RISK FACTORS
Your investment in the notes will involve risks
not associated with an investment in conventional debt securities. You should carefully consider the risk factors set forth below
as well as the other information contained in the prospectus supplement and prospectus, including the documents they incorporate
by reference. You should reach an investment decision only after you have carefully considered with your advisors the suitability
of an investment in the notes in light of your particular circumstances.
The Amount Of Interest You Receive May Be
Less Than The Return You Could Earn On Other Investments.
Interest rates may change significantly over
the term of the notes, and it is impossible to predict what interest rates will be at any point in the future. Although the interest
rate on the notes will increase to preset rates at scheduled intervals during the term of the notes, the interest rate that will
apply at any time on the notes may be more or less than prevailing market interest rates at such time. As a result, the amount
of interest you receive on the notes may be less than the return you could earn on other investments.
The Per Annum Interest Rate Applicable At
A Particular Time Will Affect Our Decision To Redeem The Notes.
It is more likely that we will redeem the notes
prior to the stated maturity date during periods when the remaining interest is to accrue on the notes at a rate that is greater
than that which we would pay on a conventional fixed-rate non-redeemable note of comparable maturity. If we redeem the notes prior
to the stated maturity date, you may not be able to invest in other notes that yield as much interest as the notes.
The Step-Up Feature Presents Different Investment
Considerations Than Fixed Rate Notes.
The interest rate payable on the notes during
their term will increase from the initial interest rate, subject to our right to redeem the notes. If we do not redeem the notes,
the interest rate will step up as described herein. You should not expect to earn the higher stated interest rates which are applicable
only after the first 2 years of the term of the notes because, unless general interest rates rise significantly, the notes are
likely to be redeemed prior to the stated maturity date. When determining whether to invest in the notes, you should consider,
among other things, the overall annual percentage rate of interest to redemption as compared to other equivalent investment alternatives
rather than the higher stated interest rates which are applicable only after the first 2 years of the term of the notes.
The Notes Are Subject To The Credit Risk Of
Wells Fargo.
The notes are our obligations and are not, either
directly or indirectly, an obligation of any third party. Any amounts payable under the notes are subject to our creditworthiness.
As a result, our actual and perceived creditworthiness may affect the value of the notes and, in the event we were to default on
our obligations, you may not receive any amounts owed to you under the terms of the notes.
Holders Of The Notes Have Limited Rights Of
Acceleration.
Payment of principal on the notes may be accelerated
only in the case of payment defaults that continue for a period of 30 days or certain events of bankruptcy or insolvency, whether
voluntary or involuntary. If you purchase the notes, you will have no right to accelerate the payment of principal on the notes
if we fail in the performance of any of our obligations under the notes, other than the obligations to pay principal and interest
on the notes. See “Description of Debt Securities of Wells Fargo & Company—Events of Default and Covenant Breaches”
in the accompanying prospectus.
Holders Of The Notes Could Be At Greater Risk
For Being Structurally Subordinated If We Convey, Transfer Or Lease All Or Substantially All Of Our Assets To One Or More Of Our
Subsidiaries.
Under the indenture, we may convey, transfer
or lease all or substantially all of our assets to one or more of our subsidiaries. In that event, third-party creditors of our
subsidiaries would have additional assets from which to recover on their claims while holders of the notes would be structurally
subordinated to creditors of our subsidiaries with respect to such assets. See “Description of Debt Securities of Wells Fargo & Company—Consolidation, Merger or Sale” in the accompanying prospectus.
The Agent Discount, Offering Expenses And
Certain Hedging Costs Are Likely To Adversely Affect The Price At Which You Can Sell Your Notes.
Assuming no changes in market conditions or any
other relevant factors, the price, if any, at which you may be able to sell the notes will likely be lower than the original offering
price. The original offering price includes, and any price quoted to you is likely to exclude, the agent discount paid in connection
with the initial distribution, offering expenses and the projected profit that our hedge counterparty (which may be one of our
affiliates) expects to realize in consideration for assuming the risks inherent in hedging our obligations under the notes. In
addition, any such price is also likely to reflect dealer discounts, mark-ups and other transaction costs, such as a discount to
account for costs associated with establishing or unwinding any related hedge transaction. The price at which the agent or any
other potential buyer may be willing to buy your notes will also be affected by the interest rates provided by the notes and by
the market and other conditions discussed in the next risk factor.
The Value Of The Notes Prior To Stated Maturity
Will Be Affected By Numerous Factors, Some Of Which Are Related In Complex Ways.
The value of the notes prior to stated maturity
will be affected by interest rates at that time and a number of other factors, some of which are interrelated in complex ways.
The effect of any one factor may be offset or magnified by the effect of another factor. The following factors, among others, are
expected to affect the value of the notes. When we refer to the “value” of your note, we mean the value that
you could receive for your note if you are able to sell it in the open market before the stated maturity date.
|
●
|
Interest Rates. The value of the notes may be affected by changes in the interest rates
in the U.S. markets.
|
|
●
|
Our Creditworthiness. Actual or anticipated changes in our creditworthiness may affect the
value of the notes. However, because the return on the notes is dependent upon factors in addition to our ability to pay our obligations
under the notes, such as whether we exercise our option to redeem the notes, an improvement in our creditworthiness will not reduce
the other investment risks related to the notes.
|
The Notes Will Not Be Listed On Any Securities
Exchange And We Do Not Expect A Trading Market For The Notes To Develop.
The notes will not be listed or displayed on
any securities exchange or any automated quotation system. Although the agent and/or its affiliates may purchase the notes from
holders, they are not obligated to do so and are not required to make a market for the notes. There can be no assurance that a
secondary market will develop. Because we do not expect that any market makers will participate in a secondary market for the notes,
the price at which you may be able to sell your notes is likely to depend on the price, if any, at which the agent is willing to
buy your notes.
If a secondary market does exist, it may be limited.
Accordingly, there may be a limited number of buyers if you decide to sell your notes prior to stated maturity. This may affect
the price you receive upon such sale. Consequently, you should be willing to hold the notes to stated maturity.
A Dealer Participating In The Offering Of
The Notes Or Its Affiliates May Realize Hedging Profits Projected By Its Proprietary Pricing Models In Addition To Any Selling
Concession, Creating A Further Incentive For The Participating Dealer To Sell The Notes To You.
If any dealer participating in the offering of
the notes, which we refer to as a “participating dealer,” or any of its affiliates conducts hedging activities for
us in connection with the notes, that participating dealer or its affiliates will expect to realize a projected profit from such
hedging activities, if any, and this projected hedging profit will be in addition to any concession that the participating dealer
realizes for the sale of the notes to you. This additional projected profit may create a further incentive for the participating
dealer to sell the notes to you.
Our Ability To Service Our Debt, Including
The Notes, May Be Limited By The Results Of Operations Of Our Subsidiaries And Certain Contractual Arrangements.
We conduct substantially all of our activities
and operations through our subsidiaries and are a separate and distinct legal entity from those subsidiaries. We receive substantially
all of our funding and liquidity from dividends, loans and other distributions from our subsidiaries. We generally use these funds,
among other sources, to satisfy our financial obligations, including principal and interest on our debt, including the notes. In
addition to limitations under laws and regulations applicable to us and
our subsidiaries (as discussed below), funds available to us from
our subsidiaries will be contingent upon the financial performance
and condition of those subsidiaries. Adverse business or economic conditions, such as changes in interest rates and financial market
values, could affect the businesses and the results of operations of our subsidiaries and, therefore, adversely affect the sources
of funds available to us.
In addition, our right to participate in a distribution
of assets upon a subsidiary’s liquidation or reorganization, and thus the ability of a holder of our debt securities (including
the notes) to benefit indirectly from such distributions, is subject to the prior claims of the subsidiary’s creditors. This
subordination of creditors of a parent company to prior claims of creditors of its subsidiaries is commonly referred to as structural
subordination. Furthermore, our rights as a creditor of our subsidiaries may be subordinate to any security interest in the assets
of those subsidiaries and any obligations of those subsidiaries senior to those held by us.
As discussed further below, federal banking regulators
require measures to facilitate the continued operation of operating subsidiaries notwithstanding the failure of their parent companies,
and our ability to receive funds from our subsidiaries may be limited by the Support Agreement discussed in the following risk
factors. Further, dividend payments to us from our subsidiaries may also be restricted if specified liquidity and/or capital metrics
fall below defined triggers or if our board of directors authorizes us to file a case under the U.S. Bankruptcy Code.
The Resolution Of Wells Fargo Under The Orderly
Liquidation Authority Could Result In Greater Losses For Holders Of Our Debt Securities, Including The Notes, Particularly If A
Single-Point-Of-Entry Strategy Is Used.
Your ability to recover the full amount that
would otherwise be payable on our debt securities (including the notes) in a proceeding under the U.S. Bankruptcy Code may be impaired
by the exercise by the Federal Deposit Insurance Corporation (the “FDIC”) of its powers under the “orderly
liquidation authority” under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank
Act”). In particular, the single point of entry strategy described below is intended to impose losses at the top-tier
holding company level in the resolution of a Global Systemically Important Bank (“G-SIB”) such as Wells Fargo.
Title II of the Dodd-Frank Act created a new
resolution regime known as the “orderly liquidation authority” to which financial companies, including bank holding
companies such as Wells Fargo, can be subjected. Under the orderly liquidation authority, the FDIC may be appointed as receiver
for a financial company for purposes of liquidating the entity if, upon the recommendation of the Board of Governors of the Federal
Reserve System (the “FRB”) and the FDIC, the United States Secretary of the Treasury determines, among other
things, that the entity is in severe financial distress, that the entity’s failure would have serious adverse effects on
the U.S. financial system and that resolution under the orderly liquidation authority would avoid or mitigate those effects. Absent
such determinations, Wells Fargo, as a bank holding company, would remain subject to the U.S. Bankruptcy Code.
If the FDIC is appointed as receiver under the
orderly liquidation authority, then the orderly liquidation authority, rather than the U.S. Bankruptcy Code, would determine the
powers of the receiver and the rights and obligations of creditors and other parties who have transacted with Wells Fargo. There
are substantial differences between the rights available to creditors in the orderly liquidation authority and under the U.S. Bankruptcy
Code, including the right of the FDIC under the orderly liquidation authority to disregard the strict priority of creditor claims
in some circumstances (which would otherwise be respected by a bankruptcy court) and the use of an administrative claims procedure
to determine creditors’ claims (as opposed to the judicial procedure utilized in bankruptcy proceedings). In certain circumstances
under the orderly liquidation authority, the FDIC could elevate the priority of claims if it determines that doing so is necessary
to facilitate an orderly liquidation without the need to obtain the consent of other creditors or prior court review. In addition,
under the orderly liquidation authority, the FDIC has the right to transfer assets or liabilities of the failed company to a third
party or “bridge” entity.
The FDIC has indicated that a “single point
of entry” strategy may be a desirable strategy to resolve a large financial institution such as Wells Fargo in a manner that
would, among other things, impose losses on shareholders, unsecured debt holders (including, in our case, holders of our debt securities,
including the notes) and other creditors of the top-tier holding company (in our case, Wells Fargo), while permitting the holding
company’s subsidiaries to continue to operate. In addition, in December 2016, the FRB finalized rules requiring U.S. G-SIBs,
including Wells Fargo, to maintain minimum amounts of long-term debt and total loss absorbing capacity (TLAC). It is possible that
the application of the single point of entry strategy—in which Wells Fargo would be the only legal entity to enter resolution
proceedings—could result in greater losses to holders of our debt securities (including the notes) than the losses that would
result from a different resolution strategy for Wells Fargo. Assuming Wells Fargo entered resolution proceedings and that support
from Wells Fargo to its subsidiaries was sufficient to enable the
subsidiaries to remain solvent, losses at the subsidiary level
could be transferred to Wells Fargo and ultimately borne by Wells Fargo’s security holders (including holders of our unsecured
debt securities, including the notes), with the result that third-party creditors of Wells Fargo’s subsidiaries would receive
full recoveries on their claims, while Wells Fargo’s security holders (including holders of our debt securities, including
the notes) and other unsecured creditors could face significant losses. In addition, holders of our debt securities (including
the notes) could face losses ahead of our other similarly situated creditors in a resolution under the orderly liquidation authority
if the FDIC exercised its right, described above, to disregard the strict priority of creditor claims.
The orderly liquidation authority also requires
that creditors and shareholders of the financial company in receivership must bear all losses before taxpayers are exposed to any
losses, and amounts owed by the financial company or the receivership to the U.S. government would generally receive a statutory
payment priority over the claims of private creditors, including senior creditors such as claims in respect of our debt securities.
In addition, under the orderly liquidation authority, claims of creditors (including holders of our debt securities, including
the notes) could be satisfied through the issuance of equity or other securities in a bridge entity to which Wells Fargo’s
assets are transferred. If securities were to be delivered in satisfaction of claims, there can be no assurance that the value
of the securities of the bridge entity would be sufficient to repay all or any part of the creditor claims for which the securities
were exchanged.
While the FDIC has issued regulations to implement
the orderly liquidation authority, not all aspects of how the FDIC might exercise this authority are known and additional rulemaking
is possible.
The Resolution Of Wells Fargo In A Bankruptcy
Proceeding Could Also Result in Greater Losses For Holders Of Our Debt Securities, Including The Notes.
As required by the Dodd-Frank Act and regulations
issued by the FRB and the FDIC, we are required to periodically provide to the FRB and the FDIC a plan for our rapid and orderly
resolution in the event of material financial distress affecting Wells Fargo or the failure of Wells Fargo. The strategy described
in our resolution plan is a single point of entry strategy, in which Wells Fargo would be resolved under the U.S. Bankruptcy Code
using a strategy in which only Wells Fargo itself enters bankruptcy proceedings while some or all of its operating subsidiaries
are maintained as going concerns. In this case, the effects on creditors of Wells Fargo would likely be similar to those arising
under the orderly liquidation authority, as described above. We are not obligated to maintain a single point of entry strategy,
and the strategy reflected in our resolution plan submission is not binding in the event of an actual resolution of Wells Fargo,
whether conducted under the U.S. Bankruptcy Code or by the FDIC under the orderly liquidation authority. To carry out a single
point of entry strategy, Wells Fargo may seek to recapitalize its subsidiaries or provide them with liquidity in order to preserve
them as going concerns prior to the commencement of Wells Fargo’s bankruptcy proceeding. Moreover, Wells Fargo could seek
to elevate the priority of its guarantee obligations relating to its major subsidiaries’ derivatives contracts over its other
obligations, so that cross-default and early termination rights under derivatives contracts at its subsidiaries would be stayed
under the ISDA Resolution Stay Protocol. This elevation would result in holders of our debt securities (including the notes) incurring
losses ahead of the beneficiaries of those guarantee obligations. It is also possible that holders of our debt securities (including
the notes) could incur losses ahead of other similarly situated creditors.
In response to the regulators’
guidance and to facilitate the orderly resolution of Wells Fargo, we entered into an intercompany support agreement with WFC
Holdings, LLC, an intermediate holding company and subsidiary of Wells Fargo (the “IHC”), Wells Fargo
Bank, National Association (“WFBNA”), Wells Fargo Securities, LLC (“WFS”), Wells Fargo
Clearing Services, LLC (“WFCS”) and certain of our other subsidiaries (the “Support
Agreement”). Pursuant to the Support Agreement, Wells Fargo transferred a significant amount of its assets,
including among other things, cash and liquid securities, to the IHC and will continue to transfer such assets to the IHC
from time to time. In the event of Wells Fargo’s material financial distress or failure, the IHC will be obligated to
use the transferred assets to provide capital and/or liquidity to certain key subsidiaries in order to help ensure their
continued operations. Wells Fargo and the IHC’s respective obligations under the Support Agreement are secured pursuant
to a related security agreement. In the ordinary course, the IHC will provide Wells Fargo with funding under the Support
Agreement through subordinated notes and a committed line of credit, which, together with dividend payments, is expected to
provide Wells Fargo, during business as usual operating conditions, with the same access to cash necessary to service its
debts, pay dividends, repurchase its shares and perform its other obligations as it would have if it had not entered into
these arrangements and transferred any assets. If certain liquidity and/or capital metrics fall below triggers specified in
the Support Agreement, the subordinated notes would be forgiven and the committed line of credit would be terminated.
Dividend payments to us from our subsidiaries may also be restricted if specified
liquidity and/or capital metrics fall below defined triggers or if our
board of directors authorizes us to file a case under the
U.S. Bankruptcy Code. The forgiveness of subordinated notes, termination of the committed line of credit or restrictions on dividend
payments to us from our subsidiaries could materially and adversely affect our ability to satisfy our obligations, including any
payments to holders of our debt securities (including the notes), and could result in the commencement of bankruptcy proceedings
by Wells Fargo at an earlier time that might have otherwise occurred if the Support Agreement were not implemented. If the single
point of entry strategy—the preferred strategy for our rapid and orderly resolution—proves to be unsuccessful, multiple,
competing resolution proceedings could ensue and holders of our debt securities (including the notes) may as a consequence be in
a worse position than if the strategy had not been effectuated. In all cases, any payments to holders of our debt securities (including
the notes) are dependent on our ability to make such payments and are therefore subject to our credit risk.
UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a discussion of the material
U.S. federal income and certain estate tax consequences of the ownership and disposition of the notes. It applies to you only if
you purchase a note for cash in the initial offering at the “issue price,” which is the first price at which
a substantial amount of the notes is sold to the public, and hold the note as a capital asset within the meaning of Section 1221
of the Internal Revenue Code of 1986, as amended (the “Code”). It does not address all of the tax consequences
that may be relevant to you in light of your particular circumstances or if you are an investor subject to special rules, such
as:
|
●
|
a financial institution;
|
|
●
|
a “regulated investment company”;
|
|
●
|
a “real estate investment trust”;
|
|
●
|
a tax-exempt entity, including an “individual retirement account” or “Roth IRA”;
|
|
●
|
a dealer or trader subject to a mark-to-market method of tax accounting with respect to the notes;
|
|
●
|
a person holding a note as part of a “straddle” or conversion transaction or who has entered into a “constructive
sale” with respect to a note;
|
|
●
|
a U.S. holder (as defined below) whose functional currency is not the U.S. dollar; or
|
|
●
|
an entity classified as a partnership for U.S. federal income tax purposes.
|
If an entity that is classified as a partnership
for U.S. federal income tax purposes holds the notes, the U.S. federal income tax treatment of a partner will generally depend
on the status of the partner and the activities of the partnership. If you are a partnership holding the notes or a partner in
such a partnership, you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing
of the notes to you.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to
any of which subsequent to the date hereof may affect the tax consequences described herein, possibly with retroactive effect.
This discussion does not address the effects of any applicable state, local or non-U.S. tax laws, any alternative minimum tax consequences,
the potential application of the Medicare tax on net investment income or the consequences to taxpayers subject to special tax
accounting rules under Section 451(b) of the Code. You should consult your tax adviser concerning the application of U.S. federal
income and estate tax laws to your particular situation, as well as any tax consequences arising under the laws of any state, local
or non-U.S. taxing jurisdiction.
General
In the opinion of our counsel, Davis Polk &
Wardwell LLP, the notes will be treated as debt instruments for U.S. federal income tax purposes. Based on representations provided
by us, the notes should be treated as issued without original issue discount (“OID”). The remaining discussion
is based on this treatment.
Tax Consequences to U.S. Holders
This section applies only to U.S. holders. You
are a “U.S. holder” if you are a beneficial owner of a note that is, for U.S. federal income tax purposes:
|
●
|
a citizen or individual resident of the United States;
|
|
●
|
a corporation created or organized in or under the laws of the United States, any state therein or the District of Columbia;
or
|
|
●
|
an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
|
Interest
on the Notes. Stated interest on the notes will generally be taxable to you as ordinary interest income at the time
it accrues or is received in accordance with your method of accounting for U.S. federal income tax purposes.
Under applicable Treasury regulations, we will
generally be presumed to exercise our option to redeem the notes if the exercise of the option would lower the yield on the notes.
The yield on the notes would be lowered if we redeemed the notes before the initial increase in the interest rate, and therefore
the notes will not be treated as issued with OID. If, contrary to the presumption in the applicable Treasury regulations, we do
not redeem the notes before the initial increase in the interest rate, solely for purposes of calculating OID, the notes will be
treated as if they were redeemed and new notes were issued on the presumed exercise date for the notes’ principal amount.
The same analysis will generally apply to any subsequent increase in the interest rate, which means a note that is deemed reissued
will generally be treated as redeemed prior to that subsequent increase in the interest rate, and therefore as issued without OID.
The rules governing short-term debt instruments may apply to a note deemed reissued in conjunction with the two final scheduled
increases in the interest rate. You should consult your tax adviser concerning the possible application of these rules.
Sale, Exchange
or Retirement of the Notes. You will recognize capital gain or loss on the sale, exchange or retirement of a note equal
to the difference between the amount received (other than amounts received in respect of accrued interest, which will be treated
as described under “—Interest on the Notes”) and your adjusted tax basis in the note. Your adjusted tax basis
in a note generally will be equal to your original purchase price for the note. Your gain or loss generally will be long-term capital
gain or loss if at the time of the sale, exchange or retirement you held the notes for more than one year, and short-term capital
gain or loss otherwise. Long-term capital gains recognized by non-corporate U.S. holders are generally subject to taxation at reduced
rates. Any capital loss you recognize may be subject to limitations.
Tax Consequences to Non-U.S. Holders
This section applies only to non-U.S. holders. You
are a “non-U.S. holder” if you are a beneficial owner of a note that is, for U.S. federal income tax purposes:
|
●
|
an individual who is classified as a nonresident alien;
|
|
●
|
a foreign corporation; or
|
|
●
|
a foreign estate or trust.
|
You are not a non-U.S. holder for purposes of
this discussion if you are (i) an individual who is present in the United States for 183 days or more in the taxable year of disposition,
(ii) a former citizen or resident of the United States or (iii) a person for whom income or gain in respect of the notes is effectively
connected with the conduct of a trade or business in the United States. If you are or may become such a person during the period
in which you hold a note, you should consult your tax adviser regarding the U.S. federal tax consequences of an investment in the
notes.
Treatment
of Income and Gain on the Notes. You should not be subject to U.S. federal income or withholding tax in respect of the
notes, provided that interest on the notes qualifies as “portfolio interest” and is not subject to withholding under
the “FATCA” regime described below. Interest on the notes should generally qualify as portfolio interest, exempt from
withholding (which for an individual non-U.S. holder is pursuant to Section 871(h) of the Code), provided that:
|
●
|
you do not own, directly or by attribution, ten percent or more of the total combined voting power of all classes of our stock
entitled to vote;
|
|
●
|
you are not a controlled foreign corporation related, directly or indirectly, to us through stock ownership;
|
|
●
|
you are not a bank receiving interest under Section 881(c)(3)(A) of the Code; and
|
|
●
|
you provide to the applicable withholding agent an appropriate Internal Revenue Service (“IRS”) Form W-8
on which you certify under penalties of perjury that you are not a U.S. person.
|
U.S. Federal Estate Tax
A note held by an individual non-U.S. holder
who at death is not a citizen or a resident of the United States for U.S. federal estate tax purposes generally will not be includible
in the individual’s gross estate, and will be deemed “property without the United States” under Section 2105
of the Code, for U.S. federal estate tax purposes if, at the time of death, interest on the note would qualify as portfolio interest
exempt from withholding under Section 871(h), as described above, without regard to the certification requirement described in
the fourth bullet above under “—Treatment of Income and Gain on the Notes.”
You should consult your tax adviser regarding
the U.S. federal estate tax consequences of an investment in the notes in your particular situation.
Backup Withholding and Information Reporting
Information returns generally will be filed with
the IRS with respect to payments of interest on the notes and may be filed with the IRS in connection with the payment of proceeds
from a sale, exchange or other disposition of the notes. If you fail to provide certain identifying information (such as an accurate
taxpayer identification number if you are a U.S. holder) or meet certain other conditions, you may also be subject to backup withholding
at the rate specified in the Code. If you are a non-U.S. holder that provides an appropriate IRS Form W-8, you will generally establish
an exemption from backup withholding. Amounts withheld under the backup withholding rules are not additional taxes and may be refunded
or credited against your U.S. federal income tax liability, provided the relevant information is timely furnished to the IRS.
FATCA
Legislation commonly referred to as “FATCA”
generally imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect
to certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied.
An intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements.
Withholding under these rules (if applicable) applies to payments of amounts treated as interest on the notes. While existing Treasury
regulations would also require withholding on payments of gross proceeds of the disposition (including upon retirement) of certain
financial instruments treated as paying U.S.-source interest or dividends, the U.S. Treasury Department has indicated in subsequent
proposed regulations its intent to eliminate this requirement. The U.S. Treasury Department has indicated that taxpayers may rely
on these proposed regulations pending their finalization. If withholding applies to the notes, we will not be required to pay any
additional amounts with respect to amounts withheld. Both U.S. and non-U.S. holders should consult their tax advisers regarding
the potential application of FATCA to the notes.
The preceding discussion constitutes the full
opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of owning and disposing of the notes.