RISK FACTORS
We urge you to read the section “Risk
Factors” beginning on page S-3 in the accompanying prospectus supplement and beginning on page S-1 of the accompanying
Equity Index Underlying Supplement. Investing in the Notes is not equivalent to investing directly in any of the stocks comprising
either Underlying. You should understand the risks of investing in the Notes and should reach an investment decision only after
careful consideration, with your advisors, of the suitability of the Notes in light of your particular financial circumstances
and the information set forth in this pricing supplement and the accompanying prospectus, prospectus supplement and Equity Index
Underlying Supplement.
In addition to the risks discussed below,
you should review “Risk Factors” in the accompanying prospectus supplement and Equity Index Underlying Supplement including
the explanation of risks relating to the Notes described in the following sections:
|
}
|
“—Risks Relating to All Note Issuances” in the prospectus supplement;
|
|
}
|
“—General risks related to Indices” in the Equity Index Underlying Supplement;
and
|
|
}
|
“—Small-Capitalization or Mid-Capitalization Companies Risk” in the Equity Index
Underlying Supplement.
|
You will be subject to
significant risks not associated with conventional fixed-rate or floating-rate debt securities.
The Notes do not guarantee return
of principal and you may lose your entire initial investment.
The Notes do not guarantee return of principal.
The Notes differ from ordinary debt securities in that we will not pay you 100% of the Principal Amount of your Notes if the Notes
are not automatically called and if a Trigger Event occurs during the Observation Period and the Final Return of the Least Performing
Underlying is negative. In this case, the Payment at Maturity you will be entitled to receive will be less than the Principal Amount
of the Notes and you could lose your entire initial investment if the level of the Least Performing Underlying falls to zero. You
may receive less at maturity than you originally invested in the Notes, or you may receive nothing at maturity, excluding any coupon
payment. Payment of any amount at maturity is subject to the credit risk of HSBC.
You will not participate in any appreciation
in the level of any of the Underlyings included in the Reference Asset.
The Notes will not pay more than the Principal
Amount, plus any unpaid coupon payment, at maturity or if the Notes are automatically called. Even if the Final Return of each
Underlying in the Reference Asset is greater than zero (regardless of whether a Trigger Event has occurred), you will not participate
in the appreciation of any Underlying. Assuming the Notes are held to maturity, the maximum amount payable with respect to the
Notes will not exceed the sum of the Principal Amount plus any coupon payments. Under no circumstances, regardless of the extent
to which the level of any Underlying appreciates, will your return exceed the total amount of the coupon payments. In some cases,
you may earn significantly less by investing in the Notes than you would have earned by investing in an instrument directly linked
to the performance of the Underlyings included in the Reference Asset.
The Notes are subject to the credit
risk of HSBC USA Inc.
The Notes are senior unsecured debt obligations
of the Issuer, HSBC, and are not, either directly or indirectly, an obligation of any third party. As further described in the
accompanying prospectus supplement and prospectus, the securities will rank on par with all of the other unsecured and unsubordinated
debt obligations of HSBC, except such obligations as may be preferred by operation of law. Any payment to be made on the Notes,
including coupons and any return of principal at maturity or upon early redemption, as applicable, depends on the ability of HSBC
to satisfy its obligations as they come due. As a result, the actual and perceived creditworthiness of HSBC may affect the market
value of the Notes and, in the event HSBC were to default on its obligations, you may not receive the amounts owed to you under
the terms of the Notes.
If a Trigger Event occurs with respect
to any Underlying, your return will be based on the Final Return of the Least Performing Underlying.
The performance
of either of the Underlyings may cause a Trigger Event to occur. If a Trigger Event occurs and the Notes are not automatically
called, your return will be based on the Final Return of the Least Performing Underlying without regard to the performance of the
other Underlying or which Underlying caused the Trigger Event to occur. As a result, you could lose all or some of your initial
investment if the Final Return of the Least Performing Underlying is negative and a Trigger Event occurs, even if there is an increase
in the level of the other Underlying. This could be the case even if the other Underlying caused the Trigger Event to occur or
the other Underlying increased by an amount greater than the decrease in the Least Performing Underlying.
The Notes may be automatically called
prior to the Maturity Date.
If the
Notes are automatically called early, the holding period over which you will receive coupon payments could be as little as three
months. There is no guarantee that you would be able to reinvest the proceeds from an investment in the Notes at a comparable return
for a similar level of risk in the event the Notes are automatically called prior to the Maturity Date.
Since the Notes are linked to the
performance of more than one Underlying, you will be fully exposed to the risk of fluctuations in the levels of each Underlying.
Since
the Notes are linked to the performance of more than one Underlying, the Notes will be linked to the individual performance of
each Underlying. Because the Notes are not linked to a weighted basket, in which the risk is mitigated and diversified among all
of the components of a basket, you will be exposed to the risk of fluctuations in the prices of the Underlyings to the same degree
for each Underlying. 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. Thus, the depreciation of any basket component could be mitigated
by the appreciation of another basket component, as scaled by the weightings of such basket components. However, in the case of
these Notes, the individual performance of each of the Underlyings would not be combined to calculate your return and the depreciation
of either Underlying would not be mitigated by the appreciation of the other Underlying. Instead, your return would depend on the
Least Performing Underlying of the two Underlyings to which the Notes are linked.
Changes that affect the Reference
Asset may affect the market value of the Notes and the amount you will receive at maturity.
The policies of the reference sponsor of
each Underlying concerning additions, deletions and substitutions of the constituents comprising such Underlying and the manner
in which the reference sponsor takes account of certain changes affecting those constituents may affect the level of such Underlying.
The policies of the reference sponsor with respect to the calculation of the relevant Underlying could also affect the level of
such Underlying. The reference sponsor may discontinue or suspend calculation or dissemination of the relevant Underlying. Any
such actions could affect the value of the Notes and the return on the Notes.
The Notes are not insured or guaranteed
by any governmental agency of the United States or any other jurisdiction.
The Notes are not deposit liabilities or
other obligations of a bank and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental
agency or program of the United States or any other jurisdiction. An investment in the Notes is subject to the credit risk of HSBC,
and in the event that HSBC is unable to pay its obligations as they become due, you may not receive the full Payment at Maturity
on the Notes.
Certain built-in costs are likely
to adversely affect the value of the Notes prior to maturity.
While the Payment at Maturity described
in this pricing supplement is based on the full Principal Amount of your Notes, the original issue price of the Notes includes
the agent’s commission and the estimated cost of HSBC hedging its obligations under the Notes. As a result, the price, if
any, at which HSBC Securities (USA) Inc will be willing to purchase Notes from you in secondary market transactions, if at all,
will likely be lower than the original issue price, and any sale prior to the Maturity Date could result in a substantial loss
to you. The Notes are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your
Notes to maturity.
The Notes lack liquidity.
The Notes will not be listed on any securities
exchange. HSBC Securities (USA) Inc. is not required to offer to purchase the Notes in the secondary market, if any exists. Even
if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the Notes easily. Because other
dealers are not likely to make a secondary market for the Notes, the price at which you may be able to trade your Notes is likely
to depend on the price, if any, at which HSBC Securities (USA) Inc. is willing to buy the Notes.
Potential conflicts of interest may
exist.
HSBC and its affiliates play a variety
of roles in connection with the issuance of the Notes, including acting as calculation agent and hedging our obligations under
the Notes. In performing these duties, the economic interests of the calculation agent and other affiliates of ours are potentially
adverse to your interests as an investor in the Notes. We will not have any obligation to consider your interests as a holder of
the Notes in taking any action that might affect the value of your Notes.
Uncertain tax treatment.
For a discussion of the U.S. federal income
tax consequences of your investment in a Note, please see the discussion under “U.S. Federal Income Tax Considerations”
herein and the discussion under “U.S. Federal Income Tax Considerations” in the accompanying prospectus supplement.
ILLUSTRATIVE EXAMPLES
The following table and examples are provided
for illustrative purposes only and are hypothetical. They do not purport to be representative of every possible scenario concerning
increases or decreases in the level of any Underlying relative to its Initial Level. We cannot predict the Official Closing Level
of either Underlying at any time during the Observation Period, including on a Call Observation Date or on the Final Valuation
Date. The assumptions we have made in connection with the illustrations set forth below may not reflect actual events. You should
not take this illustration or these examples as an indication or assurance of the expected performance of the Reference Asset or
return on the Notes
.
The Final Settlement Value may be less than the amount that you would have received from a conventional
debt security with the same stated maturity, including those issued by HSBC. The numbers appearing in the table below and following
examples have been rounded for ease of analysis.
The table below illustrates the total payment
on the Notes on a $1,000 investment in the Notes for a hypothetical range of the Least Performing Underlying’s Final Returns
from -100% to +100%. The following results are based on the terms outlined below. You should consider carefully whether the Notes
are suitable to your investment goals.
}
|
Principal Amount:
|
$1,000
|
|
|
|
}
|
Trigger Level:
|
75% of the Initial Level of each Underlying
|
|
|
|
}
|
Annual Coupon Rate (paid monthly):
|
5.00% per annum, to be paid at 0.41667% per month.
|
|
|
|
}
|
The Notes are held until maturity and are not automatically called.
|
Trigger Event Does Not Occur
1
|
Trigger Event Occurs
2
|
Least Performing Underlying’s Final Return
|
Hypothetical Total Coupon Paid Over the Term of the Notes
3
|
Hypothetical Final Settlement Value
|
Hypothetical Total Payment on the Notes
|
Hypothetical Total Return on the Notes
|
Hypothetical Total Coupon Paid Over the Term of the Notes
3
|
Hypothetical Final Settlement Value
|
Hypothetical Total Payment on the Notes
|
Hypothetical Total Return on Notes
|
100.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
90.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
80.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
70.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
60.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
50.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
40.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
30.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
20.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
10.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
0.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
-10.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
$50
|
$900
|
$950
|
-5.00%
|
-20.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
$50
|
$800
|
$850
|
-15.00%
|
-25.00%
|
$50
|
$1,000
|
$1,050
|
5.00%
|
$50
|
$700
|
$750
|
-25.00%
|
-40.00%
|
N/A
|
N/A
|
N/A
|
N/A
|
$50
|
$600
|
$650
|
-35.00%
|
-50.00%
|
N/A
|
N/A
|
N/A
|
N/A
|
$50
|
$500
|
$550
|
-45.00%
|
-60.00%
|
N/A
|
N/A
|
N/A
|
N/A
|
$50
|
$400
|
$450
|
-55.00%
|
-70.00%
|
N/A
|
N/A
|
N/A
|
N/A
|
$50
|
$300
|
$350
|
-65.00%
|
-80.00%
|
N/A
|
N/A
|
N/A
|
N/A
|
$50
|
$200
|
$250
|
-75.00%
|
-90.00%
|
N/A
|
N/A
|
N/A
|
N/A
|
$50
|
$100
|
$150
|
-85.00%
|
-100.00%
|
N/A
|
N/A
|
N/A
|
N/A
|
$50
|
$0
|
$50
|
-95.00%
|
1
The Official Closing Level of each
Underlying never falls below its respective Trigger Level on any trading day during the Observation Period.
2
The Official Closing Level of either
Underlying falls below its Trigger Level on any trading day during the Observation Period.
3
Assuming the Notes have been held
to maturity, the total amount of the coupons paid on the Notes as of the Maturity Date will equal $50, with coupon payments of
$4.1667 made on each Coupon Payment Date.
Hypothetical Examples of the Final Settlement
Value
The three examples below set forth a sampling
of hypothetical Final Settlement Values based on the following terms:
}
|
Principal Amount of Notes:
|
$1,000
|
|
|
|
}
|
Trigger Level:
|
75% of the Initial Level of each Underlying
|
|
|
|
}
|
Annual Coupon Rate (paid monthly):
|
5.00% per annum, to be paid at 0.41667% per month.
|
|
|
|
}
|
Initial Level:
|
1,514.68 with respect to the SPX and 911.11 with respect to the RTY.
|
In addition to the Final
Settlement Value, you will be entitled to receive coupon payments monthly on each Coupon Payment Date, up to and including the
Maturity Date (or the Call Payment Date corresponding to a Call Observation Date on which the Notes are automatically called, if
applicable).
The examples provided herein are for illustration
purposes only. The actual Final Settlement Value, if any, will depend on whether the Notes are automatically called and a Trigger
Event occurs and, if so, the Final Return of the Least Performing Underlying. You should not take these examples as an indication
of potential payments. It is not possible to predict whether the Notes will be automatically called and a Trigger Event will occur
and, if so, whether and to what extent the Final Return of the Least Performing Underlying will be less than zero.
Example 1: The Notes are not automatically
called and a Trigger Event occurs, even though the Least Performing Underlying never reaches or falls below its Trigger Level.
Additionally, the Final Return of the Least Performing Underlying is less than zero.
Underlying
|
|
Initial Level
|
|
Lowest Official Closing Level
During the Observation Period
|
|
Final Level
|
SPX
|
|
1,514.68
|
|
1,287.48 (85% of Initial Level)
|
|
1,332.92 (88% of Initial Level)
|
RTY
|
|
911.11
|
|
501.11 (55% of Initial Level)
|
|
865.55 (95% of Initial Level)
|
Since the Official Closing Level of RTY is below its Trigger
Level during the Observation Period, a
Trigger Event occurs
. SPX is the Least Performing Underlying, even though its Official
Closing Level never falls below its Trigger Level.
Therefore, the Final Return of the Least Performing Underlying
=
Final Level of SPX – Initial
Level of SPX
Initial Level of SPX
= (1,514.68 – 1,332.92)
/ 1,514.68= -
12.00%
Final Settlement Value = Principal Amount of the Notes
× (1 + Final Return of the Least Performing Underlying)
= $1,000 × (1 + -12%) =
$880.00
Therefore, with the total coupon payment of $50.00 over the
term of the Notes, the total payment on the Notes is $930.00.
Example 2: The Notes are not automatically
called and a Trigger Event does not occur.
Underlying
|
|
Initial Level
|
|
Lowest Official Closing Level
During the Observation Period
|
|
Final Level
|
SPX
|
|
1,514.68
|
|
1,287.48 (85% of Initial Level)
|
|
1,363.21 (90% of Initial Level)
|
RTY
|
|
911.11
|
|
820.00 (90% of Initial Level)
|
|
820.00 (90% of Initial Level)
|
Since the Official Closing Level of each Underlying was not
below its Trigger Level, a Trigger Event does not occur.
Therefore, the Final Settlement Value equals
$1,000
.
Additionally, with the total coupon payment of $50.00 over the
term of the Notes, the total payment on the Notes is $1,050.00.
Example 3: The Notes are automatically called on the first
Call Observation Date.
Underlying
|
|
Initial Level
|
|
Official Closing Level
on the first Call Observation Date
|
SPX
|
|
1,514.68
|
|
1,600.00
|
RTY
|
|
911.11
|
|
920.00
|
Since the Official Closing Level of both
Underlyings was at or above their respective Initial Levels, the Notes were automatically called and you are no longer entitled
to receive any Final Settlement Value. Therefore, on the corresponding Call Payment Date you would receive your $1,000 Principal
Amount of Notes plus the coupon payment of $4.1667 owed to you on that date. As a result, on the first Call Payment Date, you would
be entitled to receive a total payment of $1,004.1667. Once the Notes are automatically called, the Underlyings have no relevance
in determining the payment owed to you on the corresponding Call Payment Date.
INFORMATION RELATING TO THE REFERENCE ASSET
Description of the SPX
The SPX is a capitalization-weighted index
of 500 U.S. stocks. It is designed to measure the performance of the broad domestic economy through changes in the aggregate market
value of 500 stocks representing all major industries.
The top 5 industry groups by market capitalization
as of February 28, 2013 were: Information Technology, Financials, Health Care, Consumer Discretionary, and Energy.
In
September 2012, S&P Dow Jones Indices LLC updated its index methodology so that, subject to several exceptions, shareholdings
by specified types of insiders that represent more than 5% of the outstanding shares of a security are removed from the
float for purposes of calculating the SPX.
For
more information about the SPX, see “The S&P 500
Ò
Index” beginning on page S-6 of the accompanying Equity
Index Underlying Supplement.
|
|
Historical Performance of the SPX
The following graph sets forth the historical
performance of the SPX based on the daily historical closing levels from February 28, 2008 through February 28, 2013. The closing
level for the SPX on February 28, 2013 was 1,514.68. We obtained the closing levels below from the Bloomberg Professional
®
service. We have not undertaken any independent review of, or made any due diligence inquiry with respect to, the information obtained
from the Bloomberg Professional
®
service.
|
The historical levels of the SPX should not be taken as an indication of future performance, and no assurance
can be given as to the Official Closing Level of the SPX during the Observation Period, including on a Call Observation Date or
on the Final Valuation Date.
License Agreement
Standard & Poor’s
®
and S&P
®
are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”);
Dow Jones
®
is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks
have been licensed for use by S&P Dow Jones Indices LLC. “Standard & Poor’s
®
”, “S&P
500
®
” and “S&P
®
” are trademarks of S&P and have been licensed for use by
S&P Dow Jones Indices LLC and its affiliates and sublicensed for certain purposes by HSBC. The S&P 500
®
Index (the “Index”) is a product of S&P Dow Jones Indices LLC, and has been licensed for use by HSBC.
The Notes are not sponsored, endorsed,
sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P or any of their respective affiliates (collectively, “S&P
Dow Jones Indices”). S&P Dow Jones Indices makes no representation or warranty, express or implied, to the holders
of the Notes or any member of the public regarding the advisability of investing in securities generally or in the Notes particularly
or the ability of the Index to track general market performance. S&P Dow Jones Indices’s only relationship to HSBC
with respect to the Index is the licensing of the Index and certain trademarks, service marks and/or trade names of S&P Dow
Jones Indices. The Index is determined, composed and calculated by S&P Dow Jones Indices without regard to HSBC or the
Notes. S&P Dow Jones Indices has no obligation to take the needs of HSBC or the holders of the Notes into consideration
in determining, composing or calculating the Index. S&P Dow Jones Indices is not responsible for and has not participated
in the determination of the prices, and amount of the Notes or the timing of the issuance or sale of the Notes or in the determination
or calculation of the equation by which the Notes are to be converted into cash. S&P Dow Jones Indices has no obligation
or liability in connection with the administration, marketing or trading of the Notes. There is no assurance that investment products
based on the Index will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices
LLC is not an investment advisor. Inclusion of a security within the Index is not a recommendation by S&P Dow Jones Indices
to buy, sell, or hold such security, nor is it considered to be investment advice. Notwithstanding the foregoing, CME
Group Inc. and its affiliates may independently issue and/or sponsor financial products unrelated to the Notes currently being
issued by HSBC, but which may be similar to and competitive with the Notes. In addition, CME Group Inc. and its affiliates
may trade financial products which are linked to the performance of the Index. It is possible that this trading activity
will affect the value of the Index and the Notes.
S&P DOW JONES INDICES DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS
OF THE INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING
ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY
FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS
TO RESULTS TO BE OBTAINED BY HSBC, HOLDERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR WITH RESPECT
TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES
BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS,
TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBLITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT,
STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P
DOW JONES INDICES AND HSBC, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
Description of the RTY
The RTY is designed to track the performance
of the small capitalization segment of the United States equity market. All 2,000 stocks are traded on the New York Stock Exchange
or NASDAQ, and the RTY consists of the smallest 2,000 companies included in the Russell 3000
®
Index. The Russell
3000
®
Index is composed of the 3,000 largest United States companies as determined by market capitalization and
represents approximately 98% of the United States equity market.
The top 5 industry groups by market capitalization
as of January 31, 2013 were: Financial Services, Consumer Discretionary, Producer Durables, Technology, and Health Care.
For
more information about the RTY, see “The Russell 2000
Ò
Index” beginning on page S-21 of the accompanying Equity Index Underlying Supplement.
|
|
Historical Performance of the RTY
The following graph sets forth the historical
performance of the RTY based on the daily historical closing levels from February 28, 2008 through February 28, 2013. The closing
level for the RTY on February 28, 2013 was 911.11. We obtained the closing levels below from the Bloomberg Professional
®
service. We have not undertaken any independent review of, or made any due diligence inquiry with respect to, the information obtained
from the Bloomberg Professional
®
service.
|
The
historical levels of the RTY should not be taken as an indication of future performance, and no assurance can be given as to the
Official Closing Level of the RTY during the Observation Period, including on a Call Observation Date or on the Final Valuation
Date.
EVENTS OF DEFAULT AND ACCELERATION
If the Notes have become immediately
due and payable following an Event of Default (as defined in the accompanying prospectus) with respect to the Notes, the calculation
agent will determine (i) the accelerated Payment at Maturity due and payable in the same general manner as described in “Payment
at Maturity” in this pricing supplement and (ii) any accrued but unpaid interest payable based upon the Annual Coupon Rate
calculated on the basis of a 360-day year consisting of twelve 30-day months. In that case, the scheduled trading day preceding
the date of acceleration will be used as the Final Valuation Date for purposes of determining the accelerated Final Return for
each Underlying. If a market disruption event exists with respect to an Underlying on that scheduled trading day, then the accelerated
Final Valuation Date will be postponed for up to five scheduled trading days (in the same general manner used for postponing the
originally scheduled Final Valuation Date). The accelerated Maturity Date will also be postponed by an equal number of business
days. For the avoidance of doubt, if no market disruption event exists with respect to an Underlying on the scheduled trading day
preceding the date of acceleration, the determination of such Underlying’s Final Return will be made on such date, irrespective
of the existence of a market disruption event with respect to the other Underlying occurring on such date.
If the Notes have become immediately
due and payable following an Event of Default, you will not be entitled to any additional payments with respect to the Notes. For
more information, see “Description of Debt Securities — Senior Debt Securities — Events of Default” in
the accompanying prospectus.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
You should carefully consider, among other
things, the matters set forth under the heading “U.S. Federal Income Tax Considerations” in the accompanying prospectus
supplement. In the opinion of Morrison & Foerster LLP, special U.S. tax counsel to us, the following discussion summarizes
the U.S. federal income tax consequences of the purchase, beneficial ownership, and disposition of each of the Notes.
There are no statutory provisions, regulations,
published rulings or judicial decisions addressing the characterization for U.S. federal income tax purposes of securities with
terms that are substantially the same as those of the Notes. Under one reasonable approach, each Note should be treated as
a put option written by you (the “Put Option”) that permits us to “cash settle” the Put Option, and a deposit
with us of cash in an amount equal to the Principal Amount of the Note (the “Deposit”) to secure your potential obligation
under the Put Option, as described in the prospectus supplement under the heading “U.S. Federal Income Tax Considerations
– Certain Equity-Linked Notes – Certain Notes Treated as a Put Option and a Deposit.” We intend to treat
the Notes consistent with this approach and the balance of this summary so assumes. However, other reasonable approaches
are possible. Pursuant to the terms of the Notes, you agree to treat each Note as consisting of the Deposit and the Put Option
for all U.S. federal income tax purposes. We intend to treat the Deposits as non-contingent debt instruments for U.S. federal
income tax purposes. Please see the discussion under the heading “U.S. Federal Income Tax Considerations—U.S.
Federal Income Tax Treatment of the Notes as Indebtedness for U.S. Federal Income Tax Purposes—Payments of Interest”
in the accompanying prospectus supplement for U.S. federal income tax considerations applicable to non-contingent debt instruments.
As described in the prospectus supplement
under “U.S. Federal Income Tax Considerations — Certain Equity-Linked Notes — Certain Notes Treated as a Put
Option and a Deposit,” for purposes of dividing the 5.00% Annual Coupon Rate on the Notes among interest on the Deposit and
Put Premium, 0.53% constitutes interest on the Deposit and 4.471% constitutes Put Premium.
If the Notes are redeemed prior to maturity,
you should recognize the total Put Premium received as short-term capital gain at that time.
Because there are no statutory provisions,
regulations, published rulings or judicial decisions addressing the characterization for U.S. federal income tax purposes of securities
with terms that are substantially the same as those of the Notes, other characterizations and treatments are possible and the timing
and character of income in respect of the Notes might differ from the treatment described above. We do not plan to request a ruling
from the IRS regarding the tax treatment of the Notes, and the IRS or a court may not agree with the tax treatment described in
this pricing supplement.
We will not attempt to ascertain whether
any of the entities whose stock is included in, or owned by, the relevant Reference Asset, as the case may be, would be treated
as a passive foreign investment company (“PFIC”) or United States real property holding corporation (“USRPHC”),
both as defined for U.S. federal income tax purposes. If one or more of the entities whose stock is included in, or owned by, the
relevant Reference Asset, as the case may be, were so treated, certain adverse U.S. federal income tax consequences might apply.
You should refer to information filed with the SEC and other authorities by the entities whose stock is included in, or owned by,
the relevant Reference Asset, as the case may be, and consult your tax advisor regarding the possible consequences to you if one
or more of the entities whose stock is included in, or owned by, the relevant Reference Asset, as the case may be, is or becomes
a PFIC or a USRPHC.
Withholding and reporting requirements
under the legislation enacted on March 18, 2010 (as discussed beginning on page S-48 of the prospectus supplement) will generally
apply to payments made after December 31, 2013. However, this withholding tax will not be imposed on payments pursuant to obligations
outstanding on January 1, 2014. Additionally, withholding due to any payment being treated as a “dividend equivalent”
(as discussed beginning on page S-47 of the prospectus supplement) will begin no earlier than January 1, 2014. Holders are urged
to consult with their own tax advisors regarding the possible implications of this recently enacted legislation on their investment
in the Notes.
PROSPECTIVE PURCHASERS OF NOTES SHOULD
CONSULT THEIR TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL, AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF NOTES.