Prosper Marketplace, Inc. is an online peer-to-peer marketplace where borrower members may borrow money and investor members may purchase Notes issued by Prosper that correspond to the loans listed on the marketplace.

Prosper is a leap back to a time when people formed credit communities to help themselves live better lives and earn a fair return on their money. Prosper leverages this powerful concept of community responsibility and applies it to peer-to-peer lending—resulting in better interest rates for people that borrow and better returns for those that invest.

Peer-to-peer lending gives borrowers an alternative to a traditional bank loan—and fewer middlemen means Prosper lenders also benefit.

A borrower is someone who has passed Prosper's identity verification process and is ready to create a listing. All new Prosper borrowers are U.S. residents with a credit score of at least 640, a bank account, and a Social Security number.

An investor is someone who has signed up to invest on Prosper, and is ready to transfer money to their Prosper account and invest in a loan plan. An investor (sometimes called "lender" on this site) is a U.S. resident with a bank account and a Social Security number. Investors must meet the individual suitability requirements for their state of residence. Learn more and view the list of states Prosper currently accepts investors from.

Depending on their qualifications, borrowers can request loans up to $25,000 by posting listings indicating the amount they want to borrow, and why. Borrowers are asked to write a description about how they plan to use the loan. Their credit information is pulled from a credit bureau (Experian). Prosper does not verify the borrower's stated purpose of the loan, but we do verify their identity and credit score. All borrower loans are fully amortizing loans granted for terms of one, three, or five years.

Investors can use Quick Invest to invest in many loans easily and efficiently based on their criteria. They can also manually search through individual listings based on borrower Prosper Ratings, credit profiles, and other factors.

Investing and loan servicing activities on the Prosper marketplace are subject to state and federal regulation.

Loans originated through the Prosper marketplace are made by WebBank, a Utah-chartered Industrial Bank, which is regulated by the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation (FDIC).

Prosper Marketplace, Inc., a Delaware corporation, is subject to examination, supervision, and potential regulatory investigations and enforcement actions by state agencies that regulate consumer credit, trade, and commerce; and federal agencies, such as the Federal Reserve Board and the Federal Trade Commission, that administer the federal consumer protection laws, trade, and commerce.

Prosper and the loans originated through the Prosper marketplace must comply with applicable state and federal lending laws such as the federal Consumer Credit Protection Act, including, as applicable, the Truth-in-Lending Act, Equal Credit Opportunity Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, and Electronic Fund Transfer Act, as well as the federal Electronic Signatures in Global and National Commerce Act (ESIGN) and other federal and state laws governing privacy and data security and prohibiting unfair or deceptive business practices.

First, no new loans would be created. All lender funds not actively associated with a loan would be returned to the individual lenders immediately, and all existing loans would be serviced to completion by a third party loan servicing agent. Prosper has entered into a back-up servicing agreement with a loan servicing company that is willing and able to transition servicing responsibilities in the event we can no longer do so. The third party is a financial services company that has extensive experience and knowledge entering into successor loan servicing agreements.

Even if Prosper were to go out of business, borrowers would remain legally obligated to make payments on their Prosper loans. Prosper's existence (or lack thereof) does not change that obligation, and failure to meet the obligation would result in the same consequences for the borrower as if Prosper were still in business.

We have multiple safeguards in place to protect our lender members against the risk of our bankruptcy. To start, we hold lender funds in a pooled account "for the benefit of" our lender members. Because our lender members are the beneficial owners of this account, we believe that amounts held in the account would not be subject to claims of our general creditors if we were to go bankrupt.

In addition, we have entered into a contract (the "Indenture"), under which our Note holders are granted certain rights and protections. That Indenture names Wells Fargo to be the "Indenture Trustee", tasked with enforcing those rights and protections on behalf of the Note holders. We have granted the Indenture Trustee a security interest in our right to payments and proceeds from the Notes, as well as in the bank account in which those payments are deposited. If we were to go bankrupt, we believe this security interest would give the Indenture Trustee priority over our general creditors with respect to borrower payments.

While we believe these safeguards will protect lender members against the main risks relating to our bankruptcy, the matter isn't free from doubt. And there could be expenses or delays involved in getting a bankruptcy court to enforce these safeguards. Please see the section of our Prospectus entitled "Risk Factors - Risks Related To Prosper, Our Platform And Our Ability To Service The Notes" for a more complete discussion of this issue.

Please view the policies page to learn more about the policies that might apply to you.

Prosper has a strong commitment to keeping your personal information private and secure. We strongly believe that consumers deserve the utmost respect when it comes to the privacy of their personal information. Please read the Prosper privacy policy for more details.

Prosper Groups are a way for tightly affiliated communities to help their members through peer-to-peer lending. These affiliations can be social, cultural, ethnic, professional, religious, or any other official or unofficial affiliation.

Any of the changes you may want to make can be accessed through the "My Account > Group > Group Profile" page.

Group name: This is the name by which your group will be identified on the site and in any search results, and will be the headline of your group home page. In your group name, try to use words that you think lenders and potential members might use to find your group. For example, if your group is all dentists, make sure that the word "dentists" is part of the group name.

Shortcut: Think of the shortcut as an abbreviation for your group. Each group has their own web address on Prosper, so giving potential members and investors the shortcut address is the easiest way to send them directly to your group's home page.

Short description: This is a shorter version of your group description. It's a quick synopsis that appears with your group name and picture in search results, and at the top of your group home page.

Membership: "Invitation only" membership means only borrowers who are invited by the group leader can join. Other group members cannot invite potential members in an "Invitation Only" group—only the group leader can. If membership is "Open," potential borrowers can apply for group membership by clicking on the "Join this group" link that appears on the group home page. (Their application to join will still need to be approved by the group leader.)

Group links: If your group has a web site, you can create up to three links to those external web sites. Please be aware that links to sites with explicit or graphic content are not allowed. So keep it clean.

Editing your group description: Go to the "My Account > Group > Group Profile" page, and click "Edit description and layout."

You will be able to choose the layout for your description, with your group's primary picture placed either above, below, or to the right of the description. In the description field, enter relevant information about your group. Be sure to include the following details in your group description:

• What is the purpose of this group?
• What is the offline affiliation that ties this group together?
• How did it get started?
• How often do you see each other, or how often do you interact?
• Why should lenders invest money to members of this group?
• What are the requirements for joining this group?

Adding pictures to your group page: Go to the "My Account > Group > Group Profile" page, and click "Edit pictures".

You will then be able to add, edit, and delete any of your group pictures. To add a new picture, click "Add picture". To add a picture, use the "Browse" button to choose the picture you want to upload from your computer. Add a short caption. Prosper will take care of resizing your picture for the various places it will appear.

To delete one of your pictures, click "Delete" next to the respective picture. Once you delete a picture, it will be gone forever. And we mean it. Forever.

To change the order of your pictures, use the up and down buttons to move pictures up and down in the list. Note that the first picture in the list is the primary picture; this will turn up in search results and on the group home page.

Inviting new members to join your group: Go to "My Account > Group", click on "View members", and then "Invite new members."

Prosper provides a pre-written subject and message that you can forward to your invitees, or you can personalize it to meet your needs. A link will automatically be included at the end of the pre-written message, which will start the sign-up process for invitees interested in joining your group.

When you click "Send Invitation," an email will go out to each invitee separately, inviting him or her to join your group. This means that each invitee will receive their own message, and will not be able to see the email addresses of the other invitees.

When you invite members to your group using Prosper's invitation system, they will be automatically approved to join your group.

Responding to "group membership requests": These are membership requests from borrowers who want to join your group.

You'll get an email in your inbox and a message in your Prosper "Messages" box each time someone makes a request to join your group.

As a group leader, you have seven days to respond to any group membership request. You may accept or reject the membership request, or you may extend the timeframe to make a decision by another seven days.

Limits on the criteria you can use to accept or exclude people from your group: Prosper is an inclusive credit marketplace that fully supports and promotes equal credit opportunity for all people, regardless of their race, color, religion, national origin, sex, marital status, age, sexual orientation, military status, or source of income.

Because people access Prosper through your group, group membership criteria cannot exclude anyone in these protected classifications. You can use criteria to include people in these protected areas, but not to exclude them. Your criteria must also adhere to the Prosper policies that apply to Prosper members as well as group leaders.

Group leaders may not obtain or use a credit report, require prospective members to provide a credit report, or provide authorization to obtain a credit report as a condition to group membership. Group leaders who want to use creditworthiness as criteria for membership should use the individual's self-evaluation of their credit grade, in order to avoid running afoul of state and federal credit reporting statutes or restrictions on loan solicitation. When a borrower creates a listing, Prosper obtains their credit report and determines their Prosper Rating, which is displayed in the listing. That is the only credit rating relevant to investors choosing loans to invest in on Prosper.

As long as your criteria meet these standards, you can use any lawful criteria you desire.

How to see all of the members in my group: Go to "My Account > Group" and click on "Members." You will see a list of the screen names of all your group members.

To view each member's profile information, click on the respective Screen Name in Group Members table.

To contact one group member, click the "Contact member" link on Member Profile page.

To remove a group member, click the "Remove" link next to their name. Only group members who do not have active listings can be removed from a group.

Contacting all of the members in my group at once: Go to "My Account > Group," click on "View members," then "Contact all members."

You will then be able to compose an email to all of the group members. When you click "Send Message," an individual message to each group member will be sent.

Importance of quality borrowers in your group
Your group's payment history, funding rate, default rate, loan listings, and member pages will all have an impact on your ability to attract lenders to your group's listings.

If you have delinquencies (borrowers who pay late) and charge-offs (loans that are delinquent for more than 120 days) in your group's history, lenders will think twice before requesting membership or investing in your group's loans.

How to review you borrowers' listings before they appear in the marketplace: Go to "My Account > Group", and click "Edit group profile", and then "Edit profile".

If you are editing your group profile, you can set the "Listing review" setting to "Required", resulting in all of your borrowers' listings having to be approved by you, the group leader, before they become active on the marketplace.

How to approve or decline your borrowers' listings: If your group requires listing review (see above for instructions on how to do this), you will receive an email notifying you of new listings that require review.

You will also be able to access a summary of listings requiring review from the "My Account > Group" overview page.

When you receive a request to review a borrower listing, you have seven days to approve or decline the listing. If you do not approve or decline the listing within seven days, the listing will be cancelled and the borrower will be notified. The borrower may withdraw his or her listing at any time, reviewed or not.

When you review a listing, you may approve or decline the listing:

• If the listing is approved, the listing will become live on the marketplace.
• If the listing is declined, the listing will be cancelled and the borrower may create a new listing at any time.

When you review a listing, you will have the ability to add a public endorsement to the borrower's listing which can be viewed by lenders. Additionally, you can add a private message that will be delivered to the borrower along with your decision.

Please note: Prosper does not provide tax advice. The following provides an overview of Prosper's tax reporting methodology for the benefit of group leaders. Each taxpayer's situation is unique; please consult your tax advisor for more information.

Do I have to pay taxes on the money I make at Prosper? Group leaders do not receive any compensation for serving as a group leader, except with respect to loans resulting from listings posted prior to September 13, 2007. Group leader compensation that results from such loans is taxable income.

Each tax year that you earn more than $600 in group leader rewards, Prosper will send you a 1099 form summarizing your taxable income, and will report this 1099 information to the IRS. Lenders also have to pay taxes on their earnings at Prosper. Learn more about lender taxes.

Regardless of whether or not your group leader income from Prosper exceeds $600, these amounts are reportable on your annual tax return.

How is Prosper characterized for tax reporting purposes? For purposes of income reporting, Prosper reports as an intermediary, known as a "nominee recipient" under IRC sec. 6049. Nominee recipients are responsible for reporting via forms 1099 proceeds which are ultimately disbursed to recipients. This is the same method of reporting used by stock brokerages.

Does Prosper report activity on a cash or accrual basis? Prosper reports interest income on a cash basis, not on an accrual basis. This is required by the Internal Revenue Service.

What forms will Prosper provide for tax preparation purposes? Group leaders may receive a 1099-MISC as part of Prosper's Consolidated Form 1099, delivered after the end of each calendar year. The 1099-MISC will include all group leader rewards (both match rewards and payment rewards) paid during the calendar year.

When and where will I receive my tax forms? If you are subject to 1099 tax reporting, your tax forms will be available on the "My Account > Statements" page by January 31 of the year following the calendar year in question. For example, your 2010 tax forms will be available by January 31, 2011.

Will I need to file special tax forms for my Prosper activity? Along with your Form 1040, you may need to file additional tax forms. Please consult your tax advisor for more information.

My forms have my SSN on them. Can I use a different tax ID? No. When you joined Prosper and agreed to the Prosper group leader agreement, you agreed that your earnings from your activity on Prosper would be assigned to your Social Security number (SSN).

What if I do not file my taxes on a calendar year basis? You should consult your tax advisor to determine the methodology behind adjusting your 1099 to reflect a non-calendar tax reporting. Prosper is required by the IRS to report on a calendar year basis.

Will I have to pay state taxes on my Prosper earnings? This depends on which state income taxes you are subject to. Please consult your tax advisor for more information on this matter.

What if I have a question on any of the amounts shown on my tax forms or statements? Please contact customer support if you have a question on any of the values reported on the Prosper-generated tax forms or statements.