Bond Risk Factors

Dot Secured Bond PLC

Risk Factors

Before deciding whether to invest, you should bear in mind the risks of investing in Bonds, such as:

Capital at risk

If you invest you might not get your money back or receive the returns that are due to you if the Company becomes insolvent. Returns might be delayed if the Company suffers cashflow problems. The past performance of the Company, Dot Capital, or Dot Residential or any of their directors, partners or affiliates or companies or funds which they have managed or invested in is not necessarily a guide to the future performance of the Company. The Company and the Bonds have not been assigned a credit rating by any independent credit rating agency.

Risk of money lending businesses

The money lending business carried on by Dot Capital will have all the risks associated with a money lending trade. These risks are primarily that there can be no guarantee that Dot Capital will be able to achieve the volume of business or the rates of interest necessary to achieve its overall objectives and SPVs may not be able make repay the loans which are made to them by Dot Capital. To mitigate against these risks Dot Capital will adopt a number of strategies, all of which involve Dot Capital establishing and then managing the day-to-day operations of SPV. If an SPV or one of the counterparties with which it does business collapses or if their financial strength deteriorates then the value of a loan made by Dot Capital to that SPV could decline, Dot Capital could lose part or all of its money lent to (or interest due from) the relevant SPV(s). As a result, any minimum levels of return assumed by Dot Capital may become worthless and the ability of the Company to pay interest to Bond Holders, and eventually redeem their Bonds, may be reduced. In this event, investors may not receive back the full amount invested and could lose part or all of their investment.

Security Ranking of Linked Loans associated with Special Bonds

The Series of A Bonds offered pursuant to this Information Memorandum are Diversified Bonds but the Company may issue Special Bonds. Capital raised by the issue of Special Bonds is deployed in financing the Linked Loans described in their Final Terms of Issue to a specific borrower and are secured only on the money and/or other assets which Dot Capital receives from or in connection with the Linked Loans attributed to a Series of Special Bonds. Special Bonds may be issued to raise capital for Linked Loans which are mezzanine loans to SPVs where a senior lender may hold a first ranking security over the assets of an SPV. This would mean that if an SPV were unable to repay the loan advanced by the senior lender or the interest payments due on that loan, that lender would have the right to sell the property and may do so at an undervalue to achieve a quick sale sufficient to repay its own debt leaving no surplus from which to repay a Dot Capital Linked Loan. This risk might arise if there were a significant adjustment to the market value of a property, due to a local factor or because of an adjustment to the overall value of UK properties. It might also arise because of a tenant default. These risks are managed primarily by Dot Capital retaining the power to manage the letting of properties, by seeking to agree senior loans with lenders willing to accept restrictions against the sale of properties at an undervalue (though such restrictions may not be negotiated where other factors are perceived as being more valuable, for example the availability of a senior loan at a lower rate of interest which enables a Dot Capital Linked Loan to be made at a higher interest rate) and by the attraction of equity investors willing to take the risk that in the event of a lack of income, due to a void or a tenant who defaults, they will forgo their returns before any losses are borne by a senior lender or by Dot Capital Linked Loan.

The forecast cashflow can be delayed or reduced affecting the SPV’s ability to service the loans

The Company may fail to meet its financial obligations for a variety of unanticipated reasons. For example, repayment of the loan by the SPV may be dependent on the SPV raising further debt. The SPV’s ability to raise further debt will be dependent on both the operational performance of the facilities and the market conditions at the time.

The Company is not yet listed on any stock exchange so Bonds cannot easily be sold

The Company is not yet listed on any stock exchange so Bonds cannot easily be sold. Also, as the Company is not listed it is also not subject to all the rules and regulations which apply to listed companies. In accordance with the terms of the Bond Instrument, Bond Holder Resolutions are passed by a show of hands or by a poll vote of the aggregate nominal number of Bonds held.

Investors will not become shareholders or have any ownership stake in the Company

Investing in Bonds means that investors are lending money to the Company. Investors will not become shareholders or have any ownership stake in the Company. All the shares in the Company will be held by Mission Bay Corporation. Instead, subject to the risks that we describe here, investors will receive interest and at the end of the term of each Bond (when it matures), their initial investment amount back.

The Credit Committee and Lending Team may change

Dot Capital’s ability to operate successfully and grow its lending business is largely dependent on the efforts, abilities and services of its Lending Team. The success of the Group will also depend on its ability to attract and retain qualified personnel. The members of the Lending Team have developed an important understanding of the industry in which its SPVs operate and any change in the composition of the Lending Team could impact on the ability of the Group to continue to execute its business strategy successfully and, if this affected the Group’s revenue, this could impact on its ability to make payments to Bondholders.

Dependence on key contractors and relationships

The Group’s future success is dependent on it having and maintaining the services of strategic development partners in order to both source new deals and to develop the relevant projects. The Directors cannot give assurances that those relationships will continue throughout the life of the Group, either due to the development of such partner businesses away from the core business assistances contemplated in this business, failure to continue to agree the commercial terms for specific projects or the failure of such partner businesses completely. Such failure of a strategic development partner could damage the Group’s business. In the event that it became apparent that the failure of a strategic development partner was likely, the Directors would seek to obtain similarly experienced contractors to take over the role of any particular strategic partner and, in case of building contractors, seek to minimise project disruption and cost escalation as a result.

Dot Capital may face competition for lending opportunities

A strong pipeline of new opportunities which Dot Capital might lend to is an important part of generating enough revenue to cover the Group’s general overheads and other costs and make payments of interest and capital to Bond Holders. The Group needs to time these deals in such a way that it has, at any one time, sufficient money (liquid cash) to fund payments due by the Company to Bond Holders. If this balance is not achieved effectively, this could have an adverse impact on the ability of the Company to meet payments due to Bond Holders.

There is limited financial information relating to the Company

The Company was incorporated on 7th December 2018 and as yet no audited financial information for the Company has been prepared for the period since its incorporation.

New rules, regulations and laws could create additional burdens for the Company

The Company will be under a duty to comply with any new rules, regulations and laws applicable to its operations. Compliance with these rules, regulations and laws could create additional burdens for the Company and could have a material adverse effect on its profitability and ability to make payments to Bond Holders.

The IT systems upon which the Group relies may fail

The Group relies on its and third parties’ information technology ("IT") systems to conduct its business, including the Website. The Group's and those third parties’ processes and systems may not operate as expected, may not fulfil their intended purpose or may be damaged or interrupted by increases in usage, human error, unauthorised access, natural hazards or disasters or similarly disruptive events. Any failure of the IT systems and/or third-party infrastructure on which the Group relies could lead to costs and disruptions that could adversely affect the Group's reputation, business, results of operations, financial condition and prospects.

There may be changes in the Company's tax status or in taxation legislation

Any change in the Company's tax status or in taxation legislation, or which may affect a third party from which its income is sourced, could affect the profitability of the Company and its ability to make payments to Bond Holders.

The Financial Services Compensation Scheme does not protect the Bonds

The Bonds are not protected by the Financial Services Compensation Scheme (the "FSCS"). Accordingly, neither the FSCS nor anyone else will pay an Investor compensation upon the failure of the Company. If the Company goes out of business or becomes insolvent, you may lose all or part of your investment in Bonds. Individuals approaching retirement and considering options under the new pension freedoms should realise that an investment in Bonds is a much higher-risk alternative to buying an annuity. Individuals in retirement, who may have significant sums in savings and may be concerned about low interest rates, and are tempted to invest in Bonds may be taking an inappropriate level of risk with their money. Consequently your capital is at risk and therefore before making a decision about whether to invest, we urge you to consider whether investing is right for you. You should not invest money which you cannot afford to lose.

A transfer fee may be payable

In respect of sales of Bonds on the Website, a transfer fee payable to the Company of 1% of the original full-face value of the Bond, which is being transferred, will be applied on the date of the transfer, which would reduce the proceeds that a Bond Holder would receive on the sale of Bonds.

Yield

The indication of yield stated within this Document applies only to investments made at (as opposed to above or below) the issue price of the Bonds. An investment in the Bonds at a price other than the issue price of the Bonds could result in a yield on the investment that is different from the illustrative yields stated.

Bonds may be difficult to transfer

Whilst the Bonds are transferable and whilst Bond Holders may request the Company’s assistance to find buyers for their Bonds for the original full face value, the Company is under no obligation to facilitate this nor does the Company anticipate offering this service except in circumstances where it is viable to do so. Factors affecting the ability to transfer may include, but are not limited to, market appetite, inflation, the time of redemption, interest rates and the current financial position of the Company (including any information on its cash flow projections) and an assessment of the future prospects of the Company.

There will be no ready market in which the Bonds may be sold

No application has been or will be made to any Recognised Investment Exchange for the listing of the Bonds and so there will be no ready market in which the Bonds may be sold which may, therefore, make them difficult or impossible to sell.

The Company has the right to repay the Bonds early

In accordance with the Terms and Conditions, the Company has the right to repay the Bonds early to allow the Company to wind up its business if that was preferable to carrying on the business as a going concern. If this were to happen the length of an investment in the Bonds could be materially shortened, as would the period over which Interest is paid.

Bonds pay a fixed rate of Interest

Bonds pay a fixed rate of interest and there is a risk that a fixed rate will become less attractive if interest rates available elsewhere go up. Similarly, high inflation could adversely impact the real return on an investment in Bonds (in respect of both capital and interest) to a Bond Holder. The Series A Bonds and any further series of Bonds will have one interest rate and in submitting an Application for a particular Series an investor will elect to subscribe for Bonds at the interest rate applicable to that Series.

A Bond Holder Resolution may be passed against the wishes of a Bond Holder

In accordance with the terms of the Bond Instrument, Bond Holder Resolutions are passed by a majority (or 75% in the case of a special resolution) of the aggregate nominal number of Bonds held. There will be no separate meetings of Bond Holders holding a particular Series. This may mean that a Bond Holder Resolution may be passed against the wishes of a Bond Holder.

Investors applying for Bonds directly will not receive the additional rights and protections applicable to Investors who are advised by a Financial Adviser

Investors applying for Bonds directly will not receive the additional rights and protections applicable to investors who are advised by a Financial Adviser which are triggered by their relationship with a Financial Adviser (not with the Company), and which may include: - a suitability assessment in the form of a personal recommendation by the Financial Adviser to say that Bonds are suitable for an individual investor’s circumstances; And - additional recourse to Financial Services Compensation Scheme and the Financial Ombudsman Service, which may cover cases where loss has been caused by bad investment advice (although as stated, the Bonds themselves are not protected by the FSCS).

An investment in Bonds is concentrated in one company and not an investment in a diversified portfolio

A Bond is an investment in one company only, namely the Company. Accordingly, an investment in Bonds is concentrated in one company and is not an investment in a diversified portfolio of companies. However, the Company anticipates that the loans made by Dot Capital will be to an increasingly diverse portfolio of assets which will be developed within separate companies over which Dot Capital will take security.

The legislation relating to ISAs may change

The amount investors can invest into an ISA each year is decided by the Government. Currently ISA investments are free from capital gains tax and income tax. The Government in the future may change these benefits and/or investment limits and investors should make sure that they understand any changes that are made. Once investors have invested the maximum they can’t make any further contributions in the tax year. This means that if investors withdraw money from their ISA they will not be able to pay it back in if they have reached their annual subscription limit. If investors decide to transfer an ISA from one company to another they will need to do this as an ISA transfer rather than take money out and pay it back in again. Investors can transfer cash to an innovative finance ISA from an existing cash or stocks or shares ISA. If investors choose to transfer cash from a stocks and shares ISA, they may be required to sell current investments.

ISA Manager failure

If the ISA manager holding the Bonds for you becomes insolvent, although the Company intends to attempt to identify an appropriate replacement, it may not be possible to find an alternative ISA manager who will accept a transfer of the Bonds and it may not be possible to sell your Bonds. In such circumstances, it would be possible that your Bonds would cease to benefit from the ISA tax benefits.

There may be changes in the law, regulations or administrative practices

The structure of the issue of the Bonds is based on English law, regulatory and administrative practice in effect as at the date of this Information Memorandum and has due regard to the expected tax treatment of all relevant entities under UK tax law and the published practice of HMRC in force or applied in the UK as at the date of this Information Memorandum.No assurance can be given as to the impact of any possible change to English law, regulatory or administrative practice in the UK, or to UK tax law, or the interpretation or administration thereof or to the published practice of HMRC as applied in the UK after the date of this Information Memorandum.

Forward looking statements

This document includes statements that are (or may be deemed to be) “forward-looking statements”. These forward-looking statements can be identified by the use of forward-looking terminology including the words “believes”, “continues”, “expects”, “intends”, “may”, “would” or “should” or, in each case their negative or other variations or comparable terminology.

These forward-looking statements include all matters that are not historical facts

Forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements contained in this document based on past trends or activities should not be taken as a representation that such trends or activities will continue in the future