. Any fiduciary of an “employee benefit plan” as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), subject to Title I of ERISA, a plan or
account subject to Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”), an entity whose underlying
assets include the assets of any of the foregoing (each of the foregoing, a “Benefit Plan Investor”) or any other plan which
is subject to any federal, state, local or other law that is substantially similar to the fiduciary responsibility and prohibited transaction
provisions of ERISA or Section 4975 of the Code (“Similar Law”) that is considering purchasing the notes with the assets
of such Benefit Plan Investor or plan subject to Similar Law, should consult with its counsel regarding whether the purchase or holding
of the notes is or could become a non-exempt “prohibited transaction” under ERISA or the Code or a violation of any Similar
Law. For additional information, please see the discussion under “Certain Considerations for ERISA and Other U.S. Employee Benefit
Plans” below.
Risks Relating to Reference Assets
Owning the notes is not the same as owning a
Reference Asset, a Reference Asset’s components or a security directly linked to the performance of a Reference Asset or its components.
The return on your notes will not reflect the return you would realize if you actually owned the applicable Reference Asset or Reference
Assets or the applicable components or a security directly linked to the performance of the applicable Reference Asset or Reference Assets
or the applicable components and held that investment for a similar period. For example, your return on the notes will not reflect the
return you would receive if you actually owned the securities included in an index or shares of an ETF, and received the dividends or
distributions paid on those securities. Your notes may trade quite differently from the applicable Reference Asset or Reference Assets.
Changes in the value of a Reference Asset may not result in comparable changes in the market value of your notes. Even if the value of
a Reference Asset increases from its Initial Level during the term of the notes, the market value of the notes prior to maturity may not
increase to the same extent. It is also possible for the market value of the notes prior to maturity to decrease while the value of a
Reference Asset increases.
You must rely on your own evaluation of the
merits of an investment linked to any Reference Asset. In the ordinary course of their business, we
or our affiliates may have expressed views on expected movements in any Reference Asset or the securities that it holds or includes, 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 transact business in markets relating to any Reference Asset
may at any time have significantly different views from our views or those of our affiliates. For these reasons, you are encouraged to
obtain information concerning any applicable Reference Asset from multiple sources, and you should not rely solely on views expressed
by us or our affiliates.
The historical performance of a Reference Asset
should not be taken as an indication of its future performance. The historical performance of a Reference Assets does not necessarily
give an indication of its future performance. As a result, it is impossible to predict whether the value of any Reference Asset will rise
or fall during the term of the notes. The value of a Reference Asset will be influenced by complex and interrelated political, economic,
financial and other factors.
You will not have any shareholder rights and
will have no right to receive any securities represented by any Reference Asset at maturity. Investing in your notes will not make
you a holder of any securities represented by any Reference Asset. Neither you nor any other holder or owner of the notes will have any
voting rights, any right to receive dividends or other distributions or any other rights with respect to these securities.
Adjustments to a Reference Asset could adversely
affect the value of the notes. The sponsors of the indices (the “Index Sponsors”) and the investment advisors of the ETFs
(the “Investment Advisors”) may add, delete or substitute the stocks represented or held by any applicable Reference Asset,
or make other methodological changes. Further, the Index Sponsors and the Investment Advisors may discontinue or suspend calculation or
publication of the applicable indices or discontinue or suspend maintenance of the applicable ETFs at any time. Any of these actions could
affect the value of and the return on the notes.
We have no affiliation with the sponsor or investment
advisor of any ETF or any Index Sponsor and will not be responsible for any actions taken by them. Unless otherwise specified in
the relevant pricing supplement, no sponsor or investment advisor of any ETF or any Index Sponsor is an affiliate of ours or will be involved
in any offerings of the notes in any way. Consequently, we have no control over the actions of any sponsor or investment advisor of an
ETF or any Index Sponsor, including any actions of the type that would require the calculation agent to adjust the payment to you at maturity.
No sponsor or investment advisor of any ETF or any Index Sponsor has any obligation of any sort with respect to the notes. Thus, no sponsor
or investment advisor of any ETF or any Index Sponsor has any obligation to take your interests into consideration for any reason, including
in taking any actions that might affect the value of the notes. None of our proceeds from any issuance of the notes will be delivered
to any sponsor or investment advisor of an ETF or any Index Sponsor, except to the extent that we are required to pay an Index Sponsor
licensing fees with respect to a Reference Asset that is an index.
Neither we nor any of our affiliates have undertaken
any independent review of, or made any due diligence inquiry with respect to, the information about a Reference Asset contained in any
public disclosure of information. You, as an investor in the notes, should make your own investigation into any applicable Reference Asset.
You will have no rights against the sponsor
of any relevant ETF or any Index Sponsor. The notes are not sponsored, endorsed, sold or promoted by any sponsor of any ETF or any
Index Sponsor. No sponsor of the relevant ETF or any Index Sponsor has passed on the legality or suitability of, or the accuracy or adequacy
of descriptions and disclosures relating to, the notes. No sponsor of the relevant ETF or any Index Sponsor makes any representation or
warranty, express or implied, to you or any member of the public regarding the advisability of investing in securities generally or the
notes in particular, or the ability of the relevant ETF or index to track general market performance. The sponsor of that ETF or that
Index Sponsor has no obligation to take our needs or your needs into consideration in determining, composing or calculating that ETF or
index, or in making changes to that ETF or index. No sponsor of the relevant ETF or any Index Sponsor is responsible for, and none of
them has participated in the determination of, the timing, prices or quantities of the notes to be issued or in the determination or calculation
of the equation by which the amounts to be paid on the notes are to be determined. No sponsor of the relevant ETF or any Index Sponsor
has any liability in connection with the administration, marketing or trading of the notes.
The policies of the sponsor or investment advisor
of an ETF or an Index Sponsor, as applicable, and changes that affect the relevant Reference Asset could adversely affect the amount payable
on your notes and their market value. The policies of the sponsor or investment advisor of an ETF or an Index Sponsor, as applicable,
concerning the calculation of the ETF’s net asset value or the level of the index, additions, deletions or substitutions of securities
in the relevant Reference Asset and the manner in which changes affecting its components could affect the value of that Reference Asset
and, therefore, the amount payable on your notes on the Maturity Date and the market value of your notes before that date. The amount
payable on your notes and their market value could also be affected if the sponsor or investment advisor of an ETF or an Index Sponsor,
as applicable, changes these policies, for example, by changing the manner in which it calculates the ETF’s net asset value or the
level of the index, or if the sponsor or investment advisor of an ETF or an Index Sponsor, as applicable, discontinues or suspends calculation
or publication of the ETF’s net asset value or the level of the index, in which case it may become difficult to determine the market
value of the notes.
An investment in the notes may be subject to
risks associated with non-U.S. securities markets. A Reference Asset may include one or more equity securities that have been issued
by non-U.S. companies. An investment in securities linked to the value of non-U.S. equity securities involves particular risks. Non-U.S.
securities markets may be more volatile than U.S. securities markets, and market developments may affect non-U.S. securities markets differently
from the U.S. securities markets. Direct or indirect government intervention to stabilize these non-U.S. securities markets, as well as
cross shareholdings among non-U.S. companies, may affect trading prices and volumes in those markets. Also, there is generally less publicly
available information in the U.S. about non-U.S. companies than about those U.S. companies that are subject to the reporting requirements
of the SEC, and non-U.S. companies are subject to accounting, disclosure, auditing and financial reporting standards and requirements
that differ from those applicable to U.S. reporting companies.
Prices of securities in non-U.S. countries are
subject to political, economic, financial and social factors that may be unique to the particular country. These factors, which could
negatively affect the non-U.S. securities markets, include the possibility of recent or future changes in the economic and fiscal policies
of non-U.S. governments, the possible imposition of, or changes in, currency exchange laws or other non-U.S. laws or restrictions applicable
to non-U.S. companies or investments in non-U.S. equity securities, the possibility of fluctuations in the rate of exchange between currencies,
the possibility of outbreaks of hostility and political instability and the possibility of natural disaster or adverse public health developments
in the region. Moreover, the economies of certain foreign countries may differ favorably or unfavorably from the U.S. economy in important
respects, such as growth of gross national product, rate of inflation, trade surpluses or deficits, capital reinvestment, resources and
self-sufficiency.
Unless otherwise specified in the applicable
pricing supplement, we do not control the issuer of any Reference Asset or any company included in a Reference Asset and have not undertaken
any independent review of, or made any due diligence inquiry with respect to, any disclosure made by any other company. Neither we
nor any of our affiliates have the ability to control the actions of any of the companies included in a Reference Asset, nor have we independently
verified the adequacy or accuracy of any publicly available information about any of these companies, unless (and only to the extent that)
our securities or the securities of our affiliates are represented by or included in that Reference Asset. You should make your own investigation
into the companies represented by or included in the applicable Reference Asset.
Risks Relating to a Reference Asset that Is a Basket
If your notes are linked to a Basket, changes
in the level of one or more Basket Components may be offset by changes in the level of one or more other Basket Components. Your notes
may be linked to a Basket. In such a case, a change in the levels of one or more Basket Components may not correlate with changes in the
levels of one or more other Basket Components. The level of one or more Basket Components may increase, while the level of one or more
other Basket Components may not increase as much, or may even decrease. The opposite changes may occur in the case of bearish notes. Therefore,
in determining the level of the Basket as of any time, increases (or, in the case of bearish notes, decreases) in the level of one Basket
Component may be moderated, or wholly offset, by lesser increases or decreases (or, in the case of bearish notes, lesser decreases and
increases) in the level of one or more other Basket Components. If the weightings of the applicable Basket Components are not equal, changes
in the level of the Basket Components which are more heavily weighted could have a disproportionately adverse impact upon your notes.
Risks Relating to a Reference Asset that Is an Equity Security (Including
Any ETF)
You will have limited anti-dilution protection
with respect to a Reference Asset. The calculation agent will adjust the Initial Level and other applicable levels for stock splits,
reverse stock splits, stock dividends, extraordinary dividends and other events that affect the applicable issuer’s capital structure,
but only in the situations we describe in “General Terms of the Notes—Anti-dilution Adjustments to a Reference Asset that
Is an Equity Security (Including Any ETF)” below. The calculation agent will not be required to make an adjustment for every corporate
event that may affect the relevant security. For example, the calculation agent will not make any adjustments for events such as an offering
by the issuer of a Reference Asset of equity securities or a tender or exchange offer for less than all outstanding shares of that issuer
by a third party. Those events or other actions by the applicable issuer or a third party may nevertheless adversely affect the level
of a Reference Asset, and adversely affect the value of your notes.
We will not hold any shares of the Reference
Assets for your benefit. The indenture and the terms governing your notes do not contain any restriction on our ability or the ability
of any of our affiliates to sell, pledge or otherwise convey all or any shares of a Reference Asset that we or they may acquire. Neither
we nor our affiliates will pledge or otherwise hold any such shares for your benefit. Consequently, in the event of our bankruptcy, insolvency
or liquidation, any of those assets that we own will be subject to the claims of our creditors generally and will not be available for
your benefit specifically.
Risks Relating
to a Reference Asset that Is an ADR
The value of a Reference Asset may not accurately
track the value of the common shares of the applicable company. If a Reference Asset is an ADR, each share of that Reference Asset
will represent shares of the relevant company (an “underlying company”). 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. 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 common shares of the underlying company.
Adverse trading conditions in the applicable
non-U.S. market may negatively affect the value of a Reference Asset. Holders of the 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 a Reference Asset 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 U.S. for the underlying
common shares that is not liquid may also result in an illiquid market for the ADRs.
Risks Relating
to a Reference Asset that Is an ETF
The performance of an ETF may not correlate
with the performance of its underlying index as well as the net asset value per share of that ETF. The performance of an ETF is linked
principally to the performance of the ETF’s underlying index. However, the performance of an ETF may also be linked in part to shares
of other ETFs because some ETFs generally invest a specified percentage, e.g., 10% of their assets, in the shares of other ETFs. In addition,
while the performance of an ETF is linked principally to the performance of such ETF’s underlying index, ETFs generally invest in
a representative sample of the stocks included in such ETF’s underlying index and generally do not hold all or substantially all
of the stocks included in such ETF’s underlying index. Finally, the performance of an ETF and of the ETF’s underlying index
will generally vary due to transaction costs, certain corporate actions and timing variances.
Imperfect correlation between the stocks held by
an ETF and the stocks included in such ETF’s underlying index; the performance of the shares of other ETFs, if applicable; rounding
of prices; changes to an ETF’s underlying index; and changes to regulatory policies, may cause the performance of an ETF to differ
from the performance of the ETF’s underlying index, especially during periods of market volatility when the liquidity and the market
price of shares of the ETF and/or securities held by the ETF may be adversely affected, sometimes materially. In addition, because shares
of ETFs are traded on exchanges and are subject to market supply and investor demand, the market value of one share of an ETF may differ
from its net asset value per share and the shares of an ETF may trade at, above or below their net asset value per share.
Because of the potential discrepancies identified
above, the return on an ETF may correlate imperfectly with the return on the ETF’s underlying index.
There is no assurance that an active trading
market will continue for the shares of the relevant ETF or that there will be liquidity in the trading market. Although the shares
of an ETF to which your notes may be linked are listed for trading on various securities exchanges and a number of similar products have
been traded on other securities exchanges for varying periods of time, there is no assurance that an active trading market will continue
for the shares of such ETF or that there will be liquidity in the trading market.
An ETF is subject to management risks. Each
ETF is subject to management risk, which is the risk that the investment advisor’s investment strategy, the implementation of which
is subject to a number of constraints, may not produce the intended results. For example, an investment advisor may invest a portion of
the ETF’s assets in securities not included in the relevant industry or sector but which the investment advisor believes will help
the ETF track the relevant industry or sector.
Risks Relating
to a Reference Asset that Is a Commodity-Based ETF
The risk factors in this section will be applicable
to your notes if one or more ETFs that invest in one or more commodities is a Reference Asset.
You will not own the underlying commodities.
Investing in the notes is not the same as owning the applicable commodities or futures contracts relating to those commodities. You will
not have a right to receive delivery of any of the applicable commodities or futures contracts relating to those commodities. We will
not invest in any of the applicable commodities or futures contracts relating to those commodities on behalf or for the benefit of holders
of the notes.
Commodities prices are highly volatile due to
unpredictable factors that affect supply and demand. The following factors, which are beyond our control, may influence supply and
demand of the underlying commodities or any futures contracts of the underlying commodities, and therefore the value of the applicable
Reference Asset and the market value of the notes:
| • | technological developments; |
| • | direct government activity (such as embargoes); and |
| • | other supply disruptions in major producing or consuming regions of the applicable commodity. |
Suspension or disruptions of market trading
in the commodity and related futures markets may adversely affect the value of your notes. The commodity markets are subject to temporary
distortions or other disruptions due to various factors, including the lack of liquidity in the markets, the participation of speculators
and government regulation and intervention.
Certain exchanges have regulations which limit
the amount of fluctuations in futures contracts that may occur during a single trading day. These limits are generally referred to as
“daily price fluctuation limits,” and the maximum or minimum price of a futures contract on any given day as a result of these
limits is referred to as a “limit price.” Once the limit price has been reached in a particular futures contract, no trades
may be made at a different price. Limit prices may have the effect of precluding trading in a particular futures contract or forcing the
liquidation of futures contracts at disadvantageous times or prices. These circumstances could affect the values of the underlying commodities
or the applicable ETF and could therefore adversely affect the market value of the notes.
The notes will not be regulated by the Commodity
Futures Trading Commission (the “CFTC”). Unlike a direct investment in futures contracts related to the underlying commodities,
your investment in the notes does not afford you the benefits of the regulatory protections of the CFTC. You will not benefit from the
CFTC’s or any other non-U.S. regulators’ regulatory protections that are afforded to persons who trade in futures contracts
through a registered futures merchant or operator.
Unlike an investment in notes linked to the performance
of an ETF that invests in one or more commodities, an investment in a collective investment vehicle that invests in futures contracts
on behalf of its participants may be regulated as a commodity pool and its operator may be required to be registered with and regulated
by the CFTC as a “commodity pool operator” (a “CPO”). Because the notes will not be interests in a commodity pool,
they will not be regulated by the CFTC as a commodity pool and you will not benefit from the CFTC’s or any non-U.S. regulatory authority’s
regulatory protections afforded to persons who trade in futures contracts or who invest in regulated commodity pools.
GENERAL
TERMS OF THE NOTES
This product supplement and the accompanying
prospectus dated May 26, 2022 relating to the notes, should be read together. Because the notes are part of a series of our senior debt
securities called Senior Medium-Term Notes, Series I, this product supplement and the accompanying prospectus should also be read together
with the accompanying prospectus supplement, dated May 26, 2022. Terms used but not defined in this product supplement have the meanings
given them in the accompanying prospectus or accompanying prospectus supplement, unless the context requires otherwise.
The notes will be issued in book-entry form through
The Depository Trust Company. Owners of beneficial interests in the notes should read the section entitled “Description of the Notes
We May Offer – Legal Ownership” in the accompanying prospectus supplement and “Description of the Debt Securities We
May Offer – Legal Ownership and Book-Entry Issuance” in the accompanying prospectus.
The notes are part of a series of senior debt securities
entitled “Senior Medium-Term Notes, Series I” that we may issue from time to time under the senior indenture, dated as of
January 25, 2010, as supplemented by the First Supplemental Indenture thereto, dated September 23, 2018, between Bank of Montreal and
Wells Fargo Bank, National Association and the Third Supplemental Indenture dated as of May 26, 2022 Bank of Montreal, Computershare Trust
Company, N.A. (as successor to Wells Fargo Bank, National Association), and the Bank of New York Mellon. Terms that apply generally to
our medium term notes are described in “Description of the Notes We May Offer” in the accompanying prospectus supplement.
The terms described in this document supplement those described in the accompanying prospectus and the accompanying prospectus supplement,
and, if the terms described here are inconsistent with those described in those documents, the terms described in this product supplement
are controlling.
As described in more detail below, we may make
periodic interest payments on the notes, and holders of the notes will be entitled to receive a payment of cash and/or securities on the
Maturity Date. If any interest payment date or the Maturity Date of the notes falls on a day that is not a business day, we will pay the
required payment on the first subsequent business day, and no additional interest will accrue on the notes as a result.
Interest Payments
Interest, if any, will accrue on the principal
amount of your notes and will be calculated and paid as described in the accompanying prospectus and prospectus supplement with regard
to fixed rate notes, as modified by the pricing supplement. The interest payment dates will be those specified in the applicable pricing
supplement. Unless otherwise specified in the applicable pricing supplement, interest will be computed on the basis of a 360-day year
of twelve 30-day months. The applicable pricing supplement may also specify a fixed amount that will be paid on each interest payment,
based on the applicable interest rate.
As long as your notes are in global form, the regular
record date for each interest payment date will be the third preceding business day, unless otherwise specified in the applicable pricing
supplement.
The payment of interest may be contingent on the
performance of the applicable Reference Asset or Reference Assets.
Early Redemption
The applicable pricing supplement may specify that
your notes are subject to automatic redemption or an Issuer Call.
Issuer Call
If the relevant pricing supplement specifies that
your notes are subject to an Issuer Call, then we may elect, in our discretion, to redeem the notes, in whole but not in part, on any
of the dates specified in the applicable pricing supplement (each such date, a potential “call date”). Unless otherwise specified
in the applicable pricing supplement, the “call settlement date” will be the third business day following the applicable call
date.
Automatic Redemption
If the relevant pricing supplement specifies that
your notes are subject to automatic redemption, the notes will be automatically redeemed if:
| (i) | in the case of notes linked to a single Reference Asset, the closing level of the Reference Asset is greater than its call level on
any call observation date; or |
| (ii) | in the case of notes linked to the least performing of two or more Reference Assets, the closing level of each Reference Asset
is greater than its call level on any call observation date |
If the notes are automatically redeemed, then,
on the applicable call settlement date, for each $1,000 principal amount, investors will receive the principal amount plus any accrued
and unpaid interest payment unless otherwise specified in the pricing supplement.
The “call observation dates” and the
“call level” will be set forth in the applicable pricing supplement. Unless otherwise specified in the applicable pricing
supplement, the “call settlement date” will be the third business day following the applicable call observation date.
Payment at Maturity
If the notes are not automatically redeemed, your
payment at maturity will be based on the performance of the applicable Reference Asset or Reference Assets. At maturity, you will also
receive any final payment of interest due on your notes.
If so specified in the applicable pricing supplement,
if the relevant Reference Asset is an equity security or an ETF, we will have the option to deliver to you shares of the Reference Asset
in lieu of the cash amount. If we deliver shares of a Reference Asset, fractional shares will be paid in cash. We expect that the market
price of the shares you receive in exchange for your notes at maturity will be less than the principal amount of your notes.
If your notes are linked to a single Reference
Asset or a Basket:
You will receive at maturity the principal amount
of your notes unless (i) a Trigger Event occurs with respect to the Reference Asset or Basket, as applicable; and (ii) the Final Level
of the Reference Asset or Basket, as applicable, is less than its Initial Level.
If the events described in (i) and (ii) above occur,
you will receive at maturity, for each $1,000 in principal amount of your notes, a cash amount equal to:
$1,000 + [$1,000 x (Percentage
Change)]
In this case, you will lose 1% of the principal
amount for every 1% decrease in the level of the Reference Asset or Basket, as applicable.
However, if the relevant
pricing supplement specifies that a “Buffer” is applicable to your notes, and the events
described in (i) and (ii) above occur, you will receive at maturity, for each $1,000 in principal amount of your notes, a cash amount
equal to:
$1,000 + [$1,000 x (Percentage Change + Buffer
Percentage) x Downside Leverage Factor]
In this case, you will receive less than the principal
amount of your notes and will lose some, or all, of your initial investment in the notes.
If your notes are linked to the least performing
of two or more Reference Assets:
You will receive at maturity the principal amount
of your notes unless (i) a Trigger Event occurs with respect to any Reference Asset; and (ii) the Final Level of any Reference Asset is
less than its Initial Level.
If the events described in (i) and (ii) above occur,
you will receive at maturity, for each $1,000 in principal amount of your notes, a cash amount equal to:
$1,000 + [$1,000 x (Percentage
Change of the Least Performing Reference Asset)]
In this case, you will lose 1% of the principal
amount for every 1% decrease in the value of the Least Performing Reference Asset.
However, if the relevant
pricing supplement specifies that a “Buffer” is applicable to your notes, and the events
described in (i) and (ii) above occur, you will receive at maturity, for each $1,000 in principal amount of your notes, a cash amount
equal to:
$1,000 + [$1,000 x (Percentage Change of the Least
Performing Reference Asset + Buffer Percentage) x Downside Leverage Factor]
In this case, you will receive less than the principal
amount of your notes and will lose some, or all, of your initial investment in the notes.
If we have elected to deliver shares of the applicable
Reference Asset and the calculation agent determines in its sole discretion that a Physical Delivery Amount Disruption Event (as defined
below) has occurred and is continuing on any Valuation Date, then the Maturity Date of the notes will be postponed by the number of business
days (up to ten business days) as the calculation agent shall determine to be necessary to enable us to procure the securities needed.
We will not pay any additional interest to you if the Maturity Date is so postponed. If we are unable to deliver all or a portion of the
securities to which you are entitled on the Maturity Date, as so postponed, we may elect to provide payment in cash.
A “Physical Delivery Amount Disruption Event”
means any event or series of events, as a result of which the calculation agent determines that, due to the operation of law, regulation,
market conditions, our policies or the policies of our affiliates relating to the trading of securities or other factors, we cannot in
a commercially reasonable manner procure delivery of all or a portion of the securities required to be delivered to make payment of the
Physical Delivery Amount.
A “Trigger
Event” occurs with respect to a Reference Asset if,
(a) for a Reference
Asset that is subject to Continuous Monitoring, at any time during the applicable Monitoring Period, the value of that Reference Asset
is less than its Trigger Level (or Buffer Level, if applicable); or
(b) for a Reference
Asset that is subject to Closing Level Monitoring, on any trading day during the applicable Monitoring Period, the closing level of that
Reference Asset is less than its Trigger Level (or Buffer Level, if applicable).
If your notes are linked to the least performing
of two or more Reference Assets, the “Least Performing Reference Asset” will be the Reference Asset that has the lowest Percentage
Change.
The Percentage Change with respect to a Reference
Asset, expressed as a percentage, is calculated as follows:
Final
Level – Initial Level
Initial Level
The applicable
pricing supplement will specify will specify whether Continuous Monitoring, Closing Level Monitoring, or another method for monitoring
each Reference Asset will be applicable.
The applicable
Monitoring Period will also be specified in the applicable pricing supplement. For example, the Monitoring Period (a) may include
the period from pricing date through the final Valuation Date, (b) be limited to the final Valuation Date or (c) may be of any
other period of time set forth in the applicable pricing supplement.
At maturity,
you will also receive the final payment of interest, if any, due on your notes.
Valuation Date
Unless otherwise specified in the applicable pricing
supplement, the Valuation Date (if there is only one Valuation Date applicable to the notes) or the final Valuation Date (if there is
more than one Valuation Date applicable to the notes) will be the third trading day before the Maturity Date. If the calculation agent
determines that a market disruption event occurs or is continuing on any Valuation Date with respect to any Reference Asset, its Final
Level will be determined as set forth in “—Market Disruption Events” below. The Valuation Date or Valuation Dates that
are applicable to your notes will be set forth in the applicable pricing supplement.
Maturity Date
Unless otherwise specified in the applicable pricing
supplement, the Maturity Date will be the third scheduled business day following the Valuation Date or the final Valuation Date, as applicable,
unless that date is not a business day, in which case the Maturity Date will be the next following business day. The Maturity Date will
be postponed by the same number of trading days as the Valuation Date or the final Valuation Date, as applicable, if a market disruption
event occurs or is continuing with respect to any Reference Asset, as described below. However, interest will not accrue after the applicable
Maturity Date.
Notes Linked to a Basket
If your notes are linked to a Basket, each Basket
Component will be assigned a Weighting Percentage that will be set forth in the applicable pricing supplement. The sum of the Weighting
Percentages of the Basket Components will equal 100%. The Basket Components may or may not have equal Weighting Percentages.
The Initial Basket Component Level of each Basket
Component will be set forth in the applicable pricing supplement and will generally be the closing level of the applicable Basket Component
on the pricing date of the notes. Unless otherwise set forth in the applicable pricing supplement, the Closing Basket Component Level
of each Basket Component on any trading day, including any Valuation Date, will be its closing level.
Unless otherwise set forth in the applicable pricing
supplement, on any day, with respect to each Basket Component, the Component Change will equal the quotient, expressed as a percentage,
of the following formula:
(Closing Basket Component Level - Initial Basket
Component Level)
Initial Basket Component Level
The Initial Level will be set forth in the applicable
pricing supplement.
Unless otherwise set forth in the applicable pricing
supplement, the Final Level of the Basket will equal the Basket Closing Level on the Valuation Date, or, if there is more than one Valuation
Date for your notes, the arithmetic average of the closing levels of that Basket Component on each of the Valuation Dates.
On any day, the Basket Closing Level will be calculated
as (a) the Initial Level multiplied by (b) the sum of (i) 1 plus (ii) the sum of the products of each Component Change multiplied by its
Weighting Percentage.
Certain Definitions
Business Day. Unless otherwise set forth
in the applicable pricing supplement, “business day” means a day of the week other than Saturday or Sunday that is neither
a legal holiday nor a day on which banking institutions are authorized or obligated by law or executive order to close in New York City.
If any payment on the notes is scheduled to occur
on a day which is not a business day, such payment will be made on the next following business day unless otherwise set forth in the applicable
pricing supplement.
Trading Day. Unless otherwise set forth
in the applicable pricing supplement, “trading day” is any day, as determined by the calculation agent, (i) on which trading
is generally conducted on the primary market on which the securities included in a Reference Asset that is an index and (ii) on which
trading is generally conducted on the relevant primary U.S. exchange for a Reference Asset that is an equity security or an ETF.
Closing Level. Unless otherwise set forth
in the applicable pricing supplement, the closing level for a Reference Asset will be its official closing level (for a Reference Asset
that is an index) or closing price (for a Reference Asset that is an equity security or an ETF) and the closing level for a Basket will
be its Basket Closing Level, as applicable.
Closing Price. Unless otherwise set forth
in the applicable pricing supplement, the closing price for a Reference Asset that is an equity security or ETF on any trading day will
equal the closing sale price or last reported sale price, regular way, for the security or ETF, on a per-share or other unit basis:
| · | on the principal national securities exchange on which that Reference Asset is listed for trading on that day; or |
| · | if that security or ETF is not quoted on any national securities exchange on that day, on any other market system or quotation system
that is the primary market for the trading of that Reference Asset. |
If a Reference Asset is not listed or traded as
described above, then the closing level for that Reference Asset on any trading day will be the average, as determined by the calculation
agent, of the bid prices for the applicable Reference Asset obtained from as many dealers in that Reference Asset selected by the calculation
agent, in its sole discretion, as will make those bid prices available to the calculation agent. The number of dealers need not exceed
three and may include the calculation agent or any of our other affiliates.
Market Disruption Events
If the calculation agent determines that, on a
Valuation Date and/or, if your notes are subject to automatic early redemption, on a call observation date, or on any other applicable
observation date, a market disruption event has occurred or is continuing with respect to a Reference Asset, the determination of the
Final Level for such affected Reference Asset and/or, if applicable, the closing level of the affected Reference Asset, may be postponed.
If such a postponement occurs, the calculation agent will use the closing level of the affected Reference Asset on the first subsequent
trading day on which no market disruption event occurs or is continuing. However, in no event will the determination of the Final Level
and/or, if applicable, the closing level of the affected Reference Asset, be postponed by more than ten trading days.
If the determination of the Final Level and/or,
if applicable, the closing level of the affected Reference Asset, is postponed to the last possible day, but a market disruption event
for that Reference Asset occurs or is continuing on that day, that day will be the date on which the Final Level and/or, if applicable,
the closing level of the affected Reference Asset, will be determined by the calculation agent. In such an event, the calculation agent
will make a good faith estimate in its sole discretion of the Final Level for such affected Reference Asset and/or, if applicable, the
closing level of that affected Reference Asset, that would have prevailed in the absence of the market disruption event.
For the avoidance of doubt, in the case of notes
linked to two or more Reference Assets (including, without limitation, notes linked to a Basket), if the calculation agent determines
that no market disruption event is occurring with respect to a particular Reference Asset or Basket Component, all determination with
respect to such Reference Asset or Basket Component will be made on the originally scheduled date irrespective of the occurrence of a
market disruption event with respect to one or more other Reference Assets or Basket Components.
For the avoidance of doubt, if any observation
date (including, without limitation, any Valuation Date or call observation date) is postponed due to a market disruption event, the relevant
payment date will be postponed by the same number of trading days. In the case of a note linked to two or more Reference Assets (including,
without limitation, notes linked to a Basket), the relevant payment date will be postponed to maintain the same number of trading days
between the last observation date as postponed and the relevant payment date as existed between the originally scheduled observation date
and payment date prior to any postponement.
As to a Reference Asset that is an index, a market
disruption event means any event, circumstance or cause which we determine, and the calculation agent confirms, has or will have a material
adverse effect on our ability to perform our obligations under the notes or to hedge its position in respect of its obligations to make
payment of amounts owing thereunder and more specifically includes the following events to the extent that they have such effect with
respect to any index:
| · | a suspension, absence or limitation of trading in index components constituting 20% or more, by weight, of that index; |
| · | a suspension, absence or limitation of trading in futures or options contracts relating to that index on their respective markets; |
| · | any event that disrupts or impairs, as determined by the calculation agent, the ability of market participants to (i) effect transactions
in, or obtain market values for, index components constituting 20% or more, by weight, of that index, or (ii) effect transactions in,
or obtain market values for, futures or options contracts relating to that index on their respective markets; |
| · | the closure on any day of the primary market for futures or options contracts relating to that index or index components constituting
20% or more, by weight, of that index on a scheduled trading day prior to the scheduled weekday closing time of that market (without regard
to after hours or any other trading outside of the regular trading session hours) unless such earlier closing time is announced by the
primary market at least one hour prior to the earlier of (i) the actual closing time for the regular trading session on such primary market
on such scheduled trading day for such primary market and (ii) the submission deadline for orders to be entered into the relevant exchange
system for execution at the close of trading on such scheduled trading day for such primary market; |
| · | any scheduled trading day on which (i) the primary markets for index components constituting 20% or more, by weight, of that index
or (ii) the exchanges or quotation systems, if any, on which futures or options contracts on that index are traded, fails to open for
trading during its regular trading session; or |
| · | any other event, if the calculation agent determines that the event interferes with our ability or the ability of any of our affiliates
to unwind all or a portion of a hedge with respect to the notes that we or our affiliates have effected or may effect as described below
under “Use of Proceeds and Hedging” in this product supplement. |
As to a Reference Asset that is an equity security
(including an ETF), any of the following will be a market disruption event, as determined by the calculation agent in its sole discretion:
| · | a suspension, absence or limitation of trading in (i) that security in its primary market, as determined
by the calculation agent, or (ii) futures or options contracts relating to that security in the primary market for those contracts, as
determined by the calculation agent; |
| · | any event that disrupts or impairs, as determined by the calculation agent, the ability of market participants
to (i) effect transactions in, or obtain market values for, the security in its primary market, or (ii) effect transactions in, or obtain
market values for, futures or options contracts relating to the security in its primary market; |
| · | the closure on any day of the primary market for that security on a scheduled trading day prior to the
scheduled weekday closing time of that market (without regard to after hours or any other trading outside of the regular trading session
hours) unless such earlier closing time is announced by the primary market at least one hour prior to the earlier of (i) the actual closing
time for the regular trading session on such primary market on such scheduled trading day for such primary market and (ii) the submission
deadline for orders to be entered into the relevant exchange system for execution at the close of trading on such scheduled trading day
for such primary market; |
| · | any scheduled trading day on which (i) the primary market for that security or (ii) the exchanges or quotation
systems, if any, on which futures or options contracts on that security are traded, fails to open for trading during its regular trading
session; or |
| · | any other event, if the calculation agent determines that the event interferes with our ability or the
ability of any of our affiliates to unwind all or a portion of a hedge with respect to the notes that we or our affiliates have effected
or may effect as described below under “Use of Proceeds and Hedging” in this product supplement. |
Adjustments to a Reference Asset that Is an
Index
If the Index Sponsor discontinues publication of
an index that is a Reference Asset and the Index Sponsor or another entity publishes a successor or substitute index that the calculation
agent determines, in its sole discretion, to be comparable to the discontinued index (such successor or substitute index being referred
to in this section as a “successor index”), then such successor index shall be deemed to be the Reference Asset, and the calculation
agent will make any corresponding adjustments to the applicable Initial Level and other applicable levels and will determine any subsequent
index closing level by reference to the published level of that successor index at the regular weekday close of trading on the applicable
observation date.
Upon any selection by the calculation agent of
a successor index, the calculation agent will provide written notice to the trustee of the selection, and the trustee will furnish written
notice thereof, to each noteholder, or in the case of global notes, the depositary, as holder of the global notes.
If a successor index is selected by the calculation
agent, that successor index will be used as a substitute for the relevant index for all purposes, including for purposes of determining
whether a market disruption event exists with respect to that index.
If any Index Sponsor discontinues publication of
an index prior to, and that discontinuance is continuing on, any observation date, and the calculation agent determines, in its sole discretion,
that no successor index is available at that time, then the calculation agent will determine the level of that index for the relevant
date in accordance with the formula for and method of calculating that index last in effect prior to the discontinuance, without rebalancing
or substitution, using the closing level (or, if trading in the relevant underlying securities or components of that index have been materially
suspended or materially limited, its good faith estimate of the closing level that would have prevailed but for that suspension or limitation)
at the close of the principal trading session of the relevant exchange on that date of each security or component most recently comprising
that index.
If at any time the method of calculating a closing
level for an index or a successor index is changed in a material respect, or if an index is in any other way modified so that that index
does not, in the opinion of the calculation agent, fairly represent the level of that index had those changes or modifications not been
made, then, from and after that time, the calculation agent will, at the close of business in New York City on the applicable observation
date, make such calculations and adjustments as, in the good faith judgment of the calculation agent, may be necessary in order to arrive
at a level of an index comparable to that index as if those changes or modifications had not been made. Accordingly, if the method of
calculating an index is modified so that the value of that index is a fraction of what it would have been if it had not been modified
(e.g., due to a split in that index), then the calculation agent will adjust that index in order to arrive at a level of that index as
if it had not been modified (e.g., as if such split had not occurred).
Anti-dilution Adjustments to a Reference Asset
that Is an Equity Security (Including Any ETF)
The Initial Level and other applicable levels of
each Reference Asset will be specified in the applicable pricing supplement. The calculation agent will adjust the Initial Level and other
applicable levels of a Reference Asset if any of the dilution events described below occurs with respect to that Reference Asset.
The calculation agent will adjust the Initial Level
and other applicable levels of a Reference Asset but only if an event below under this section occurs with respect to that Reference Asset
and only if the relevant event occurs during the period described under the applicable subsection. The Initial Level and other applicable
levels of each Reference Asset will be subject to the adjustments described below, independently and separately, with respect to the dilution
events that affect the applicable Reference Asset.
If more than one anti-dilution event requiring
adjustment occurs with respect to the Initial Level and other applicable levels of a Reference Asset, the calculation agent will adjust
such Initial Level and other applicable levels for each event, sequentially, in the order in which the events occur, and on a cumulative
basis. Therefore, having adjusted the Initial Level and other applicable levels of the affected Reference Asset for the first event, the
calculation agent will adjust such Initial Level and other applicable levels for the second event, applying the required adjustment to
such Initial Level and other applicable levels as already adjusted for the first event, and so on for each event.
If an event requiring an anti-dilution adjustment
occurs, the calculation agent will make the adjustment in an attempt to offset, to the extent practical, any change in the economic position
of the holder and us, relative to your note, that results solely from that event. The calculation agent may, in its sole discretion, modify
the anti-dilution adjustments set forth in the section as necessary to ensure an equitable result.
Stock Splits and Stock Dividends
A stock split is an increase in the number of a
corporation’s outstanding shares of stock without any change in its stockholders’ equity. When a corporation pays a stock
dividend, it issues additional shares of its stock to all holders of its outstanding stock in proportion to the shares they own. Each
outstanding share will be worth less as a result of a stock split or stock dividend.
If a Reference Asset is subject to a stock split
or receives a stock dividend, then the calculation agent will adjust its Initial Level and other applicable levels by dividing the prior
Initial Level and other applicable levels before the stock split or stock dividend by an amount equal to: (1) the number of shares of
the applicable Reference Asset outstanding immediately after the stock split or stock dividend becomes effective; divided by (2) the number
of shares of the applicable Reference Asset outstanding immediately before the stock split or stock dividend becomes effective. The Initial
Level and any other applicable levels of a Reference Asset will not be adjusted, however, unless:
| · | in the case of a stock split, the first day on which the applicable Reference Asset trades without the
right to receive the stock split occurs after the pricing date and on or before the applicable observation date; or |
| · | in the case of a stock dividend, the ex-dividend date occurs after the pricing date and on or before the
applicable observation date. |
The ex-dividend date for any dividend or other
distribution with respect to a Reference Asset is the first day on which the applicable Reference Asset trades without the right to receive
that dividend or other distribution.
Reverse Stock Splits
A reverse stock split is a decrease in the number
of a corporation’s outstanding shares of stock without any change in its stockholders’ equity. Each outstanding share will
be worth more as a result of a reverse stock split.
If a Reference Asset is subject to a reverse stock
split, then the calculation agent will adjust its Initial Level and other applicable levels by multiplying the prior Initial Level and
other applicable levels by a number equal to: (1) the number of shares of the applicable Reference Asset outstanding immediately before
the reverse stock split becomes effective; divided by (2) the number of shares of the applicable Reference Asset outstanding immediately
after the reverse stock split becomes effective. The Initial Level and other applicable levels of the affected Reference Asset will not
be adjusted, however, unless the reverse stock split becomes effective after the pricing date and on or before the applicable observation
date.
Extraordinary Dividends
Any distribution or dividend on a Reference Asset
determined by the calculation agent to be a distribution or dividend that is not in the ordinary course of the issuer’s historical
dividend practices will be deemed to be an extraordinary dividend. The calculation agent will determine if the dividend is an extraordinary
dividend and, if so, the amount of the extraordinary dividend. Each outstanding share will be worth less as a result of an extraordinary
dividend.
If any extraordinary dividend occurs with respect
to a Reference Asset, the calculation agent will adjust its Initial Level and other applicable levels to equal the product of: (1) the
prior Initial Level and any other applicable level times (2) a fraction, the numerator of which is the amount by which the closing level
of the applicable Reference Asset on the business day before the ex-dividend date exceeds the extraordinary dividend amount and the denominator
of which is the closing level of the applicable Reference Asset on the business day before the ex-dividend date. The Initial Level and
other applicable levels of a Reference Asset will not be adjusted, however, unless the ex-dividend date occurs after the pricing date
and on or before the applicable observation date.
The extraordinary dividend amount with respect
to an extraordinary dividend for a Reference Asset equals:
| · | for an extraordinary dividend that is paid in lieu of a regular quarterly dividend, the amount of the
extraordinary dividend per share of the applicable Reference Asset minus the amount per share of the immediately preceding dividend, if
any, that was not an extraordinary dividend for the applicable Reference Asset; or |
| · | for an extraordinary dividend that is not paid in lieu of a regular quarterly dividend, the amount per
share of the 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. A distribution on a Reference Asset that
is a stock dividend, an issuance of transferable rights or warrants or a spin-off event and also an extraordinary dividend will result
in an adjustment to the applicable Reference Asset’s Initial Level and other applicable levels only as described under “—
Stock Splits and Stock Dividends” above, “— Transferable Rights and Warrants” below or “— Reorganization
Events” below, as the case may be, and not as described here.
Transferable Rights and Warrants
If the issuer of a Reference Asset issues transferable
rights or warrants to all holders of that Reference Asset to subscribe for or purchase that Reference Asset at an exercise price per share
that is less than the closing level of that Reference Asset on the business day before the ex-dividend date for the issuance, then the
applicable Initial Level and other applicable levels will be adjusted by multiplying the prior Initial Level and other applicable levels
by the following fraction:
| · | the numerator will be the number of shares of the applicable Reference Asset outstanding at the close
of business on the day before that ex-dividend date plus the number of additional shares of the applicable Reference Asset that the aggregate
offering price of the total number of shares of the applicable Reference Asset so offered for subscription or purchase pursuant to the
transferable rights or warrants could purchase at the closing level on the trading day before the ex-dividend date, with that number of
additional shares being determined by multiplying the total number of shares so offered by the exercise price of those transferable rights
or warrants and dividing the resulting product by the closing level on the trading day before that ex-dividend date. |
| · | the denominator will be the number of shares of the applicable Reference Asset outstanding at the close
of business on the day before that ex-dividend date plus the number of additional shares of the applicable Reference Asset offered for
subscription or purchase under those transferable rights or warrants. |
The Initial Level and other applicable levels will
not be adjusted, however, unless the ex-dividend date described above occurs after the pricing date and on or before the applicable observation
date.
Reorganization Events
If the issuer of a Reference Asset undergoes a
reorganization event in which property other than that Reference Asset—e.g., cash and securities of another issuer—is distributed
in respect of that Reference Asset, then, for purposes of calculating the level of that Reference Asset, the calculation agent will determine
the closing level of the applicable Reference Asset on any applicable observation date to equal the value of the cash, securities and
other property distributed in respect of one share of the affected Reference Asset.
If the calculation agent determines that, by valuing
such cash, securities and other property, a commercially reasonable result is not achieved, then the calculation agent will, in its sole
discretion, substitute another stock for that Reference Asset.
Each of the following is a reorganization event
with respect to a Reference Asset:
| · | a Reference Asset is reclassified or changed; |
| · | the issuer of a Reference Asset has been subject to a merger, consolidation or other combination and either
is not the surviving entity or is the surviving entity but all the outstanding stock is exchanged for or converted into other property; |
| · | a statutory share exchange involving the outstanding stock and the securities of another entity occurs,
other than as part of an event described in the two bullet points above; |
| · | the issuer of a Reference Asset sells or otherwise transfers its property and assets as an entirety or
substantially as an entirety to another entity; |
| · | the issuer of a Reference Asset effects a spin-off—that is, issues to all holders of the affected
Reference Asset equity securities of another issuer, other than as part of an event described in the four bullet points above; |
| · | the issuer of a Reference Asset is liquidated, dissolved or wound up or is subject to a proceeding under
any applicable bankruptcy, insolvency or other similar law; or |
| · | another entity completes a tender or exchange offer for all of the outstanding stock of the issuer of
a Reference Asset. |
Valuation of Distribution Property
If a reorganization event occurs with respect to
a Reference Asset, and the calculation agent does not substitute another stock for that Reference Asset as described in “—
Substitution” below, then the calculation agent will determine the applicable closing level on each observation date so as to equal
the value of the property — whether it be cash, securities or other property — distributed in the reorganization event in
respect of one share of the affected Reference Asset, as that Reference Asset existed before the date of the reorganization. We refer
to the property distributed in a reorganization event as distribution property, a term we describe in more detail below. The calculation
agent will not make any determination for a reorganization event, however, unless the event becomes effective (or, if the event is a spin-off,
unless the ex-dividend date for the spin-off occurs) after the pricing date and on or before the applicable observation date.
For the purpose of making a determination required
by a reorganization event, the calculation agent will determine the value of each type of distribution property, in its sole discretion.
For any distribution property consisting of a security, the calculation agent will use the closing level for the security on the relevant
date. The calculation agent may value other types of property in any manner it determines, in its sole discretion, to be appropriate.
If a holder of the affected Reference Asset may elect to receive different types or combinations of types of distribution property in
the reorganization event, the distribution property will consist of the types and amounts of each type distributed to a holder that makes
no election, as determined by the calculation agent in its sole discretion.
If a reorganization event occurs and the calculation
agent adjusts the closing level of the affected Reference Asset on an observation date to equal the value of the distribution property
distributed in the event, as described above, the calculation agent will make further determinations for later events that affect the
distribution property considered in determining the closing level. The calculation agent will do so to the same extent that it would make
determinations if the applicable Reference Asset were outstanding and were affected by the same kinds of events.
For example, if the issuer of a Reference Asset
merges into another company and each share of that Reference Asset is converted into the right to receive two common shares of the surviving
company and a specified amount of cash, then on each observation date the closing level of a share of the applicable Reference Asset will
be determined to equal the value of the two common shares of the surviving company plus the specified amount of cash. The calculation
agent will further determine the common share component of such closing level to reflect any later stock split or other event, including
any later reorganization event, that affects the common shares of the surviving company, to the extent described in “— Anti-dilution
Adjustments to a Reference Asset that Is an Equity Security (Including Any ETF)” or as described above in this “— Reorganization
Events” section as if the common shares were the applicable Reference Asset. In that event, the cash component will not be redetermined
but will continue to be a component of the closing level.
When we refer to “distribution property”,
we mean the cash, securities and other property distributed in a reorganization event in respect of the applicable Reference Asset. If
an adjustment resulting from a prior reorganization had occurred, the “distribution property” will mean the cash, securities
and other property distributed in respect of any securities whose value determines the closing level on an observation date. In the case
of a spin-off, the distribution property also includes the Reference Asset in respect of which the distribution is made.
If a reorganization event occurs, the distribution
property distributed in the event will be substituted for the affected Reference Asset as described above. Consequently, in this product
supplement, when we refer to a Reference Asset, we mean any distribution property that is distributed in a reorganization event in respect
of a Reference Asset. Similarly, when we refer to the issuer of a Reference Asset, we mean any successor entity in a reorganization event.
Substitution
If the calculation agent determines that a commercially
reasonable result is not achieved by valuing distribution property with respect to a Reference Asset upon becoming subject to a reorganization
event, then the calculation agent will, in its sole discretion, substitute another stock for the affected Reference Asset. In such case,
the adjustments described above in “— Valuation of Distribution Property” will not apply.
If the calculation agent so determines, it may
choose, in its sole discretion, the stock of a different company listed on a national securities exchange or quotation system as a substitute
for the affected Reference Asset. For all purposes, the substitute stock will be deemed to be the affected Reference Asset for all purposes
under the notes hereof.
The calculation agent will determine, in its sole
discretion, the applicable Reference Asset’s Initial Level and other applicable levels and/or the manner of valuation of the substitute
stock. The calculation agent will have the right to make such adjustments to the calculation of the individual stock performance as it
determines in its sole discretion are necessary to preserve as nearly as possible our and your relative economic position prior to the
reorganization event.
Adjustments Relating to ADRs
A Reference Asset may consist of ADRs of the underlying
company. As a result, for purposes of this section, the calculation agent will consider the effect of any of the relevant events on the
holders of a Reference Asset. For example, if a holder of a Reference Asset receives an extraordinary dividend, the provisions described
in this section would apply to the applicable Reference Asset. On the other hand, if a spin-off occurs, and a Reference Asset represents
both the spun-off security as well as the existing Reference Asset, the calculation agent may determine not to effect the anti-dilution
adjustments set forth in this section. More particularly, the calculation agent may not make an adjustment (1) if holders of the applicable
Reference Asset are not eligible to participate in any of the events that would otherwise require anti-dilution adjustments as set forth
in this section or (2) 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 applicable Reference Asset so that
the market price of the applicable Reference Asset would not be affected by the corporate event in question.
If the underlying company or the depository for
the ADRs, in the absence of any of the events described in this section, elects to adjust the number of common shares of the underlying
company represented by each share of applicable Reference Asset, then the calculation agent may make the appropriate anti-dilution adjustments
to reflect such change. The depository 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 depository, the calculation
agent may adjust such terms and conditions of the notes as the calculation agent determines appropriate to account for that event.
Other Events and Adjustments
The calculation agent may make such adjustments
to the terms of the notes with respect to any of the events described above, as it deems in its discretion is necessary to ensure an equitable
result.
Delisting of ADRs or Termination of ADR Facility
If a Reference Asset is an ADR that is no longer
listed or admitted to trading on a U.S. securities exchange registered under the U.S. Securities Exchange Act of 1934, as amended (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 applicable Reference Asset is no longer
so listed or admitted to trading or the date of such termination, as applicable (the “termination date”), the notes will be
deemed to be linked to the common shares of the underlying company, and the calculation agent will determine the payment at maturity by
reference to such common shares. Under such circumstances, the calculation agent may modify any terms of the notes as it deems necessary,
in its sole discretion, to ensure an equitable result. On and after the termination date, for all purposes, including the determination
of the Final Level, the closing level 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.
Adjustments to a Reference Asset that Is an ETF
If an ETF is de-listed from the relevant exchange,
liquidated or otherwise terminated, the calculation agent will substitute an ETF that the calculation agent determines, in its sole discretion,
is comparable to the discontinued fund (such fund being referred to herein as a “successor ETF”). If the ETF (or a successor
ETF) is de-listed, liquidated or otherwise terminated and the calculation agent determines that no successor fund is available, then the
calculation agent will, in its sole discretion, calculate the appropriate closing level of one share of the ETF by a computation methodology
that the calculation agent determines will as closely as reasonably possible replicate the ETF. If a successor ETF is selected or the
calculation agent calculates the closing level by a computation methodology that the calculation agent determines will as closely as reasonably
possible replicate the ETF, that successor ETF or computation methodology will be substituted for the ETF (or such successor ETF) for
all purposes of the notes.
If the calculation agent determines that no substitute
ETF comparable to the original ETF, or no appropriate computation methodology exists, then the calculation agent will deem the closing
level of the original ETF on the trading day immediately prior to its delisting, liquidation or other termination to be the closing level
of the original ETF on every remaining trading day to, and including, the final Valuation Date.
The calculation agent also may determine that no
adjustment is required under this subsection by the modification of the method of calculation.
The calculation agent will be solely responsible
for the method of calculating the closing level of one share of the ETF (or any successor ETF) and of any related determinations and calculations,
and its related determinations and calculations will be conclusive in the absence of manifest error.
Adjustments Relating to Notes Linked to a Basket
If the calculation agent substitutes a successor
Reference Asset, or otherwise affects or modifies a Basket Component, then the calculation agent will make those calculations and adjustments
as, in judgment of the calculation agent, may be necessary in order to arrive at a basket comparable to the original Basket (including
without limitation changing the percentage weights of the Basket Components), as if those changes or modifications had not been made,
and will calculate the payment at maturity with reference to that basket or the successor basket (as described below), as adjusted.
In this event, the calculation agent will provide
written notice to the trustee of these calculations and adjustments, and the trustee will furnish written notice thereof to each noteholder,
or in the case of global notes, the depositary, as holder of the global notes.
In the event of the adjustment described above,
the newly composed basket is referred to in this section as the “successor basket” and will be used as a substitute for the
original Basket for all purposes.
If the calculation agent determines that the available
successor basket or basket components as described above do not fairly represent the value of the original Basket or Basket Components,
as the case may be, then the calculation agent will determine the level of the applicable Basket Components or the Basket level for any
Valuation Date as described in this product supplement.
Notwithstanding these alternative arrangements,
discontinuance of trading on the applicable exchanges or markets in any Basket Component may adversely affect the market value of the
notes.
Events of Default
Unless otherwise specified in the applicable pricing
supplement, in case an event of default with respect to the notes shall have occurred and be continuing, the amount declared due and payable
on the notes upon any acceleration of the notes will be determined by the calculation agent and will be an amount of cash equal to the
amount payable as described under the caption “— Payment at Maturity,” calculated as if the date of acceleration were
the Valuation Date or the final Valuation Date, as applicable, together with accrued and unpaid interest through the date of acceleration.
If the maturity of the notes is accelerated because
of an event of default, we will, or will cause the calculation agent to, provide written notice to the trustee at its New York office,
on which notice the trustee may conclusively rely, and to the depositary, of the amount due with respect to the notes as promptly as possible
and in no event later than two business days after the date of acceleration.
Role of the Calculation Agent
The calculation agent in its sole discretion will
make all determinations in connection with the notes, including whether the notes are subject to an automatic call, the payment at maturity,
trading days, postponement of any Valuation Date and the adjustments described in the sections “—Adjustments to a Reference
Asset that Is an Index,” “—Adjustments to a Reference Asset that Is an ETF,” “—Delisting of ADRs or
Termination of ADR Facility,” and “—Anti-dilution Adjustments to a Reference Asset that Is an Equity Security (Including
Any ETF).” Absent manifest error, all determinations of the calculation agent will be final and binding on you and us, without any
liability on the part of the calculation agent.
Please note that our affiliate, BMO Capital Markets
Corp., is expected to serve as the calculation agent for the notes. We may change the calculation agent for your notes at any time after
the date of this product supplement without notice and BMO Capital Markets Corp. may resign as calculation agent at any time upon 60
days written notice to us.
Listing
Your notes will not be listed on any securities
exchange.
Supplemental U.S. Federal Income Tax Considerations
The following is a general description of certain
U.S. tax considerations relating to the notes. It does not purport to be a complete analysis of all tax considerations relating to the
notes. Prospective purchasers of the notes should consult their tax advisors as to the consequences under the tax laws of the country
of which they are resident for tax purposes and the tax laws of Canada and the United States of acquiring, holding and disposing of the
notes and receiving payments of interest, principal and/or other amounts under the notes. This summary is based upon the law as in effect
on the date of this product supplement and is subject to any change in law that may take effect after such date.
The following disclosure — including the
opinion of Mayer Brown LLP — has been prepared without regard to any particular note that you may purchase in the future and, therefore,
is provided solely as a matter of general information. You should not rely upon the following disclosure, or the disclosure under “United
States Federal Income Taxation” in the prospectus or “Certain Income Tax Consequences — United States Federal Income
Taxation” in the prospectus supplement, with regard to an investment in any particular note because it does not take into account
the terms of any particular note or the tax consequences of investing in or holding any particular note unless the pricing supplement
applicable to your notes indicates that you may rely on the following disclosure and expressly states that you may rely on the opinion
of Mayer Brown LLP. Any note that you purchase may have terms that would result in a tax treatment that is significantly different from
the treatment described below. Consequently, any tax disclosure relevant to any note you may purchase will be set forth only in the pricing
supplement relating to your note, and, unless the pricing supplement indicates otherwise, you should not rely on the tax disclosure below
or in the prospectus supplement or prospectus in deciding whether to invest in any note. In addition, this tax disclosure assumes the
following for all notes issued off of this product supplement: (i) any Reference Asset that is an equity security or shares of an exchange
traded fund will be traded on a public exchange and is not an interest in a “United States real property holding corporation”
(as such term is defined in the Code); (ii) any interest will be paid or payable at least annually and at equal intervals; (iii) in the
case of notes paying fixed interest, the Interest Rate (as defined in the relevant pricing supplement) will not be below the market rate
for non-contingent debt with terms similar to the notes; (iv) there is a significant possibility of a significant loss of principal on
an investment in the notes; (v) initial purchasers will acquire the notes for an amount equal to their principal amount; and (vi) there
is a reasonable likelihood that the Final Level will be greater than or equal to the Initial Level. Moreover, in all cases, you should
consult with your own tax advisor concerning the consequences of investing in and holding any particular note you propose to purchase.
The following section supplements the discussion
of U.S. federal income taxation in the accompanying prospectus and prospectus supplement with respect to United States holders (as defined
in the accompanying prospectus). It applies only to those holders who are not excluded from the discussion of U.S. federal income taxation
in the accompanying prospectus. In addition to such exclusions, this discussion does not apply to holders subject to special rules under
Section 451(b) of the Code.
You should consult your tax advisor concerning
the U.S. federal income tax and other tax consequences of your investment in the notes in your particular circumstances, including the
application of state, local or other tax laws and the possible effects of changes in federal or other tax laws.
NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY
DIRECTLY DISCUSSES HOW THE NOTES SHOULD BE TREATED FOR U.S. FEDERAL INCOME TAX PURPOSES. AS A RESULT, THE U.S. FEDERAL INCOME TAX CONSEQUENCES
OF AN INVESTMENT IN THE NOTES ARE UNCERTAIN. BECAUSE OF THE UNCERTAINTY, YOU SHOULD CONSULT YOUR TAX ADVISOR IN DETERMINING THE U.S. FEDERAL
INCOME TAX AND OTHER TAX CONSEQUENCES OF YOUR INVESTMENT IN THE NOTES, INCLUDING THE APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS AND
THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
We will not attempt to ascertain whether any Reference
Asset, any of the component stocks included in a Reference Asset or any of the entities whose stock is owned by any Reference Asset that
is an exchange traded fund would be treated as a “passive foreign investment company” within the meaning of Section 1297 of
the Code or a “U.S. real property holding corporation” within the meaning of Section 897 of the Code. If any Reference Asset,
any of the component stocks included in a Reference Asset or any of the entities whose stock is owned by any Reference Asset that is an
exchange traded fund were so treated, certain adverse U.S. federal income tax consequences could possibly apply. You should refer to any
available information filed with the SEC and other authorities by any Reference Asset, the component stocks included in a Reference Asset,
and any of the entities whose stock is owned by any Reference Asset that is an exchange traded fund and consult your tax advisor regarding
the possible consequences to you in this regard.
We will treat the notes as effectively connected
with our U.S. trade or business, as determined for U.S. federal income tax purposes. As a result, we intend to treat any interest with
respect to the notes, as determined for U.S. federal income tax purposes, as U.S. source.
The U.S. federal income tax treatment of your notes
will depend on (i) whether the notes pay any interest, and (ii) whether any interest is fixed or contingent. Accordingly, we set forth
a separate subsection for each of the situations described in the previous sentence.
Notes With Fixed Interest
Where the Term of Your Notes Exceeds One Year
General
In the opinion of our counsel,
Mayer Brown LLP, it would generally be reasonable to treat your notes as an investment unit consisting of (i) a non-contingent debt instrument
issued by us to you (the “Debt Portion”), and (ii) a put option with respect to the Reference Assets written by you and purchased
by us (the “Put Option”) for U.S. federal income tax purposes. The balance of this discussion under “Notes With Fixed
Interest—Where the Term of Your Notes Exceeds One Year” assumes this treatment is proper and will be respected for U.S. federal
income tax purposes.
Treatment as an Investment Unit
If your notes are properly treated as an investment
unit consisting of a Debt Portion and Put Option, it is likely that the Debt Portion of your notes would be treated as having been issued
for the principal amount of the notes (if you are an initial purchaser) and that interest payments on the notes would be treated in part
as payments of interest and in part as payments for the Put Option. Amounts treated as interest would be included in income in accordance
with your regular method of accounting for interest for U.S. federal income tax purposes. Amounts treated as payment for the Put Option
would be deferred and accounted for upon the sale, redemption or maturity of the notes, as discussed below.
If you were to receive a cash payment of the full
principal amount of your notes upon the redemption or maturity of your notes, such payment would likely be treated as (i) payment in full
of the principal amount of the Debt Portion (which would not result in the recognition of gain or loss if you are an initial purchaser
of your notes) and (ii) the lapse of the Put Option which would likely result in your recognition of short-term capital gain in an amount
equal to the amount paid to you for the Put Option and deferred as described above. If you were to receive a cash payment upon the redemption
or maturity of your notes (excluding cash received as a coupon) of less than the full principal amount of your notes, such payment would
likely be treated as (i) payment in full of the principal amount of the Debt Portion (which would not result in the recognition of gain
or loss if you are an initial purchaser of your notes) and (ii) the cash settlement of the Put Option pursuant to which you paid to us
an amount equal to the excess of the principal amount of your notes over the amount that you received upon the maturity of your notes
(excluding cash received as a coupon) in order to settle the Put Option. If the aggregate amount paid to you for the Put Option and deferred
as described above is greater than the amount you are deemed to have paid to us to settle the Put Option, you will likely recognize short-term
capital gain in an amount that is equal to such excess. Conversely, if the amount paid to you for the Put Option and deferred as described
above is less than the amount you are deemed to have paid to us to settle the Put Option, you will likely recognize short-term capital
loss in an amount that is equal to such difference.
If, instead of making a cash payment to you, we
were to exchange your notes for shares of a Reference Asset of equivalent value, the receipt of such stock upon the maturity of your notes
would likely be treated as (i) payment in full of the principal amount of the Debt Portion (which would likely not result in the recognition
of gain or loss if you are an initial purchaser of your notes) and (ii) the exercise by us of the Put Option and your purchase of the
shares of stock you receive for an amount equal to the principal amount of your notes. The U.S. federal income tax basis of the shares
of stock you receive with respect to each note would equal the principal amount of the note less the amount of payments you received for
the Put Option and deferred as described above. The holding period in the shares of stock you receive would begin the day after you beneficially
receive such shares of stock. If you receive cash in lieu of a fractional share of stock, you will be treated as having received such
fractional share and then having received cash in exchange for such fractional share. You generally will recognize short-term capital
gain or loss based on the difference between the amount of cash received in lieu of the fractional share and the U.S. federal income tax
basis allocated to such fractional share.
Upon the sale of your notes, you would be required
to apportion the value of the amount you receive between the Debt Portion and Put Option on the basis of the values thereof on the date
of the sale. You would recognize gain or loss with respect to the Debt Portion in an amount equal to the difference between (i) the amount
apportioned to the Debt Portion and (ii) your adjusted U.S. federal income tax basis in the Debt Portion (which would generally be equal
to the principal amount of your notes if you are an initial purchaser of your notes). Except to the extent attributable to accrued but
unpaid interest with respect to the Debt Portion, such gain or loss would be long-term capital gain or loss if your holding period is
greater than one year. The amount of cash that you receive that is apportioned to the Put Option (together with any amount of premium
received in respect thereof and deferred as described above) would be treated as short-term capital gain. If the value of the Debt Portion
on the date of the sale of your notes is in excess of the amount you receive upon such sale, you would likely be treated as having made
a payment (to the purchaser in the case of a sale) equal to the amount of such excess in order to extinguish your rights and obligations
under the Put Option. In such a case, you would likely recognize short-term capital gain or loss in an amount equal to the difference
between the premium you previously received in respect of the Put Option and the amount of the deemed payment made by you to extinguish
the Put Option.
If you are a secondary purchaser of your notes,
you would be required to allocate your purchase price for your notes between the Debt Portion and Put Option based on the respective fair
market values of each on the date of purchase. If, however, the portion of your purchase price allocated to the Debt Portion is at a discount
from, or is in excess of, the principal amount of your notes, you may be subject to the market discount or amortizable bond premium rules
described in the accompanying prospectus under “United States Federal Income Taxation — Tax consequences to holders of our
debt securities — Debt Securities Purchased with Market Discount” and “United States Federal Income Taxation —
Tax consequences to holders of our debt securities — Debt Securities Purchased at a Premium” with respect to the Debt Portion.
The portion of your purchase price that is allocated to the Put Option would likely be offset for tax purposes against amounts you subsequently
receive with respect to the Put Option (including amounts received upon a sale of the notes that are attributable to the Put Option),
thereby reducing the amount of gain or increasing the amount of loss you would recognize with respect to the Put Option or with respect
to the sale of any Reference Asset you receive upon the exercise of the Put Option. If, however, the portion of your purchase price allocated
to the Debt Portion as described above is in excess of your purchase price for your notes, you would likely be treated for tax purposes
as having received a payment for the Put Option (which will be deferred as described above) in an amount equal to such excess.
Alternative Characterizations
There is no judicial or administrative authority
discussing how your notes should be treated for U.S. federal income tax purposes. Therefore, other treatments would also be reasonable
and the Internal Revenue Service might assert that treatment other than that described above is more appropriate.
For example, it is possible that your note could
be treated as a single debt instrument subject to the special tax rules governing contingent payment debt instruments. If your note is
so treated, you would be required to accrue interest income over the term of your note based upon the yield at which we would issue a
non-contingent fixed-rate debt instrument with other terms and conditions similar to your note. You would recognize gain or loss upon
the sale, redemption or maturity of your note in an amount equal to the difference, if any, between the amount you receive at such time
and your adjusted basis in your note. In general, your adjusted basis in your note would be equal to the amount you paid for your note,
increased by the amount of interest you previously accrued with respect to your note. Any gain you recognize upon the sale, redemption
or maturity of your note would be ordinary income and any loss recognized by you at such time would generally be ordinary loss to the
extent of interest you included in income in the current or previous taxable years with respect to your note, and thereafter would be
capital loss.
If your note is treated as a contingent payment
debt instrument and you purchase your note in the secondary market at a price that is at a discount from, or in excess of, the adjusted
issue price of your note, such excess or discount would not be subject to the generally applicable market discount or amortizable bond
premium rules described in the accompanying prospectus but rather would be subject to special rules set forth in U.S. Treasury regulations
governing contingent payment debt instruments. Accordingly, if you purchase your note in the secondary market, you should consult your
tax advisor as to the possible application of such rules to you.
Further, your note may be characterized in whole
or in part as a notional principal contract. If your notes were to be treated in whole or in part as a notional principal contract, the
tax consequences to you could differ materially and adversely from the tax consequences described above. You are urged to consult your
own tax advisor with respect to the potential characterization of your notes as a notional principal contract, in whole or in part. Additionally,
your note may be characterized as a different type of derivative contract. For example, it is possible your notes could be treated as
a pre-paid income-bearing derivative contract in respect of the Reference Assets. In such case, your notes would be subject to similar
treatment as described under “Notes With Contingent Interest” below.
In addition, the Internal Revenue Service has released
a notice that may affect the taxation of holders of “prepaid forward contracts” and similar instruments. According to the
notice, the Internal Revenue Service and the U.S. Treasury are actively considering whether the holder of such instruments should be required
to accrue ordinary income on a current basis, and they sought taxpayer comments on the subject. While it is not clear whether the notes
would be viewed as similar to such instruments, it is possible that any future guidance could materially and adversely affect the tax
consequences of an investment in the notes, possibly with retroactive effect.
Because of the absence of authority regarding the
appropriate tax characterization of your note, it is possible that the Internal Revenue Service could seek to characterize your note in
a manner that results in tax consequences to you that are different from those described above. For example, it is possible that you may
be required to include the entire coupon into income when it is received. You should consult your tax advisor as to the tax consequences
of possible alternative characterizations of your note for U.S. federal income tax purposes.
Where the Term of Your Notes Will Not Exceed
One Year Without Regard to the Effect of an Extension in the Event of a Market Disruption Event
General
In the opinion of our counsel, Mayer Brown LLP,
it would generally be reasonable to treat your notes as an investment unit consisting of (i) a non-contingent debt instrument subject
to the rules governing short-term debt instruments (as described under “United States Federal Income Taxation — Tax consequences
to holders of our debt securities — Original Issue Discount — Short-Term Debt Securities” in the accompanying prospectus)
issued by us to you (the “Short-Term Debt Portion”), and (ii) a Put Option for U.S. federal income tax purposes. The balance
of this discussion under “Notes With Fixed Interest—Where the Term of the Your Notes Will Not Exceed One Year Without Regard
to the Effect of an Extension in the Event of a Market Disruption Event” assumes this treatment is proper and will be respected
for U.S. federal income tax purposes.
Treatment as an Investment Unit
If your notes are properly treated as an investment
unit consisting of a Short-Term Debt Portion and Put Option, it is likely that the Short-Term Debt Portion of your notes would be treated
as having been issued for the principal amount of the notes and that interest payments on the notes would be treated in part as payments
of interest and in part as payments for the Put Option. Amounts treated as interest would be subject to the rules governing short-term
debt instruments (as described under “United States Federal Income Taxation — Tax consequences to holders of our debt securities
— Original Issue Discount — Short-Term Debt Securities” in the accompanying prospectus). Amounts treated as payment
for the Put Option would be deferred and accounted for upon sale, redemption or maturity of the notes, as discussed below.
If you were to receive a cash payment of the full
principal amount of your notes upon the redemption or maturity of your notes, such payment would likely be treated as (i) payment in full
of the principal amount of the Short-Term Debt Portion (which would not result in the recognition of gain or loss if you are an initial
purchaser of your notes), and (ii) the lapse of the Put Option which would likely result in your recognition of short-term capital gain
in an amount equal to the amount paid to you for the Put Option and deferred as described above. If you were to receive a cash payment
upon the maturity of your notes (excluding cash received as a coupon) of less than the full principal amount of your notes, such payment
would likely be treated as (i) payment in full of the principal amount of the Short-Term Debt Portion (which would not result in the recognition
of gain or loss if you are an initial purchaser of your notes), and (ii) the cash settlement of the Put Option pursuant to which you paid
to us an amount equal to the excess of the principal amount of your notes over the amount that you received upon the maturity of your
notes (excluding cash received as a coupon) in order to settle the Put Option. If the aggregate amount paid to you for the Put Option
and deferred as described above is greater than the amount you are deemed to have paid to us to settle the Put Option, you will likely
recognize short-term capital gain in an amount that is equal to such excess. Conversely, if the amount paid to you for the Put Option
and deferred as described above is less than the amount you are deemed to have paid to us to settle the Put Option, you will likely recognize
short-term capital loss in an amount that is equal to such difference.
If, instead of making a cash payment to you, we
were to exchange your notes for shares of a Reference Asset of equivalent value, the receipt of such stock upon the maturity of your notes
would likely be treated as (i) payment in full of the principal amount of the Short-Term Debt Portion (which would likely not result in
the recognition of gain or loss if you are an initial purchaser of your notes), and (ii) the exercise by us of the Put Option and your
purchase of the shares of stock you receive for an amount equal to the principal amount of your notes. The U.S. federal income tax basis
of the shares of stock you receive would equal the principal amount of your notes less the amount of payments you received for the Put
Option and deferred as described above. The holding period in the shares of stock you receive would begin the day after you beneficially
receive such shares of stock. If you receive cash in lieu of a fractional share of stock, you will be treated as having received such
fractional share and then having received cash in exchange for such fractional share. You generally will recognize short-term capital
gain or loss based on the difference between the amount of cash received in lieu of the fractional share and the U.S. federal income tax
basis allocated to such fractional share.
Upon the sale of your notes, you would be required
to apportion the value of the amount you receive between the Short-Term Debt Portion and Put Option on the basis of the values thereof
on the date of the sale. You would recognize gain or loss with respect to the Short-Term Debt Portion in an amount equal to the difference
between (i) the amount apportioned to the Short-Term Debt Portion, and (ii) your adjusted U.S. federal income tax basis in the Short-Term
Debt Portion. Except to the extent attributable to accrued but unpaid interest with respect to the Short-Term Debt Portion, such gain
or loss would be short-term capital gain or loss. If you are a cash basis taxpayer and do not elect to accrue interest currently, your
adjusted basis in your notes should generally be the purchase price of your notes. If you are an accrual basis holder, or a cash basis
holder that elects to accrue interest on your notes currently, your adjusted basis in your notes should generally be the purchase price
of your notes increased by the amount of accrued interest and decreased by any interest that is paid in respect of the Short-Term Debt
Portion.
Upon the sale of your notes, the amount of cash
that you receive that is apportioned to the Put Option (together with any amount of premium received in respect thereof and deferred as
described above) would be treated as short-term capital gain. If the value of the Short-Term Debt Portion on the date of the sale of your
notes is in excess of the amount you receive upon such sale, you would likely be treated as having made a payment (to the purchaser in
the case of a sale) equal to the amount of such excess in order to extinguish your rights and obligations under the Put Option. In such
a case, you would likely recognize short-term capital gain or loss in an amount equal to the difference between the premium you previously
received in respect of the Put Option and the amount of the deemed payment made by you to extinguish the Put Option.
If you are a secondary purchaser of your notes,
you would be required to allocate your purchase price for your notes between the Short-Term Debt Portion and Put Option based on the respective
fair market values of each on the date of purchase. If the portion of your purchase price allocated to the Short-Term Debt Portion is
in excess of the principal amount of your notes, you may be subject to the amortizable bond premium rules described in the accompanying
prospectus under “United States Federal Income Taxation — Tax consequences to holders of our debt securities — Debt
Securities Purchased at a Premium” with respect to the Short-Term Debt Portion. If the portion of your purchase price allocated
to the Short-Term Debt Portion is at a discount from the principal amount of the notes, special market discount rules applicable to short-term
debt instruments may apply. You should consult your tax advisor with respect to such rules in such case. The portion of your purchase
price that is allocated to the Put Option would likely be offset for tax purposes against amounts you subsequently receive with respect
to the Put Option (including amounts received upon a sale of the notes that are attributable to the Put Option), thereby reducing the
amount of gain or increasing the amount of loss you would recognize with respect to the Put Option or with respect to the sale of any
stock you receive upon the exercise of the Put Option. If, however, the portion of your purchase price allocated to the Short-Term Debt
Portion as described above is in excess of your purchase price for your notes, you would likely be treated for tax purposes as having
received a payment for the Put Option (which will be deferred as described above) in an amount equal to such excess.
Alternative Characterizations
There is no judicial or administrative authority
discussing how your notes should be treated for U.S. federal income tax purposes. Therefore, other treatments would also be reasonable
and the Internal Revenue Service might assert that treatment other than that described above is more appropriate. For example, the Internal
Revenue Service might assert that your notes should be treated as a single debt instrument as described in “United States Federal
Income Taxation” in the accompanying prospectus. Pursuant to such characterization, the notes would generally be subject to the
rules concerning short-term debt instruments as described under the heading “United States Federal Income Taxation — Tax consequences
to holders of our debt securities — Original Issue Discount — Short-Term Debt Securities” therein. It is also possible
that you may be required to include the entire coupon in income when it is received. In addition, if the term of your notes may exceed
one year in the event of a market disruption event, your notes may be treated as notes with a term in excess of one year. In such case,
your notes would be subject to the rules described under “Where the Term of Your Notes Exceeds One Year” above.
Further, your note may be characterized in whole
or in part as a notional principal contract. If your notes were to be treated in whole or in part as a notional principal contract, the
tax consequences to you could differ materially and adversely from the tax consequences described above. You are urged to consult your
own tax advisor with respect to the potential characterization of your notes as a notional principal contract, in whole or in part. Additionally,
your note may be characterized as a different type of derivative contract. For example, it is possible your notes could be treated as
a pre-paid income-bearing derivative contract in respect of the Reference Assets. In such case, your notes would be subject to similar
treatment as described under “Notes With Contingent Interest” below.
In addition, the Internal Revenue Service has released
a notice that may affect the taxation of holders of “prepaid forward contracts” and similar instruments. According to the
notice, the Internal Revenue Service and the U.S. Treasury are actively considering whether the holder of such instruments should be required
to accrue ordinary income on a current basis, and they sought taxpayer comments on the subject. While it is not clear whether the notes
would be viewed as similar to such instruments, it is possible that any future guidance could materially and adversely affect the tax
consequences of an investment in the notes, possibly with retroactive effect. You should consult your tax advisor as to the tax consequences
of possible alternative characterizations of your note for U.S. federal income tax purposes.
Notes With Contingent Interest
General
In the opinion of our counsel, Mayer Brown LLP,
it would generally be reasonable to treat your notes as a pre-paid contingent income-bearing derivative contract in respect of a Reference
Asset for U.S. federal income tax purposes. The balance of this discussion under “Notes With Contingent Interest” assumes
this treatment is proper and will be respected for U.S. federal income tax purposes.
Although the U.S. federal income tax treatment
of the contingent interest payments is uncertain, we intend to take the position, and the following discussion assumes, that such contingent
interest payments (including any interest payment on or with respect to the maturity date) constitute taxable ordinary income to you at
the time received or accrued in accordance your regular method of accounting. If the notes are treated as described above, subject to
the discussion below concerning the potential application of the “constructive ownership” rules under Section 1260 of the
Code, it would be reasonable for you to take the position that you will recognize capital gain or loss upon the redemption, sale or maturity
of the notes in an amount equal to the difference between the amount you receive at such time (other than amounts properly attributable
to any interest payments, which would be treated, as described above, as ordinary income) and your tax basis in the notes. In general,
your tax basis in the notes will be equal to the price you paid for the notes. Capital gain recognized by an individual United States
holder is generally taxed at preferential rates where the property is held for more than one year and is generally taxed at ordinary income
rates where the property is held for one year or less. The deductibility of capital losses is subject to limitations. The holding period
for notes of a United States holder who acquires the notes upon issuance will generally begin on the date after the issue date (i.e.,
the settlement date) of the notes. If the notes are held by the same United States holder until maturity, that holder’s holding
period will generally include the Maturity Date. It is possible that the Internal Revenue Service could assert that a United States holder’s
holding period in respect of the notes should end on the date on which the amount the holder is entitled to receive upon the maturity
of the notes is determined, even though the holder will not receive any amounts from us in respect of the notes prior to the maturity
of the notes. In such case, a United States holder may be treated as having a holding period in respect of the notes that is one year
or less even if the holder receives cash upon maturity of the notes at a time that is more than one year after the beginning of its holding
period.
If, instead of making a cash payment to you, we
were to exchange your notes for shares of a Reference Asset of equivalent value and cash in lieu of fractional shares, although no assurances
can be provided in this regard, and subject to the discussion below concerning the potential application of the “constructive ownership”
rules under Section 1260 of the Code, you may generally expect not to recognize any gain or loss with respect to any stock received. Your
holding period in the shares of stock you receive would begin the day after you beneficially receive such shares of stock. If you receive
cash in lieu of a fractional share of stock, you will be treated as having received such fractional share and then having received cash
in exchange for such fractional share. You generally will recognize short-term capital gain or loss based on the difference between the
amount of cash received in lieu of the fractional share and the U.S. federal income tax basis allocated to such fractional share. As discussed
above, we intend to treat any contingent interest payments you receive as constituting ordinary income to you.
Potential Application of Section 1260 of the
Code
To the extent that a Reference Asset is the type
of financial asset described under Section 1260 of the Code (including, among others, any equity interest in pass-thru entities such as
ETFs, regulated investment companies, real estate investment trusts, partnerships, and passive foreign investment companies, each a “Section
1260 Financial Asset”), while the matter is not entirely clear, unless otherwise specified in the applicable pricing supplement,
there exists a substantial risk that an investment in a note is, in whole or in part, a “constructive ownership transaction”
to which Section 1260 of the Code applies. If Section 1260 of the Code applies, all or a portion of any long-term capital gain recognized
by a United States holder in respect of a note will be recharacterized as ordinary income (the “Excess Gain”). In addition,
an interest charge will also apply to any deemed underpayment of tax in respect of any Excess Gain to the extent such gain would have
resulted in gross income inclusion for the United States holder in taxable years prior to the taxable year of the sale, exchange, or settlement
(assuming such income accrued at a constant rate equal to the applicable federal rate as of the date of sale, exchange, or settlement).
If an investment in a note is treated as a constructive
ownership transaction, it is not clear to what extent any long-term capital gain of a United States holder in respect of the note will
be recharacterized as ordinary income. It is possible, for example, that the amount of the Excess Gain (if any) that would be recharacterized
as ordinary income in respect of the note will equal the excess of (i) any long-term capital gain recognized by the United States holder
in respect of the note and attributable to Section 1260 Financial Assets, over (ii) the “net underlying long-term capital gain”
(as defined in Section 1260 of the Code) such United States holder would have had if such United States holder had acquired an amount
of the corresponding Section 1260 Financial Assets at fair market value on the original issue date for an amount equal to the portion
of the issue price of the note attributable to the corresponding Section 1260 Financial Assets and sold such amount of Section 1260 Financial
Assets upon the date of sale, exchange, or settlement of the note at fair market value (and appropriately taking into account any leveraged
upside exposure). To the extent any gain is treated as long-term capital gain after application of the recharacterization rules of Section
1260 of the Code, such gain would be subject to U.S. federal income tax at the rates that would have been applicable to the net underlying
long-term capital gain. United States holders should consult their tax advisors regarding the potential application of Section 1260 of
the Code to an investment in the note.
Under Section 1260 of the Code, there is a presumption
that the net underlying long-term capital gain is zero (with the result that the recharacterization and interest charge described above
would apply to all of the gain from the notes that otherwise would have been long-term capital gain), unless the contrary is demonstrated
by clear and convincing evidence. Holders will be responsible for obtaining information necessary to determine the net underlying long-term
capital gain with respect to the corresponding Section 1260 Financial Assets, as we do not intend to supply holders with such information.
If an investment in a note is treated as a constructive ownership transaction and a holder receives shares of a Reference Asset (as described
above) for the holder’s notes, the holder may be required to recognize ordinary income without corresponding receipt of cash. Holders
should consult with their tax advisor regarding the application of the constructive ownership transaction to their notes and the calculations
necessary to comply with Section 1260 of the Code.
Alternative Characterizations
Alternative tax treatments of the notes are also
possible and the Internal Revenue Service might assert that a treatment other than that described above is more appropriate. For example,
it is possible that your note could be treated as a single debt instrument. Under this treatment, where the term of your notes exceeds
one year, the notes would generally be subject to the special tax rules governing contingent payment debt instruments. If your note is
so treated, you would be required to accrue interest income over the term of your note based upon the yield at which we would issue a
non-contingent fixed-rate debt instrument with other terms and conditions similar to your note. You would recognize gain or loss upon
the sale, redemption or maturity of your note in an amount equal to the difference, if any, between the amount you receive at such time
and your adjusted basis in your note. In general, your adjusted basis in your note would be equal to the amount you paid for your note,
increased by the amount of interest you previously accrued with respect to your note. Any gain you recognize upon the sale, redemption
or maturity of your note would be ordinary income and any loss recognized by you at such time would generally be ordinary loss to the
extent of interest you included in income in the current or previous taxable years with respect to your note, and thereafter would be
capital loss. If your note is treated as a contingent payment debt instrument and you purchase your note in the secondary market at a
price that is at a discount from, or in excess of, the adjusted issue price of your note, such excess or discount would not be subject
to the generally applicable market discount or amortizable bond premium rules described in the accompanying prospectus but rather would
be subject to special rules set forth in U.S. Treasury regulations governing contingent payment debt instruments. Accordingly, if you
purchase your note in the secondary market, you should consult your tax advisor as to the possible application of such rules to you. Where
the notes have a term of one year or less, the notes would generally be subject to the rules concerning short-term debt instruments as
described under the heading “United States Federal Income Taxation — Tax consequences to holders of our debt securities —
Original Issue Discount — Short-Term Debt Securities” therein.
Because of the absence of authority regarding the
appropriate tax characterization of the notes, it is also possible that the Internal Revenue Service could seek to characterize the notes
in a manner that results in other tax consequences that are different from those described above.
In addition, the Internal Revenue Service has released
a notice that may affect the taxation of holders of “prepaid forward contracts” and similar instruments. According to the
notice, the Internal Revenue Service and the U.S. Treasury are actively considering whether the holder of such instruments should be required
to accrue ordinary income on a current basis, and they sought taxpayer comments on the subject. While it is not clear whether the notes
would be viewed as similar to such instruments, it is possible that any future guidance could materially and adversely affect the tax
consequences of an investment in the notes, possibly with retroactive effect. You should consult your tax advisor as to the tax consequences
of possible alternative characterizations of your note for U.S. federal income tax purposes.
Notes With No Interest
General
In the opinion of our counsel, Mayer Brown LLP,
it would generally be reasonable to treat your notes as a pre-paid derivative contract in respect of a Reference Asset for U.S. federal
income tax purposes. The balance of this discussion under “Notes With No Interest” assumes this treatment is proper and will
be respected for U.S. federal income tax purposes.
If the notes are treated as described above, subject
to the discussion below concerning the potential application of the “constructive ownership” rules under Section 1260 of the
Code, it would be reasonable for you to take the position that you will recognize capital gain or loss upon the redemption, sale or maturity
of the notes in an amount equal to the difference between the amount you receive at such time and your tax basis in the notes. In general,
your tax basis in the notes will be equal to the price you paid for the notes. Capital gain recognized by an individual United States
holder is generally taxed at preferential rates where the property is held for more than one year and is generally taxed at ordinary income
rates where the property is held for one year or less. The deductibility of capital losses is subject to limitations. The holding period
for notes of a United States holder who acquires the notes upon issuance will generally begin on the date after the issue date (i.e.,
the settlement date) of the notes. If the notes are held by the same United States holder until maturity, that holder’s holding
period will generally include the Maturity Date. It is possible that the Internal Revenue Service could assert that a United States holder’s
holding period in respect of the notes should end on the date on which the amount the holder is entitled to receive upon the maturity
of the notes is determined, even though the holder will not receive any amounts from us in respect of the notes prior to the maturity
of the notes. In such case, a United States holder may be treated as having a holding period in respect of the notes that is one year
or less even if the holder receives cash upon maturity of the notes at a time that is more than one year after the beginning of its holding
period.
If, instead of making a cash payment to you, we
were to exchange your notes for shares of a Reference Asset of equivalent value and cash in lieu of fractional shares, although no assurances
can be provided in this regard, and subject to the discussion below concerning the potential application of the “constructive ownership”
rules under Section 1260 of the Code, you may generally expect not to recognize any gain or loss with respect to any stock received.
Your holding period in the shares of stock you receive would begin the day after you beneficially receive such shares of stock. If you
receive cash in lieu of a fractional share of stock, you will be treated as having received such fractional share and then having received
cash in exchange for such fractional share. You generally will recognize short-term capital gain or loss based on the difference between
the amount of cash received in lieu of the fractional share and the U.S. federal income tax basis allocated to such fractional share.
Potential Application of Section 1260 of the
Code
To the extent that a Reference Asset is the type
of financial asset described under Section 1260 of the Code (including, among others, any equity interest in pass-thru entities such as
ETFs, regulated investment companies, real estate investment trusts, partnerships, and passive foreign investment companies, each a “Section
1260 Financial Asset”), while the matter is not entirely clear, unless otherwise specified in the applicable pricing supplement,
there exists a substantial risk that an investment in a note is, in whole or in part, a “constructive ownership transaction”
to which Section 1260 of the Code applies. If Section 1260 of the Code applies, all or a portion of any long-term capital gain recognized
by a United States holder in respect of a note will be recharacterized as ordinary income (the “Excess Gain”). In addition,
an interest charge will also apply to any deemed underpayment of tax in respect of any Excess Gain to the extent such gain would have
resulted in gross income inclusion for the United States holder in taxable years prior to the taxable year of the sale, exchange, or settlement
(assuming such income accrued at a constant rate equal to the applicable federal rate as of the date of sale, exchange, or settlement).
If an investment in a note is treated as a constructive
ownership transaction, it is not clear to what extent any long-term capital gain of a United States holder in respect of the note will
be recharacterized as ordinary income. It is possible, for example, that the amount of the Excess Gain (if any) that would be recharacterized
as ordinary income in respect of the note will equal the excess of (i) any long-term capital gain recognized by the United States holder
in respect of the note and attributable to Section 1260 Financial Assets, over (ii) the “net underlying long-term capital gain”
(as defined in Section 1260 of the Code) such United States holder would have had if such United States holder had acquired an amount
of the corresponding Section 1260 Financial Assets at fair market value on the original issue date for an amount equal to the portion
of the issue price of the note attributable to the corresponding Section 1260 Financial Assets and sold such amount of Section 1260 Financial
Assets upon the date of sale, exchange, or settlement of the note at fair market value (and appropriately taking into account any leveraged
upside exposure). To the extent any gain is treated as long-term capital gain after application of the recharacterization rules of Section
1260 of the Code, such gain would be subject to U.S. federal income tax at the rates that would have been applicable to the net underlying
long-term capital gain. United States holders should consult their tax advisors regarding the potential application of Section 1260 of
the Code to an investment in the note.
Under Section 1260 of the Code, there is a presumption
that the net underlying long-term capital gain is zero (with the result that the recharacterization and interest charge described above
would apply to all of the gain from the notes that otherwise would have been long-term capital gain), unless the contrary is demonstrated
by clear and convincing evidence. Holders will be responsible for obtaining information necessary to determine the net underlying long-term
capital gain with respect to the corresponding Section 1260 Financial Assets, as we do not intend to supply holders with such information.
If an investment in a note is treated as a constructive ownership transaction and a holder receives shares of a Reference Asset (as described
above) for the holder’s notes, the holder may be required to recognize ordinary income without corresponding receipt of cash. Holders
should consult with their tax advisor regarding the application of the constructive ownership transaction to their notes and the calculations
necessary to comply with Section 1260 of the Code.
Alternative Characterization
Alternative tax treatments of the notes are also
possible and the Internal Revenue Service might assert that a treatment other than that described above is more appropriate. For example,
it is possible that your note could be treated as a single debt instrument. Under this treatment, where the term of your notes exceeds
one year, the notes would generally be subject to the special tax rules governing contingent payment debt instruments. If your note is
so treated, you would be required to accrue interest income over the term of your note even though you will not receive any payments from
us prior to maturity. You would recognize gain or loss upon the sale, redemption or maturity of your note in an amount equal to the difference,
if any, between the amount you receive at such time and your adjusted basis in your note. In general, your adjusted basis in your note
would be equal to the amount you paid for your note, increased by the amount of interest you previously accrued with respect to your note.
Any gain you recognize upon the sale, redemption or maturity of your note would be ordinary income and any loss recognized by you at such
time would generally be ordinary loss to the extent of interest you included in income in the current or previous taxable years with respect
to your note, and thereafter would be capital loss. If your note is treated as a contingent payment debt instrument and you purchase your
note in the secondary market at a price that is at a discount from, or in excess of, the adjusted issue price of your note, such excess
or discount would not be subject to the generally applicable market discount or amortizable bond premium rules described in the accompanying
prospectus but rather would be subject to special rules set forth in U.S. Treasury regulations governing contingent payment debt instruments.
Accordingly, if you purchase your note in the secondary market, you should consult your tax advisor as to the possible application of
such rules to you. Where the notes have a term of one year or less, the notes would generally be subject to the rules concerning short-term
debt instruments as described under the heading “United States Federal Income Taxation — Tax consequences to holders of our
debt securities — Original Issue Discount — Short-Term Debt Securities” therein.
If the Reference Asset periodically rebalances,
it is possible that the notes could be treated as a series of pre-paid derivative contracts, each of which matures on the next rebalancing
date. If the notes were properly characterized in such a manner, a United States holder would be treated as disposing of the notes on
each rebalancing date in return for new pre-paid derivative contracts that mature on the next rebalancing date, and a holder would accordingly
likely recognize capital gain or loss on each rebalancing date equal to the difference between the holder’s basis in the notes (which
would be adjusted to take into account any prior recognition of gain or loss) and the fair market value of the notes on such date.
Because of the absence of authority regarding the
appropriate tax characterization of the notes, it is also possible that the Internal Revenue Service could seek to characterize the notes
in a manner that results in other tax consequences that are different from those described above.
In addition, the Internal Revenue Service has released
a notice that may affect the taxation of holders of “prepaid forward contracts” and similar instruments. According to the
notice, the Internal Revenue Service and the U.S. Treasury Department are actively considering whether the holder of such instruments
should be required to accrue ordinary income on a current basis, and they sought taxpayer comments on the subject. While it is not clear
whether the notes would be viewed as similar to such instruments, it is possible that any future guidance could materially and adversely
affect the tax consequences of an investment in the notes, possibly with retroactive effect. The Internal Revenue Service and the U.S.
Treasury Department are also considering other relevant issues, including whether additional gain or loss from such instruments should
be treated as ordinary or capital and whether the special “constructive ownership rules” of Section 1260 of the Code might
be applied to such instruments. You should consult your tax advisor as to the tax consequences of possible alternative characterizations
of your note for U.S. federal income tax purposes.
Non-United States Holders
The following discussion applies to non-United
States holders of the notes. You are a non-United States holder if you are a beneficial owner of a note and are for U.S. federal income
tax purposes a non-resident alien individual, a foreign corporation, or a foreign estate or trust.
As discussed above, the U.S. federal income tax
treatment of the notes is uncertain and as a result, the institution through which you hold the notes may determine to withhold U.S. federal
income tax at a 30% rate (or at a lower rate under an applicable income tax treaty) in respect of interest payments made on the notes
to a non-United States holder unless such payments are effectively connected with the conduct by the non-United States holder of a trade
or business in the United States (in which case, to avoid withholding, the non-United States holder will be required to provide an IRS
Form W-8ECI). We will not pay any additional amounts in respect of such withholding. To claim benefits under an income tax treaty, a non-United
States holder must obtain a taxpayer identification number and certify as to its eligibility under the appropriate treaty’s limitations
on benefits article, if applicable (which certification may generally be made on an IRS Form W-8BEN or W-8BEN-E, or a substitute or successor
form). In addition, special rules may apply to claims for treaty benefits made by corporate non-United States holders. A non-United States
holder that is eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the Internal Revenue Service. The availability of a lower rate
of withholding or an exemption from withholding under an applicable income tax treaty will depend on the proper characterization of any
interest payments under U.S. federal income tax laws and whether such treaty rate or exemption applies to such interest payments. No assurance
can be provided on the proper characterization of any interest payments for U.S. federal income tax purposes and, accordingly, no assurance
can be provided on the availability of benefits under any income tax treaty. Non-United States holders must consult their tax advisors
in this regard.
Except as discussed below, you will generally not
be subject to U.S. federal income or withholding tax on any gain upon the sale or maturity of the notes, provided that (i) you comply
with applicable certification requirements, which certification may be made on an IRS Form W-8BEN or W-8BEN-E (or a substitute or successor
form) on which you certify, under penalties of perjury, that you are not a U.S. person and provide your name and address, (ii) your gain
is not effectively connected with your conduct of a U.S. trade or business, and (iii) if you are a non-resident alien individual, you
are not present in the United States for 183 days or more during the taxable year of the sale or maturity of the notes. In the case of
(ii) above, you generally would be subject to U.S. federal income tax with respect to any income or gain in the same manner as if you
were a United States holder and, if you are a corporation, you may also be subject to a branch profits tax equal to 30% (or such lower
rate provided by an applicable U.S. income tax treaty) of a portion of your earnings and profits for the taxable year that are effectively
connected with its conduct of a trade or business in the United States, subject to certain adjustments.
As discussed above, alternative characterizations
of the notes 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 the notes to become subject to withholding tax in addition to the withholding
tax described above, or if we or the institution through which you hold the notes determine withholding is appropriate under current law,
we or such institution will withhold tax at the applicable statutory rate. Prospective investors should consult their own tax advisors
in this regard.
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% U.S. withholding tax
if paid to a non-United States 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, 2023. Except as otherwise set forth in any applicable pricing supplement, we expect
that the delta of a note with terms described in this product supplement with respect to the Reference Assets will not be one, and therefore,
we expect non-United States holders should not be subject to withholding on dividend equivalent payments, if any, under a note described
in this product supplement issued before January 1, 2023. However, it is possible that notes issued before January 1, 2023 could be treated
as deemed reissued for U.S. federal income tax purposes upon the occurrence of certain events affecting a Reference Asset or the notes,
and following such occurrence, such notes could be treated as subject to withholding on dividend equivalent payments. Non-United States
holders that enter, or have entered, into other transactions in respect of a Reference Asset or the notes should consult their tax advisors
as to the application of the dividend equivalent withholding tax in the context of the notes 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.
Backup Withholding and Information Reporting
Please see the discussion under “United States
Federal Income Taxation—Other Considerations—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 the notes to United
States holders.
In the case of a non-United States holder, backup
withholding and information reporting will not apply to payments made if the non-United States holder provides the required certification
that it is not a United States person, or the non-United States holder otherwise establishes an exemption, provided that the payor or
withholding agent does not have actual knowledge or reason to know that the holder is a United States person, or that the conditions of
any exemption are not satisfied. However, we and other payors are generally required to report payments of interest on the notes on IRS
Form 1042-S even if the payments are not otherwise subject to information reporting requirements.
Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act imposes
a 30% U.S. withholding tax on certain U.S. source payments, including interest (and OID), dividends, other fixed or determinable annual
or periodical gain, profits, and income, and on the gross proceeds from a disposition of property of a type which can produce U.S. source
interest or dividends (“Withholdable Payments”), if paid to a foreign financial institution (including amounts paid to a foreign
financial institution on behalf of a holder), unless such institution enters into an agreement with the U.S. Treasury Department to collect
and provide to the U.S. Treasury Department substantial information regarding U.S. account holders, including certain account holders
that are foreign entities with U.S. owners, with such institution. The legislation also generally imposes a withholding tax of 30% on
Withholdable Payments made to a non-financial foreign entity unless such entity provides the withholding agent with a certification that
it does not have any substantial U.S. owners or a certification identifying the direct and indirect substantial U.S. owners of the entity.
Proposed regulations eliminate the requirement
of withholding on gross proceeds from the sale or disposition of financial instruments. The U.S. Treasury Department has indicated that
taxpayers may rely on these proposed regulations pending their finalization. If we (or an applicable withholding agent) determine withholding
is appropriate with respect to the notes, we (or such agent) will withhold tax at the applicable statutory rate, and we will not pay any
additional amounts in respect of such withholding. Account holders subject to information reporting requirements pursuant to the Foreign
Account Tax Compliance Act may include holders of the notes. Foreign financial institutions and non-financial foreign entities located
in jurisdictions that have an intergovernmental agreement with the United States governing the Foreign Account Tax Compliance Act may
be subject to different rules. Holders are urged to consult with their own tax advisors regarding the possible implications of this legislation
on their investment in the notes.
CERTAIN
CONSIDERATIONS FOR ERISA AND OTHER U.S. EMPLOYEE BENEFIT PLANS
Subject to the following discussion, the notes may
be purchased by an “employee benefit plan” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended (“ERISA”), subject to Title I of ERISA, a plan or account subject to Section 4975 of the Internal Revenue Code
of 1986, as amended (the “Code”), an entity whose underlying assets include the assets of any of the foregoing (each of the
foregoing, a “Benefit Plan Investor”), or any other plan which is subject to any federal, state, local or other law that is
substantially similar to the fiduciary responsibility and prohibited transaction provisions of ERISA or Section 4975 of the Code (“Similar
Law”). A fiduciary of a Benefit Plan Investor subject to ERISA, should consider the fiduciary standards of ERISA in the context
of the plan’s particular circumstances before authorizing an investment in the notes. Among other factors, the fiduciary should
consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent with the
documents and instruments governing the plan, and whether the investment would involve a prohibited transaction under ERISA or the Code.
Section 406 of ERISA and Section 4975 of the Code
prohibit Benefit Plan Investors, from engaging in certain transactions involving “plan assets” with persons who are “parties
in interest” under ERISA or “disqualified persons” under the Code with respect to the Benefit Plan Investors. A violation
of these prohibited transaction rules may result in excise tax or other liabilities under ERISA or the Code for those persons, unless
exemptive relief is available under an applicable statutory, regulatory or administrative exemption. Employee benefit plans that are governmental
plans (as defined in Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA) are not subject to the requirements
of Section 406 of ERISA or Section 4975 of the Code but may be subject to Similar Law.
The acquisition of notes by Benefit Plan Investor
with respect to which we or certain of our affiliates is or becomes a party in interest or disqualified person may result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless the notes are acquired pursuant to an applicable exemption. The U.S. Department
of Labor has issued five prohibited transaction class exemptions, or “PTCEs”, that may provide exemptive relief if required
for direct or indirect prohibited transactions that may arise from the purchase or holding of notes. These exemptions are PTCE 84-14 (for
certain transactions determined by independent qualified professional asset managers), PTCE 90-1 (for certain transactions involving insurance
company pooled separate accounts), PTCE 91-38 (for certain transactions involving bank collective investment funds), PTCE 95-60 (for transactions
involving certain insurance company general accounts), and PTCE 96-23 (for transactions managed by in-house asset managers). In addition,
ERISA Section 408(b)(17) and Section 4975(d)(20) of the Code provide an exemption for certain transactions between a Benefit Plan Investor
and persons who are parties in interest or disqualified persons solely by reason of providing services to the Benefit Plan Investor or
being affiliated with such service providers. There can be no assurance that these or any other exemption will be available with respect
to any particular transaction involving the notes, or that, if an exemption is available, it will cover all aspects of any particular
transaction.
Because we or our affiliates may be considered to
be a party in interest with respect to many plans, the notes may not be purchased, held or disposed of by any plan, unless such purchase,
holding or disposition is eligible for exemptive relief, including relief available under PTCE 96-23, 95-60, 91-38, 90-1, or 84-14 or
the service provider exemption, or any other applicable exemption. Except as otherwise set forth in any applicable pricing supplement,
by its purchase of any notes, each purchaser (whether in the case of the initial purchase or in the case of a subsequent transferee) will
be deemed to have represented and agreed by its purchase and holding of the notes offered hereby that either (i) it is not and it is not
acquiring the notes on behalf of, or with the assets of a Benefit Plan Investor or any other plan that is subject to Similar Law, or (ii)
its purchase, holding and disposition of the notes will not, in the case of a Benefit Plan Investor, result in a nonexempt prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code because an exemption is available with respect to such transactions
and all the conditions of such exemption have been satisfied (or, in the case of any other plan, result in a violation of Similar Law).